How Will Fraud Impact U.S. Bitcoin Regulation?
U.S. regulators this week tackled the tough issue of regulating virtual currencies such as Bitcoin. The Senate Committee on Homeland Security and Government Affairs heard from Justice Department officials, who say they need help regulating digital currencies as well as Bitcoin proponents, who say the government should stay out. Bitcoin’s global popularity has been soaring, and its value jumped to $900.98 for a single bitcoin this week. Bitcoins can be purchased and exchanged for standard currency, such as dollars, euros and yen, at bitcoin exchanges, but bitcoins have fluctuated wildly in value. There are almost 12 million Bitcoins in circulation, giving the currency a market value of nearly $8.5 billion. Bitcoin advocates say that virtual currency could transform economies in developing countries where people have little access to banks and financial services. The software for creating a Bitcoin "wallet," allowing a user to send and receive bitcoins, is public and can be used on a mobile phone, USA Today reported. At the same time, virtual currency is fertile ground for fraud, and has already caused billions of dollars in losses. In one of the biggest heists, Chinese bitcoin exchange GBL shut down in late October, taking $4.1 million worth of client funds with it. In the U.S., federal agents recently shut down the Silk Road, a website that dealt in illegal drugs, forged documents and illegal services such as computer hacking and hit men The transactions on the site – all conducted in Bitcoin – are valued at $1.2 billion. "This is a high-risk environment, and potentially it's not quite ready for mass consumer adoption," Patrick Murck, general counsel for the Bitcoin Foundation, a non-profit organization that promotes the virtual currency and its technology, said at the hearing. The way bitcoins are transacted -- using coded wallets and special keys that don't need real names – allows for significant privacy, which in turn can help criminals. It would be easier to fight crime with "appropriate anti-money laundering and know-your-customer control, said U.S. Acting Assistant Attorney General Mythili Raman at the hearing, CNN Money reported. However, regulators have no idea what they are going to do, which leaves the future growth of digital currency in question – at least in the U.S. "Fundamental questions remain about what a virtual currency actually is, how it should be treated and what the future holds,” Homeland Security Committee Chairman Tom Carper (D-DE) said at the hearing, USA Today reported.