In an effort to assess and mitigate any risks associated with its use, virtual currency Bitcoin will soon face a federal hearing from regulators in New York, says a memo issued by the Department of Financial Services Nov. 14. Regulators will examine whether or not a special license should be required to use Bitcoin and will consider additional regulations that could stop it from being used for illegal activity.
While a hearing date has not yet been decided, New York State Department of Financial Services Superintendent Benjamin Lawsky said in the statementthat the anonymous and unregulated nature of virtual currencies could facilitate illegal activity. The potential for questionable transactions and money laundering has prompted this inquiry.
Lawsky said, “Virtual currencies may have a number of legitimate commercial purposes, including the facilitation of financial transactions. That said, NYDFS also believes that it is in the long-term interest of the virtual currency industry to put in place appropriate guardrails that protect consumers, root out illegal activity, and safeguard our national security. Failing to do so would not only threaten the virtual currency industry as a legitimate business enterprise, but could also potentially expose virtual currency firms to extraordinarily serious criminal penalties.”
Regulator concerns are not unwarranted. Bitcoin was the virtual currency du jour for the anonymous online marketplace “Silk Road,” which allowed users to trade it for anything from heroin to murder-for-hire services. Silk Road was shut down by the Federal Bureau of Investigation in early October when its founder Ross William Ulbricht was arrested for suspicion of drug trafficking, solicitation of murder and money laundering. During the shutdown the FBI took control of over 26,000 Bitcoins, worth an estimated $3.6 million at the time.
Because Bitcoin is an anonymous currency not back by a central government, without tighter regulations another situation like this could arise. However with the unit price surpassing $300 in November, and an increasing number of legitimate businesses honoring its uses, it’s not surprising regulators are taking steps to formalize their relationship with Bitcoin.
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