Bitcoin Users Avoid Cumbersome Regulation
Bitcoin scored a win with a new ruling that keeps many of its users free from cumbersome federal regulations. But state and local governments can still regulate the virtual currency.
Bitcoin has scored a win with a new ruling that keeps many of its users free from federal regulations.
The ruling, announced this week by the U.S. Department of Treasury says that people who mine the cyber world for Bitcoins for personal use won’t be considered money transmitters. Additionally, the Treasury Department’s Financial Crimes Enforcement division (FinCEN) also announced an identical ruling for businesses that buy and sell the virtual currency for investment purposes. Money transmitters, like Western Union, are subject to certain money-laundering regulations and have to register with the federal government.
Bitcoins are the world's first decentralized currency, meaning online consumers don't have to rely on a third party like a credit card company or PayPal to process the transaction. Created in 2009 by computer programmer Satoshi Nakamo, they are essentially the Internet's unregulated version of cash. Bitcoins are entirely virtual, and are hidden in Nakamo's complex encrypted computer program. The process by which users find them is called mining. The easiest-to-find Bitcoins (more than 12 million so far) have already been mined so it takes great amounts of computing power to find the ones still hiding. There are about 21 million Bitcoins in existence.
The two administrative rulings are seen as big wins for personal and corporate Bitcoin miners. They also come at a time when Bitcoin has been stung by a spate of bad news. Last week, the CEO of BitInstant, a Bitcoin exchange, was arrested on money laundering and drug charges at JFK airport in New York City. Federal investigators say Charlie Shrem used his position to funnel money through Silk Road, a digital black market known for its connection to the illicit drug trade.
And in early December, Bitcoin's value plummeted after the People’s Bank of China barred that country’s financial institutions from handling Bitcoin transactions. In December, one Bitcoin was worth more than $1,100 USD; today that value is closer to $800.
FinCEN’s administrative ruling also gives guidance to state governments, which also have rules and regulations for the money transmitting sector. However, state and local governments can still rein Bitcoin exchanges in and some are actively considering such measures. New York City, for one, concluded two days of hearings last week on how to regulate Bitcoin and other virtual currencies.