Posts Tagged bitcoin

The New IRS Rules on Bitcoin

Reuters News by Laura Saunders

Questions and Answers

A mock Bitcoin is displayed on a table in an illustration picture taken in BerlinToday the Internal Revenue Service issued Notice 2014-21 in an effort to clarify the tax treatment of bitcoin and other virtual currencies before the April 15 tax deadline. The guidance applies to both current and past transactions involving virtual currencies. Here’s a summary of what the IRS said.

How is virtual currency treated for federal tax purposes?

Bitcoin and other virtual currencies are treated as property, not as a currency. Therefore, an investor who buys bitcoin would typically have a capital gain or loss when it’s sold but wouldn’t have foreign-currency gains and losses.

If a taxpayer receives a payment in virtual currency, is it considered income?

Yes, the fair-market value of the currency (in U.S. dollars) on the date the payment was received is considered to be income. For more information on exchange rates, see the notice.

Does a person who makes a payment using bitcoin have a gain or loss on the transaction?

Yes, typically. For example, say a person buys $5,000 of bitcoin, which then doubles in value. If she then uses the bitcoin to pay a $10,000 tuition bill, she could have a $5,000 taxable capital gain on the transaction.

This clarification means that people who use bitcoin in small amounts, such as to buy a meal, could face onerous record-keeping issues.

Is a person who “mines” a virtual currency considered to have received income? 

Yes, and if the taxpayer engages in mining as a trade or business, self-employment tax is often due.

Does virtual currency that’s paid by an employer in return for services meet the definition of wages for payroll-tax purposes?

Yes, and it’s also subject to income-tax withholding.

Must payments made in bitcoin be reported to the IRS?

Yes, if they meet the requirements for information reporting on payments made in property. Typically, the threshold is payments of $600 or more.

Will taxpayers be penalized for having treated bitcoin transactions in a different manner before today’s notice?

They could be, especially if they underpayed tax or didn’t report income, or both. But the IRS noted that penalty relief “may be available” to persons who were required to file information reports but didn’t, if there’s a reasonable cause for the nonfiling.

Source:  blogs.wsj.com

Posted by:  Steven Maimes, The Trust Advisor

Permalink:  http://thetrustadvisor.com/news/bitcoin-2

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For Bitcoin, Secure Future Might Need Oversight

NYT article by Farhad Manjoo

A mock Bitcoin is displayed on a table in an illustration picture taken in BerlinNearly half a billion dollars has gone missing, and nobody knows how. Some say there was outright theft. Others suspect fraud. Many blame lax controls, poor oversight and, above all, a reckless, globe-spanning, Wild West culture — a culture that everyone agrees is ripe for wholesale reform.

I’m not talking about Bitcoin. I’m talking about Citigroup, which disclosed last week that its Mexican banking unit lost $400 million in a contracting swindle involving a shaky oil services company.

To backers of Bitcoin, the Citigroup revelation was a convenient rhetorical weapon: Look, the digital currency’s boosters say, if one of the world’s largest and most tightly regulated financial institutions can also lose a boatload of money, why is everyone getting so bent out of shape about the $470 million collapse of Mt. Gox, once the largest Bitcoin exchange? In the last few years the conventional financial system has lurched from one new fraud to another — from Bernie Madoff to MF Global to the hacking at Target — and yet nobody suggests abandoning dollars as a means of trade. Why aren’t we just as forgiving in our approach to Bitcoin?

It’s a tidy argument. But the comparison between Citigroup’s loss and the fall of Mt. Gox highlights just how unusual and untamable digital currency can be. When scandal engulfs traditional financial institutions like Citigroup, there are investigations and calls for greater oversight — human oversight. Bitcoin, though, was born of mistrust of humans and their institutions. It rests on the belief that financial safety emerges from the integrity of the technology, a computer code that controls a payment system, rather than the trustworthiness of the humans who participate in it.

