Bitcoin Portal News: Bitcoin regulation

Showing posts with label Bitcoin regulation. Show all posts

Monday, July 20, 2015

Bitlicense: Implications on Bitcoin's Credibility

The New York State Department of Financial Services, or NYDFS, has constructed a regulatory framework for Bitcoins. This 40 page document outlines New York's Financial Policy for businesses that receive, transmit, store or convert Bitcoins. With the directive of New York Department of Financial Services, Bitcoin’s dark web association might dissipate but only to the degree of consistency in which Bitcoin is regulated.

Government intervention could increase Bitcoin's trustworthiness in the eyes of the consumer. Since the beginning, Bitcoin has been heavily associated with illegal transactions. While the deep web’s initial adoption of Bitcoin led to its growing popularity, the negative sigma attached to Bitcoins has destructively impacted its growth. Bitcoin has is advantages and disadvantages but the general populous has only been exposed to the material of its application within the dark web.

Spector of Silk Road

The largest and most popular deep web site, Silk Road did $200 million of business in 28 months. This site among others helped popularize Bitcoin and influenced the conversion price to soar to unprecedented levels of around $1000 per coin. As expected, the currency suffered after the government shut down the Silk Road marketplace, sentencing the founder, Ross Ulbritch to life in prison. News sites have been flooded with news of his conviction on charges of money laundering, distribution of controlled substances and commissioned murder. With the media magnifying Ulbritch's charges, Bitcoin was under more scrutiny than ever before; this only poured salt on Bitcoin's wounded reputation.

With Bitlicense's, Bitcoin's application in illegal transactions has the possibility to be significantly reduced or even ousted. Bitlicense requires companies to report suspicious behavior to the NYFSD but in reality the majority of hindering illegal transactions will come from the verification and recording process. In Section 200.15 of the Anti-money laundering program, Bitlicense requires the following:

In addition to customer verification, Bitlicense requires the company to record the following information for each transaction the company executes:

-Date and Time
-Amount
-Names involved in the transaction
-Account Numbers
-Physical Addresses

As deep web users want to keep their identity anonymous, these policies will discourage New York individual’s from transferring Bitcoins to shady third parties. As a result, the affiliation between Bitcoin and the dark web will diluted.

With government sectors starting to take Bitcoin more seriously, its legitimacy is maturing. However government inconsistencies could curb the improvement that Bitlicense has on Bitcoin's credibility. Bitlicense directly undermines the Internal Revenue Service's policy of treating Bitcoin as property. In Notice 2014–21 IRS Virtual Currency Guidance under Frequently Asked Questions, Bitcoin is explicitly defined as property and not currency, as shown below.

The importance of government consistency cannot be overlooked. If Bitcoin has the potential to become a uniform global currency, then Federal and State agencies need to be in agreement with one another.

Although Bitcoin's attractiveness stemmed from being an unregulated form of currency, Wall Street players such as Goldman Sachs, Nasdaq and NYSE have acknowledged Bitcoin’s legitimacy. Such acknowledgments don’t go unseen, regulative government action was inevitable. The Department of Financial Service’s intervention could help accelerate Bitcoin's acceptance to fulfill its potential of becoming a uniform global currency. Be that as it may, inconsistencies in government policies can reduce the credibility government association has on Bitcoin while complicating the general public's interpretation of Bitcoins.

What do you think about BitLicense's invasive requirements?

Image Source: NYDFS Steven deCsesznak

Sunday, July 19, 2015

Is Bitcoin A Digital Currency or a Virtual Currency?

Bitcoin has been labeled as many things in mainstream media over the past six years. First reports called Bitcoin nothing more than “magic internet money”, which later changed to “virtual money” and eventually the term “cryptocurrency”. However, there is still a lot of confusion about whether Bitcoin is a digital currency or virtual currency.

Virtual Currency - Unregulated Digital Money Without Legal Tender

In order to explain what virtual currency truly is, we have to go back in time to 2012, during which the term was first created. The European Central Bank coined the term virtual currency to classify types of “digital money in an unregulated environment, issued and controlled by its developers and used as a payment method among members of a specific virtual community”.

When we translate this into Bitcoin terms, virtual currency seems to sum it up quite nicely. Bitcoin started out as digital money - even though that moniker has changed - and is, according to many people, unregulated. Additionally, Bitcoin has a limited number of use cases, most of which are transactions between community members.

But this is where the first misconceptions started to pop up. Bitcoin is not regulated, but it is certainly not unregulated either. Everyone involved in the Bitcoin ecosystem has to adhere to a certain set of rules, ranging from taxation purposes to record keeping and accounting. From a specific legal perspective, Bitcoin remains without oversight in most countries in the world, a status that most likely will never change due to to its decentralized nature and community members all over the world, living in different jurisdictions.

