The European Parliament has advised policymakers and regulators not to ignore cryptocurrencies or attempt to ban them.
It should be treated by regulators as any other financial instrument, proportionally to their market importance, complexity, and associated risks, a recent report published by the legislative arm of the European Union says.
The report discusses how crypto should be treated, their risks and advantages, as well as their potential impact on financial systems.
The report acknowledges that virtual currencies are often referred to as 'cryptocurrencies' because the majority of them rely extensively on use of cryptographic algorithms. However, in the opinion of the authors of the report, "this term is misleading and may have a pejorative meaning, so we will not use it in our paper."
EU recommended that regulations concerning virtual currencies should be harmonized across jurisdictions, and that investment in cryptos should be taxed similarly to investment in other financial assets.
The report describes virtual currencies as a contemporary form of private money. Due to their technological properties, and their "relatively safe, transparent, and fast" global transaction networks digital currencies have good prospects for further development, according to the European Parliament.
Despite their technological advances and global reach, the soft-coin remain unlikely to challenge the dominant position of sovereign currencies and central banks, especially those in major currency areas, the report says.
However, "in extreme cases, such as during periods of hyperinflation, financial crisis, political turmoil, or war, they can become a means of currency substitution in individual economies." At the same time, "As with other innovations, virtual currencies pose a challenge to financial regulators, in particular because of their anonymity and trans-border character," it says.