To save their nascent currency, Bitcoin’s backers may be forced to alter their philosophy and embrace the same messy humans — auditors, insurers and even regulators — that the currency’s most ardent supporters have long abhorred. This raises two difficult questions: Can human oversight integrate into Bitcoin’s free-for-all ethos quickly enough to render Bitcoin safe? And, can Bitcoin be made safer without tamping down on the very openness that proponents say makes Bitcoin such a cheap, efficient and innovative financial platform? At the moment, the answers are still very much up in the air.

Some in the more mainstream part of the Bitcoin world — firms that have sought venture capital and are trying to appeal to ordinary investors and large businesses — say they’re up to the challenge. They are working to set up stringent technical and financial audits of trading sites, and to create insurance mechanisms so that holders of Bitcoin won’t be wiped out by catastrophic losses like the one at Mt. Gox. There are even efforts to pursue government oversight.

 “We are reaching out to regulators, because we do want Bitcoin to be a regulated industry,” said Brian Armstrong, the co-founder and chief executive of Coinbase, a site that allows people to purchase, store and trade with Bitcoin and that has received investments from some of Silicon Valley’s leading venture firms. He said he had met with state and federal regulators to discuss Bitcoin. “Even if everybody in Bitcoin doesn’t believe in regulation, we think it’s one way to help Bitcoin grow up and have more transactions flow over the network.”

The most straightforward way of improving the safety of Bitcoin is also the most obvious: running independent audits of sites. Mt. Gox, which acted as a Bitcoin exchange site as well as a “wallet” that stored people’s coins, never once offered a public accounting showing it possessed all the funds it claimed to be storing, nor showing the technical methods it was using to safeguard those funds.

The site’s opacity will make investigating its loss more difficult. Theories about how Mt. Gox really lost all that money, and who has it now, have consumed Bitcoin discussion sites for much of the last week. Mt. Gox has said it was hacked over a period of years, apparently through a well-known but minor flaw in Bitcoin known as “transaction malleability.”

The flaw allows hackers to alter a Bitcoin payment while it’s in progress, potentially confusing a trading site into issuing a double payment. But in the absence of an audit trail, many in the Bitcoin world have trouble believing the hacking claim. On the other hand, every other leading theory for how Mt. Gox might have lost a half-billion dollars — whether government theft or cryptographic error — has been debunked, too. It’s possible that we’ll never really know what happened to that half-billion dollars. It has simply vanished.

Mr. Armstrong said that to prevent something similar from ever happening at Coinbase, the firm plans to hire independent auditors to conduct a public investigation of both its Bitcoin and dollar holdings. The site also recently published a “security audit” of its technical processes, which showed it did live up to its claim of storing most of its Bitcoin holdings in “cold storage,” meaning on machines that are not connected to the Internet.

Then there are more far-reaching efforts to secure Bitcoin. Elliptic, a British Bitcoin storage site, offers optional insurance on your holdings. For a fee of about 2 percent of your coins per year, the site promises to repay you if theft or negligence results in the loss of your funds. Another firm, Inscrypto, is working on what it calls a “decentralized version of the F.D.I.C.,” a system similar to the Federal Deposit Insurance Corporation, which protects your checking account. The system, which is still a work in progress, is far more complex than traditional deposit insurance, using derivative trades to protect against price swings or other dangers of Bitcoin. At the moment, it’s unclear how much it will cost, or even if it will work. The company, like several others in the Bitcoin world, declined to be quoted on the topic.

To some supporters of Bitcoin, the rise of these consumer protection ideas is itself proof of the digital currency’s superiority over old-fashioned currency. One of Bitcoin’s most cherished technical tenets is openness, the idea that anyone, anywhere, can set up a trading node on the payment network. Openness lowers barriers to entry; it allows sites with newer, safer, more innovative financial ideas to easily peddle their wares, while rickety concerns like Mt. Gox die under their own incompetence. It sets up a Darwinian race toward a safer Bitcoin.