Furthermore, Bitcoin used to be a payment method accepted only by community members in its early stages of development. But In recent years, both online and brick-and-mortar stores have started accepting Bitcoin payments, allowing the cryptocurrency to operate outside of its “community borders”. In a sense, Bitcoin has become money, as it can be used to pay for goods and services.

The term virtual currency has undergone quite some changes in 2013 and 2014. Financial Crimes Enforcement Network classified virtual currency as “a medium of exchange operating like a currency in some environments but without having all of the true attributes of a currency.” Bitcoin fits this description as well, because it lacks fungibility, one of the main aspects of a true currency.

One year later, the European Banking Authority defined virtual currency as a “digital representation of value that is neither issued by a central bank or a public authority, nor necessarily attached to a fiat currency.” Once again, Bitcoin fits the bill, as it can be used as payment form in its natural state, rather than being tied to fiat currency values. However, this is hardly ever the case, as most merchants take the fiat currency price and charge the corresponding amount in BTC.

A List of Recent Virtual Currencies

In recent years, there have been quite a few types of virtual currency trying to create an ecosystem of

their own. Closed virtual currencies, which have no ties to the real economy, are most commonly found in video games. World of Warcraft gold is one such an example, despite there being a [quite large] black market for buying and selling in-game gold in exchange for fiat currency.

Frequent flyer programs by major airlines, Facebook Credits and Nintendo Points are virtual currencies in their own right. This type is known as “virtual currencies with currency flow in one direction”, as you can buy these types of currency with fiat currency. However, a consumer is - officially speaking - not allowed to resell these codes in a physical or digital format in exchange fiat currency.

Last but not last, there are the convertible virtual currencies, of which Bitcoin and Linden Dollars are two perfect examples. Both of these virtual currencies can be bought and sold in exchange for legal tender, such as EUR, USD or CNY. However, there is also the option of converting convertible virtual currencies intermittently, such as the exchange from Bitcoin to Linden Dollars.

Digital Currency - An internet-based Instantaneous Medium of Exchange

To make matters slightly more confusing, cryptocurrencies - such as Bitcoin - and virtual currencies - such as Linden Dollars - are both digital currencies. The reason for that is simple: both types of currency allow for the purchase of goods and services, yet they can also be used in closed-down environments such as online gaming or a social network.

At its core, a digital currency is an Internet-based form of currency or medium of exchange that allows for instantaneous transactions and borderless transfer-of-ownership. Additionally, a digital currency exhibits various properties similar to a physical currency.

The main reason why bitcoin is both a digital and virtual currency is because it does not exist in the “real physical world”, yet it also facilitates the payment of goods and services in the real world. Especially this latter part is interesting, because virtual currencies are not intended to be used in “real life transactions”. Bitcoin has transcended that border, and managed to gain a foothold in the real world as an alternative payment method.

If someone wants to label Bitcoin in its truest form, they would have to call it a “digital cryptocurrency”. Because of Bitcoin’s hybrid nature between digital and virtual currency, a new type of currency term had to be created. Despite lacking the fungibility of a traditional currency, Bitcoin is maturing into a global payment method.

What type of terminology do you use to refer to Bitcoin? Let us know in the comments below!

Sources: Wikipedia 1 - 2

Images courtesy of Shutterstock

Saturday, July 18, 2015

Country of Jersey Releases New Bitcoin Regulation Framework

This article was written by Natalie Johnson

Although you may never have heard of it, a small country of just 100,000 people sits between England and France called Jersey. The island is just 45 square miles and attracts many startups and successful companies to its shores. Leading the way for Fintech in Europe, Jersey has begun to take on its own challenge of Bitcoin regulation.

The Government of Jersey just released a Consultation Paper on July 9 to open up discussion on the risks of digital currency and ways to approach regulation.

Jersey - A World Leader In Finance

Over the last 50 years, the country of Jersey has been a global leader in finance. Companies and entrepreneurs flock to Jersey for many reasons, including its 0% corporate tax rate. Jersey is one of the few countries that are debt-free and have stable reserves. The country generates over $6 billion USD in gross national income - quite impressive for its small population. With its new regulatory framework, Jersey plans to further develop its digital ecosystem and encourage new Bitcoin and Fintech startups on the island.

Digital Jersey

To construct its new regulatory framework, the Government of Jersey has collaborated with various agencies, one of them being Digital Jersey. Digital Jersey is an organization created to establish Jersey as a world-renown 'digital centre'. The organization not only works alongside the government to form policy, it supports the digital industry and even helps startups receive funding.

Digital Jersey:

Digital currencies are right at the intersection of the financial and digital sectors and is an area of significant development and investment within the overall Fintech space. As a leading global finance centre, it is important for Jersey to take a thorough and considered look at both the opportunities and the challenges that digital currencies offer. This consultation will help inform a collaborative approach between government, the finance and digital sectors and regulators that will establish the right way forward for Jersey in this area.

