Written by Shari R. Pogach, Regulatory Paralegal
Bitcoin has received a great deal of media attention lately, both positive and negative. Now you may be asking yourself, so what? Why should I be concerned or need to learn more about Bitcoin?
How about this….because it’s the forerunner of digital currency - money controlled and stored entirely by computers across the internet. As this article, an excellent primer on Bitcoin states, it isn’t just a currency; it’s also a way of making payments, just like PayPal or a credit card network. It lets you hold money, but not only that, Bitcoin gives you the ability to spend money and trade it, and move it from place to place. And, you can do this almost as easily as sending an email. Bitcoin also lets a user do this all without revealing your identity.
As Bitcoin offers semi-anonymity, it is of genuine concern to the U.S. financial community since this digital currency can be used to illegally launder money. For example, read here about the Silk Road, the online illegal drug market that the federal government shut down. Transactions on the Silk Road were transactions made with bitcoins. But as recent Congressional hearings indicate, digital currency is not just coming; it’s here now and must be dealt with. Although U.S. federal regulators still haven’t yet figured out how to deal with Bitcoin, the currency is doing fairly well in China, Japan, parts of Europe and Canada. In fact, Bitcoin just opened up an ATM in Vancouver, Canada.
Here in the States, the Department of Homeland Security closed the U.S. bank accounts belonging to Mt. Gox, generally the world’s largest Bitcoin exchange, because the Japan-based company let U.S. residents trade bitcoins for cash but didn’t register itself as a money transmitter. This action in turn caused most U.S. financial institutions to close and drop any American Bitcoin accounts because the institutions simply didn’t want the risk. However, as law enforcement officials emphasize, purchasing and using bitcoins is not illegal.
As an innovator, Bitcoin may be problematic as FinCEN Director Jennifer Shasky Calvery testified during recent Congressional hearings, “So often, when there is a new type of financial service or a new player in the financial industry, the first reaction by those of us who are concerned about money laundering or terrorist finance is to think about the gaps and vulnerabilities that it creates in the financial system.” But Shasky Calvery also noted it is “important that we step back and recognize that innovation is a very important part of our economy.”