Bitcoin Faces Increased Federal and State Regulation

Posted by Cyberbear on May 3, 2015 in Computer Software, Internet, Privacy |

Posted by Sam Knecht

April 20, 2015

bitcoin2Bitcoin, a digital crypto-currency, operates on a decentralized network that was designed to promote anonymity and avoid government regulation. Promoters of Bitcoin say it can improve global financial inclusion, allowing those without access to other financial services, or those living in countries with fluctuating fiat currency, a means of security via cyberspace. Advocates also say Bitcoin allows consumers a means of increased privacy, allowing them to control information about themselves financially and otherwise while participating in the global economy. However, the digital capital is facing increasing regulation on both federal and state levels that is likely to greatly decrease this anonymity in the future.

In 2013, the Financial Crimes Enforcement Network issued guidance saying that it would treat transmitters of Bitcoin the same as it does transmitters of other money. Businesses that exchange Bitcoin are now required to register with FinCEN and keep records of transactions. FinCEN regulates companies under the Bank Secrecy Act, a set of regulations that includes Patriot Act laws and requires money transmitters to record personal information about its customers. Certain kinds of financial transactions must also be reported.

Any company who takes BTC from one person and sends it to another falls under this category, as well as those exchanging Bitcoin for hard currency. At the moment, those who buy products with Bitcoin are not considered money transmitters. However, those who “mine” the digital currency, using computers to solve complex algorithms to gain the coin, are. While these individuals never operated as a business or transferred money between two people, they are technically required to register with FinCEN.

Advocates for Bitcoin say FinCEN has offered little clarification since this guidance was published and that the laws unfairly target Bitcoin miners, who shouldn’t be labeled legally as money transmitters. Proponents of the digital currency also argue that increased regulation may decrease adoption by new users, hurting Bitcoin’s chances to grow. Those that don’t want to disclose information, or who can’t afford to meet FinCEN’s regulations, will move away from Bitcoin or perhaps doing business in the United States. The new regulations certainly make anonymity more difficult for those inside the United States, especially consumers who want to deal with legitimate companies or those mining Bitcoins.

On a state level, regulation of Bitcoin exchanges as money transmitters becomes even more confusing. Some states do not require licensing, however, those that traditionally require it have been slow to offer guidance about whether their rules apply to Bitcoin. And often, States require that money transmitters are licensed in that state, even if the business is located elsewhere, if it does business with the state’s citizens. This may prove especially difficult for businesses trading in a mostly anonymous digital currency such as Bitcoin.

The state proposing the most heavy regulations for Bitcoin is perhaps New York. Under its most recent proposed laws, any business that stores, holds, issues, administers, exchanges, or controls Bitcoin for its customers needs a license. These terms are yet undefined. The original proposal by New York also required business to identify both parties in any transaction, removing any anonymity. The new proposal requires money transmitters to identify customers, and then non-customers “to the extent practicable.” Again, it is still unclear what that means precisely.

Bitcoin advocates are arguing that New York has yet to produce the evidence and studies that they relied on in determining how much regulation was correct. As of now, Bitcoin regulations and the reasoning behind them remain rather blurry. In the future, it would be beneficial for state and federal legislators giving more in depth reasoning for these new laws and how they operate. While Bitcoin has grown at an incredible rate, consumers and businesses deserve a chance to understand the laws that are quickly springing up in reaction, and to hear the legal reasoning behind them. While there are both positive and negative aspects to anonymity in terms of virtual currencies, quick and heavy-handed regulation may wipe out Bitcoin usage in the U.S. market before it has a chance to grow.

Copyright © 2010-2017 Cyberbear Tracks All rights reserved.
This site is using the Desk Mess Mirrored theme, v2.5, from BuyNowShop.com.