: Andy Jarrett, Director of Digital Jersey

Andy Jarrett, proactive member and Director of Digital Jersey, published a blog titled ‘Jersey’s Consultation on Cryptocurrencies & the Future of Fintech’, following the release of Jersey's Consultation Paper. Andy writes: "The consultation paper takes into account a wide range of views from leading organisations and sets out how various jurisdictions from across the globe are regulating this industry, highlighting the risks that the Government believes are associated with virtual currencies in their current form, including money laundering and terrorist financing risks."

How Digital Currency Regulation Will Benefit Jersey

Bitcoin and Fintech offer great potential for Jersey and its economic growth. Andy states, "Fintech gives businesses the opportunity to create new markets or disrupt existing ones; Jersey has a strong financial services sector and a depth of experience, which when combined with new thinking and technology, means the potential for Jersey to create and grow the sector, very exciting. Blockchain and distributed ledger technologies have the opportunity to provide an infrastructure layer, for example locking in non-repudiation into transactions. Fintech will augment existing businesses and create new opportunities for emerging ones."

One of the major challenges of digital currency is consumer protection. Andy points out that although digital currency is alot like cash, it is much more versatile. For this reason, consumer protection is important for local purchases, he says.

"For commercial activity, given this is linked to financial services, there must be appropriate regulation to encourage only the right businesses, so we can encourage growth whilst also protecting citizens and the reputation of the island."

Jersey's Consultation Seminar

Jersey has scheduled a consultation seminar to act as an open forum to discuss key issues, ask questions, and provide feedback. The seminar will be held August 3, 2015 at The Town Hall in St Helier, Jersey from 12pm - 2pm. The event is free to attend by using this link to register. Responses may also be submitted online. Industry experts and those involved in the Bitcoin and Fintech sector are invited to make suggestions and voice their concerns on the Consultation Paper until August 7, 2015.

Images: Digital Jersey, Wikipedia

Thursday, July 16, 2015

Vladimir Putin Speaks Out in Favor of Bitcoin

Earlier this week, Vladimir Putin, the Russian President, finally gave his public opinion on Bitcoin and digital currencies for the first time. The Russian President issued his first remarks in an interview for an educational forum broadcast on domestic TV network Russia 24.

Also read: Patrick Byrne Says T0.com Will be Able to Replace Wall Street

In an interview with the nation's domestic TV network, the Russian President appeared to be very optimistic about the Bitcoin technology and its disruptive potential. While he considered the use of digital currency as money to be somehow problematic, he also recognized the technology could be a novel way to manage or calculate transactions. He said the Bank of Russia's efforts to research future applications for Bitcoin have been beneficial and that the nation may find use for the technology in a near future.

Putin's comments were taken by Russian cryptocurrency enthusiasts as a positive sign. He seemed to be pretty optimistic about the possibility of using the blockchain in order to keep track of accounting records. However Putin didn’t give any conclusive statements regarding the government's position over this matter.

Still, Putin didn’t forget to mention the problems that Bitcoin presents; according to him, cryptocurrencies still have major reliability issues, but the technology they run on may be useful to facilitate transactions down the road.

Vladimir Putin commented:

"Bitcoins are backed by nothing… They are not really linked to anything and backed by nothing. However as an accounting unit, they can be used, and their adoption is becoming wider and wider. As some kind of unit in some account, probably, it's possible. We do not reject anything, but there are serious, really fundamental issues related to its wider usage."

The Russian President stated that the fact that the currency isn't backed by anything represents a major issue with adopting digital currencies. Though he said the nation isn't planning to reject cryptocurrencies, the issues related to using them can't be overlooked.

Choose your first Bitcoin wallet!

Putin stated that the Bank of Russia has so far chosen to take a reasonable position on the technology by exploring, its applications. While the Putin didn't mention anything concrete about legislation in Russia, it's definitely a good sign that the Russian government doesn't want to prohibit something before getting a having a more intimate approach.

In a country that has long had one of the most reactionary stances regarding digital currency, The latest Vladimir Putin comments regarding cryptocurrency will most certainly lead to a new era of prosperity for both the local Bitcoin community as well as for digital currency-related Companies and entrepreneurs.

Do you think that this will have a positive impact on the country’s Digital Currency Industry? Let us know in the comment section below!

Source & Image

Saturday, July 11, 2015

Ben Lawsky's Revolving Door

BitLicense is extremely controversial in the Bitcoin community. Not only is it the first comprehensive body of Bitcoin regulation in the United States, but it is also the most restrictive. BitLicense was created by the New York Department of Financial Services (NYDFS), with Benjamin Lawsky -- the Department’s superintendent -- leading the charge.

