The investigation into the online money transfer firm Liberty Reserve has not only thrown the spotlight on a murky and little-understood corner of the financial markets but also drawn Singapore into a high-profile criminal case.

The online currency industry - making cash transfers via the Internet or using virtual currency like Bitcoins - is booming but is poorly regulated, as highlighted by the shady activities revealed in the Liberty Reserve case.

Last week, United States authorities charged founder Arthur Budovsky and six others with conspiracy to commit money laundering and operating an unlicensed money-transmitting business.

Liberty Reserve is alleged to have played a key role in laundering the proceeds from the recent theft of about US$45 million from two Middle Eastern banks.

It is alleged that part of the scam involved a Dominican Republic gang member depositing thousands of dollars of stolen cash into two Liberty Reserve accounts via currency centres based in Siberia in Russia and Singapore.

Singapore police say they are helping US law enforcement authorities with the investigation.

US authorities say the Middle East bank theft is just the tip of the iceberg. They claim the anonymity provided by Liberty Reserve - users could open accounts using fake names and addresses - allowed about US$6 billion of dodgy cash to be laundered.

Other virtual currencies offer the same kind of cover. Bitcoin is the most well-known.

This virtual currency was first issued in 2009 by an unknown programmer. Bitcoin is controlled by an algorithm programmed to release a limited number of new Bitcoins into the market every 10 minutes.

Over the years, increasing numbers of vendors have begun to accept payment in Bitcoins, and more people have begun to use them as a cheap and fast way to make payment for goods and services.

Users can then choose to exchange Bitcoins for traditional currencies, such as the US dollar or the Singdollar, via online exchanges.

Inevitably, Bitcoin too will come under closer regulatory scrutiny, said former analyst Gabriel Yap, executive chairman of Singapore-based GCP Global.

"Any form of currency or movement of money, once it gets too big, you can expect monetary authorities to come in and oversee the situation," noted Yap, who has invested in Bitcoins.

"The authorities will have to decide how to regulate it, but since Bitcoin is traded worldwide, there has to be international cooperation among various legislators."

But one local Bitcoin user, who declined to be named, said he believes it would be futile for governments to try to regulate Bitcoin or other virtual currencies.

"Someone who knows what they are doing can send, receive or store money anonymously. I don't know what (the authorities will do), neither am I too concerned about it."

PwC Singapore's director and digital transformation leader, Michiel van Selm, said that while governments have been slow to act, they will likely move together eventually.

"Technology trends move much faster than regulations can keep up with, but a lot of governments are setting up specific units to look at Internet-related crimes and make sure law is being enforced," he added.

"Gambling is a good example. Theoretically you could set up a website that allows people to gamble anonymously, but a lot of governments have managed to regulate this activity and they have been successful."

van Selm added that regulation could help Bitcoin and other virtual currencies gain more widespread trust, which in turn would expand the market.

As it is today, many people use virtual currencies such as air miles or game credits on Facebook because they know that if anything goes wrong, there is a company that will take responsibility.

"Bitcoin is based on an algorithm and nobody even knows who the founders are, so its value is purely based on the trust of users," said van Selm.

"If trust for whatever reason is broken, the currency will be valueless.

"For now I would still place my bet on existing financial institutions purely because of trust - you can put US$100 in your Bitcoin wallet today but you won't know what will happen to its value in future."