Bitcoin: What Is It? What Should Government Do?

7 years, 8 months ago - November 20, 2013
Virtual currency Bitcoin is "experimental" and remains "high risk" for most consumers, the Bitcoin Foundation's general counsel told a Senate committee in a hearing Monday on the emerging technology.

Lawmakers are bedeviled by a technology whose growing popularity has raised questions about whether or how it should be regulated, said Homeland Security Committee Chairman Tom Carper, D-Del.

"Virtual currencies, perhaps most notably Bitcoin, have captured the imagination of some, struck fear among others and confused the heck out of many of us," Carper said. "Fundamental questions remain about what a virtual currency actually is, how it should be treated and what the future holds."

Protecting consumers remains problematic for Bitcoin and other decentralized virtual currencies, said Patrick Murck, general counsel for the Bitcoin Foundation, a non-profit organization that promotes the virtual currency and its technology.

"This is a high-risk environment, and potentially it's not quite ready for mass consumer adoption," Murck said.

Officials at the Justice and Treasury departments have recognized Bitcoin and other virtual currencies as legitimate and financially viable. Bitcoin's popularity and value have soared, topping $650 for a single Bitcoin on Monday.

Bitcoin is digital cash for the Internet. It operates by person-to-person exchange without a bank or central monetary authority, such as the Federal Reserve, to regulate it or issue it. It can be used to purchase real goods and services.

Bitcoin can be purchased and exchanged for standard currency, such as dollars, euros and yen, at Bitcoin exchanges, but Bitcoins have fluctuated wildly in value. When Bitcoin first emerged in 2009, it sold for less than a dollar.

Bitcoin offers the advantages of low exchange fees, no variance in value from country to country and near-instantaneous transfer.

Advocates of virtual currencies say the digital cash could transform economies in developing countries where people have little access to banks and financial services. Anyone can use it. The software for creating a Bitcoin "wallet," allowing a user to send and receive Bitcoin, is public and can be used on a mobile phone.

At the same time, however, "virtual currencies can be an effective tool for those looking to launder money, traffic illegal drugs and even further the exploitation of children around the world," Carper said.

For virtual currencies to operate within the U.S. financial system and retain their legitimacy, they must abide by the same regulations as other financial institutions, including anti-money-laundering protections such as reporting suspicious transactions and maintaining records, said Jennifer Shasky Calvery, director of the Treasury Department's Financial Crimes Enforcement Network.

"While innovation is a wonderful thing, it does come with obligations," Shasky said. "We believe (regulation) is reasonable given that we have seen that virtual currency has been exploited by criminal actors."

Last month, federal agents shut down the Silk Road, a website on an underground network known as Tor that dealt in illegal drugs, forged documents and illegal services such as computer hacking and hit men. The website conducted all business in Bitcoin. Federal agents valued the transactions at $1.2 billion.

Still, Shasky said, "Cash is probably still the best medium for money laundering."


Text by USA Today

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