Also read: FBI Director Calls for Decryption Tools to Combat "Going Dark," Bitcoin Users Affected

The Bitcoin community has vilified Lawsky because of his leadership role in BitLicense. Since the beginning, Lawsky and his associates at the NYDFS have touted their ability to engage with the community and produce safe legislation that preserves innovation in New York’s digital currency space. However, the community sees the Department’s actions in a different light. Bitcoiners admonish Lawsky for being stubborn and inflexible, failing to seriously take their opinions into consideration. These sentiments are not without reason, either; although BitLicense has been revised twice, most of the major stipulations that irk the community are still firmly in place in the final draft.

What’s more is that Lawsky has recently announced his plans to leave the NYDFS and start a private consulting firm in the near future. What will he be consulting on? Naturally, Lawsky’s firm will focus on helping digital currency companies navigate New York’s virtual currency regulatory environment -- the one Lawsky created.

This move has made Lawsky out to be even more of a Bitcoin villain. Not only did he oversee what many people consider to be the death of Bitcoin in New York, but now he is trying to profit from it in the private sector. Given that a large bulk of the digital currency community come from libertarian backgrounds, there is a lot of outrage surrounding the construction of Lawsky’s revolving door.

BitLicense alone is bad enough. It’s requirements are so restrictive and its reach is so extensive that it could affect the entire US Bitcoin economy -- and possibly digital currency businesses across the world. The bloated regulation has already claimed its first victims; ShapeShift and Eobot have cut off their services to New York, and BTCGuild is shutting down completely -- citing BitLicense as a partial reason.

These initial service suspensions and closures is grim foreshadowing of what faces the New York digital currency economy. BitLicense is so restrictive that only the biggest, wealthiest, and most well-connected Bitcoin companies will be able to operate in New York -- whose large, finance-driven economy otherwise offers a promising Bitcoin market. Even if smaller companies do manage to meet BitLicense’s requirements, the cost of doing so will put them at a marked disadvantage against larger competitors with more resources and influence.

Now, Lawsky is adding insult to injury by injecting a layer of cronyism into an already depressing regulatory landscape in New York. Of course, the idea of giving compliance guidance to budding businesses is not bad; if there must be regulation, people might as well help each other navigate it. However, Lawsky is offering advice on how to deal with the burden that he created.

The moral implications of such an action are undoubtedly questionable. As mentioned above, it is one thing to help fellow entrepreneurs navigate an unfortunately brutal regulatory environment. But to profit from the very burden that you orchestrated is under-handed, greedy, and morally and politically corrupt. Intentionally or not, Lawsky is making Bitcoin businesses worse off for his own personal gain. If Lawsky truly wanted to help firms in New York, he would have fought for their freedom to innovate instead of profiting from their struggle and misery.

With this new consulting firm, the possibility of a cronyist and elitist Bitcoin economy in New York is much more likely to come to fruition. Essentially, Lawsky is providing the top firms with a direct link to the NYDFS. With his political connections and intimate knowledge of BitLicense, Lawsky is equipped to open the floodgates for companies that wish to use the law against competitors. In public choice theory, this phenomenon is known as regulatory capture, where private firms use their resources to influence the government in their favor.

Unfortunately, Lawsky’s questionable transition from the public to private sector is nothing new, It happens all the time in the mainstream economy. Regulators spend several years crafting new legislation or beefing up existing laws only to take jobs helping companies get around those same rules. Then, after a few more years, they reenter the bureaucracy and get to work making the web of regulation even more ensnaring. Banking, health care, agriculture, energy, or anywhere else, the revolving door exists wherever there are rules telling firms what they can and cannot do.

Of course, there must be some balance between ensuring that customers know what they’re buying and avoiding suffocating companies with rules. However, attempting to strike that balance means that there will always be predators around to derive personal benefits from the laws. It is discouraging that politicians and bureaucrats seem to desire that personal gain more often than wanting to preserve that balance between anarchy and intervention.

How can we achieve the right mix of regulation and laissez-faire without creating the revolving door? Public choice economists have tried to find an answer to that question for decades, and so far it seems like they have been unsuccessful. Maybe it’s impossible to get the perfect mix, perhaps we just have to accept the fact that there will be corruption and cronyism as long as the government tries to tell people what to do.

But maybe it’s possible that laissez-faire is better than a system of corrupted consumer protection. Although it isn’t politically feasible, experimenting with a hands-off approach might reveal that the spontaneous order produces market-based consumer protection. If such experiments confirm that hypothesis, then the antics of Lawsky and countless other bureaucrats will be rendered unnecessary. Whether or not we will ever get to conduct free market experiments, though, remains to be seen.

What do you think about Lawsky's plans to create a private BitLicense consulting firm? Let us know in the comments below!

Disclaimer: The views are of the author and not necessarily those of Bitcoin.com
Images: Pixabay, Wikimedia Commons