In the short run, this dynamic causes terrible consequences for users, but eventually, Bitcoin’s supporters say, the worst problems will get ironed out. One frequent analogy in the Bitcoin world is to the early days of the Internet and web. Just a decade and a half ago, the web was a rough-and-tumble network ruled by pornography and illegal file-trading, a place where fraud flourished and danger lurked around every corner. Today the web is still all that, but it is also, in its more respectable corners, the place where you post pictures of your children, where you shop for Christmas presents, where you hold secure conversations with your doctor and where companies make billions of dollars every year without worry of being defrauded.

“The history of Bitcoin is going to be largely the same,” Mr. Armstrong said. It starts with a “fundamental breakthrough that lowered the cost of payments, but there will be a lot of details to get right, and like on the early Internet, it will take time for the fundamental infrastructure to get established.” Once that happens, Mr. Armstrong says he believes that digital currencies will be unstoppable. Unless, of course, the thought of a half-billion dollars disappearing without a trace makes people queasy enough to stay away from Bitcoin for good.

Source:  nytimes.com

Posted by:  Steven Maimes, The Trust Advisor

Permalink:  http://thetrustadvisor.com/headlines/bitcoin-future

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Bitcoin’s Mt.Gox Files For Bankruptcy Protection

CNBC.com article by Matt Clinch

A mock Bitcoin is displayed on a table in an illustration picture taken in BerlinMajor bitcoin exchange Mt.Gox, has lost nearly all the virtual currency held in its systems and has filed for bankruptcy protection at a Tokyo district court, lawyers for the company told a press conference.

A lawyer for the embattled Japan-based company announced at a news conference at the court that the exchange was filing for Chapter 11-style protection and stated that Mt.Gox had outstanding debts of about 6.5 billion Japanese yen ($63.6 million), the Dow Jones news agency reported.

Its customers have been unable to withdraw their bitcoins and convert them into U.S. dollars since the beginning of February. The exchange blamed the problem on a critical loophole — known as “transaction malleability” — in the cryptocurrency that it said leaves all exchanges open to hacking.

Mark Karpeles, the CEO of Mt.Gox, reiterated his belief on Friday at the news conference, blaming weaknesses in the system for the loss of its bitcoins.

The company’s lawyers added that Mt.Gox may have lost nearly of its virtual currency, leading to a black hole of 2.8 billion Japanese yen, local media reported.

The company said there were 127,000 creditors in the bankruptcy and only 0.8 percent were Japanese. Representatives added that it opted for a transparent procedure due to public outcry and will aid authorities in finding out what happened. It’s liquid liabilities totaled 6.501 billion Japanese yen with its total assets being 3.842 billion Japanese yen, according to Reuters. Dow Jones added that Mt.Gox believed 750,000 of customers’ coins may have been lost and 100,000 of its own, meaning a loss of around $500 million at current market prices.

Mt.Gox – which once claimed it handled around 80 percent of all global dollar trades for bitcoin – is an online marketplace where people can buy or sell bitcoins using different currencies.

Its website was abruptly taken offline on Tuesday with Karpeles saying the business was at “a turning point.”This comes after the exchange deleted all of its tweets from its Twitter account on Monday and its CEO Mark Karpeles resigned on Sunday from the board of the Bitcoin Foundation. The company also announced last week that it had moved offices due to “security problems.”

On Wednesday, Reuters reported that the office of Manhattan U.S. Attorney Preet Bharara was seeking information from businesses dealing in bitcoin to discover how they were dealing with the cyberattacks. Subpoenas have been sent by Bharara to Mt.Gox, as well as other firms that did business with the Tokyo-based company, a source told Reuters.

Meanwhile, Japanese authorities are looking into the abrupt closure of the exchange, a government spokesman said on Wednesday in Tokyo’s first official reaction to the turmoil at the company.

