A very poignant question which remains unanswered among senior government officials and crypto-currency proponents alike is how to regulate the unregulatable.
By its very nature, the trading, sale, and generation of Bitcoin is purely peer to peer and borderless, rendering it outside the jurisdiction of national governments. Therefore, certain nations such as China and Thailand have attempted to ban its use entirely, with little effect, however the United States is now beginning to investigate the possibility of implementing a set of rulings relating to Bitcoin, with a task force of U.S. state regulators having commenced work on the first bitcoin rule-book.
In a report yesterday by Reuters, the intention is to protect users of virtual currency from fraud without smothering the fledgling technology, demonstrating the willingness to accept Bitcoin by North American authorities.
Reuters stated that numerous companies in the United States enable customers to pay for goods and services in virtual currencies, however since bitcoins are not regulated by the federal government, users face a maze of rules in the 50 states.
“We may be looking at some type of model definitions, or model laws or regulations, and very likely recommendations to either our federal colleagues or to Congress,” David Cotney, Massachusetts Commissioner of Banks, told Reuters on the sidelines of a public hearing into the issue on Friday.
Mr. Cotney was appointed in February to head the new Emerging Payments Task Force, a group of nine members of the Conference of State Bank Supervisors (CSBS). He said the task force had given itself roughly a year to complete the task.
The task force was hoping for a clearer definition of which operators needed to be regulated and which ones did not, Cotney said in the interview.
“Who’s in and who’s out? So if we can offer that (it) would be a … big step,” he said. Cotney’s group also looks at other new payment technologies, such as mobile phone payments, and PayPal, an online money transfer service.
Bitcoin is the most prominent of a group of so-called virtual currencies created by computers and governed by the Bitcoin Foundation, outside the control of any government. Some retailers accept bitcoins as payment on the Internet or in shops.
But recent mishaps have brought the technology under heightened scrutiny. Mt. Gox, a Tokyo-based bitcoin exchange, filed for bankruptcy after losing an estimated $650 million worth of client bitcoins.
State regulators say they will not stand in the way of virtual currency operators entering their states, but they want to ensure the business is safe.
Task force member Benjamin Lawksy, the New York Superintendent of Financial Services, in January said his department was working on a “BitLicense”. California is another state that has shown interest.
So far, federal regulators have been relatively mum. The Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) last year classified administrators or exchangers of bitcoin as money transmitters, which puts them under the remit of state regulators.
The Commodity Futures Trading Commission is studying whether it has jurisdiction, given that some firms are considering offering bitcoin derivatives. The U.S. Internal Revenue Service has designated bitcoin as property, not currency.