The issues at Mt.Gox have caused anger in the bitcoin community with some customers taking to social media to express their dissatisfaction. An unverified document circulating online earlier this week claimed that Mt.Gox had lost 744,408 bitcoins (worth around $350 million) due to theft related to the trading fault.

On Friday morning the price of the virtual currency stood stable at $550, according to CoinDesk which tracks the price at various major exchanges. Mt.Gox are expected to update customers via its website which has published two updates since being taken offline.

Source: cnbc.com 

Posted by:  Steven Maimes, The Trust Advisor

Permalink:  http://thetrustadvisor.com/news/bitcoins-mt-gox

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Bitcoin Exchange Mt. Gox Disappears In Blow To Virtual Currency

Reuters news by Ruairidh Villar and Sophie Knight

A mock Bitcoin is displayed on a table in an illustration picture taken in BerlinMt. Gox, once the world’s biggest bitcoin exchange, looked to have essentially disappeared on Tuesday, with its website down, its founder unaccounted for and a Tokyo office empty bar a handful of protesters saying they had lost money investing in the virtual currency.

The digital marketplace operator, which began as a venue for trading cards, had surged to the top of the bitcoin world, but critics – from rival exchanges to burned investors – said Mt. Gox had long been lax over its security.

It was not clear what has become of the exchange, which this month halted withdrawals indefinitely after detecting “unusual activity.” A global bitcoin organization referred to the exchange’s “exit,” while angry investors questioned whether it was still solvent.

A document circulating on the internet, and purporting to be a crisis plan for the exchange, said more than 744,000 bitcoins were “missing due to malleability-related theft”, and noted Mt. Gox had $174 million in liabilities against $32.75 million in assets. It was not possible to verify the document or the exchange’s financial situation.

Tokyo investors in the frontier electronic currency, who have endured a volatile ride in the value of the unregulated cyber-tender, said the problem was with Mt. Gox, not with the revolutionary bitcoin itself.

Mt. Gox officials did not answer the telephone or respond to email requests for information. The concierge at the home of the chief executive, Mark Karpeles – an upscale apartment in the Shibuya district – said he was not answering his intercom. His mailbox was so stuffed with mail that the flap would not close.

The Mt. Gox homepage was not loading, although no error message appeared. Its source code contained a line saying, “put announce for mtgox acq here.”

“VERY ANGRY”

“I’m very angry,” said Kolin Burges, a self-styled “crypto-currency trader” and former software engineer who came from London for answers after Mt. Gox failed to tell him what had happened to his bitcoins, which at one point were worth

$300,000.

“It looks like that’s disappeared,” said Burges, one of six protesters outside the Mt. Gox office, which was as deserted as a nearby cafe that had formerly accepted bitcoins as payment. In a statement last week, Mt. Gox said it had moved office because of security issues.

Some protesters carried signs saying, “Mt. Gox, where’s our money?” and “Mt. Gox, are you solvent?”

“They prolonged this and kept telling people everything was OK,” Burges said. “A lot of people did believe that, and it’s very annoying what they’ve done to me and up to a million others.”

Six leading bitcoin exchanges – which allow users to trade bitcoins for U.S. dollars and other currencies – distanced themselves from the Tokyo-based exchange.

“This tragic violation of the trust of users of Mt. Gox was the result of one company’s actions and does not reflect the resilience or value of bitcoin and the digital currency industry,” the companies – Coinbase, Kraken, Bitstamp, BTC China, Blockchain and Circle – said in the statement. “As with any new industry, there are certain bad actors that need to be weeded out, and that is what we’re seeing today.”

On Sunday, Karpeles resigned from the board of the Bitcoin Foundation, in a blow to the digital currency. Mt. Gox had once been the largest exchange handling bitcoins.

Karpeles told Reuters last week, “We know there are all kinds of criticisms made against Mt. Gox, but we believe we are doing all we can to solve problems as quickly as possible having our customers in mind.”

His resignation from the foundation, the cyber currency’s trade group, followed a number of technical issues, including a massive cyber attack from unknown sources that has been spamming bitcoin exchanges.

Mt. Gox was a founding member and one of the three elected industry representatives on the board of the foundation. Mt. Gox, a bitcoin exchange since 2010, is a relatively old player, having grown quickly when there were few alternatives.

“TEETHING PROBLEMS”

Bitcoin has had a rocky ride, its dollar value soaring and crashing more like a highly speculative investment than a store of value. And oddly for a tradable instrument, its value varies greatly depending on the exchange.

The Mt. Gox bitcoin, which traded at $828.99 before February 7, when the exchange halted withdrawals, has since plunged 83.7 percent to $135. By contrast, coins at Bitstamp, another large exchange, have fallen 40.5 percent over the same period to $400.

While bitcoin globally has taken a beating to its value and reputation, users say the problem is with Mt. Gox, not with the virtual currency itself.

“I think the community will remain very tolerant of teething problems, or whatever you want to call them,” said a Tokyo-based investor who noted he had a “negligible” amount of bitcoins with Mt. Gox. “The whole structure is still in its infancy, so there’s just certain things that come with the territory as long as you keep people in the loop.”

The Bitcoin Foundation said in a statement, “Mt. Gox is one of several exchanges, and their exit, while unfortunate, opens a door of opportunity. This incident demonstrates the need for responsible individuals and members of the bitcoin community to lead in providing reliable services.”

A commenter on the Reddit site, identified as evorhees, proudly defended bitcoin as an epochal development in finance.

“We are building a new financial order and those of us building it, investing in it and growing it will pay the price of bringing it to the world,” he wrote. “This is the harsh truth. We are building the channels, the bridges, and the towers of tomorrow’s finance, and we put ourselves at risk in doing so.”

REGULATORY RETICENCE

Japan’s financial regulators, by contrast, have largely given bitcoin a shrug.

“Bitcoin is not a currency; it is an alternative to currencies, like gold,” said a spokesman for the Financial Services Agency. “We are only responsible for currencies and therefore bitcoin is not subject to our regulatory oversight.”

Finance Ministry officials also said they are not in charge of regulating the virtual currency. A Bank of Japan spokesman said the central bank had nothing to add to remarks that Governor Haruhiko Kuroda made in December, when he said he was “very interested in bitcoin”.

“In one sense, it is similar to electronic-funds transfers and the spread of electronic money,” Kuroda said then. “But there are also some differences and the price is somewhat volatile. I think each country’s central bank is watching this … but as of now I have nothing specific to report.”

Other jurisdictions have been more proactive.

In the United States, Alabama’s securities regulator said he will issue an alert on Tuesday, cautioning consumers and investors to stop trading on bitcoin exchanges or adding to their accounts if they are having trouble redeeming the digital currency or cashing out.

Karpeles himself, while insisting on his own exchange’s reliability, has made no secret that bitcoin is, as he told Reuters last April, a “high-risk investment”.

“If you buy bitcoins, you should buy keeping in mind that the value could be zero the day after.”

Source:  reuters.com

Posted by:  Steven Maimes, The Trust Advisor

Permalink:   http://thetrustadvisor.com/news/bitcoin-exchange

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How Much Does that Burger Cost in Bitcoins?

WSJ opinion by Brian Wesbury

The digital scrip doesn’t meet the requirements to be a real currency.bit

In the 1930s, when the Federal Reserve let the money supply contract, there was a true shortage of currency. At least 150 communities experimented with scrip—printing their own money to grease the wheels of commerce. None worked, and all have disappeared.

Today, because of worries about the Fed printing too much money, a private online global scrip, called Bitcoin, has been created. This scrip is supposed to protect society from inflationary monetary policy.

Could Bitcoins become an alternative to the money or monies that exist across the globe? One of the biggest investors in Bitcoins thinks so. The Winklevoss twins, of Facebook FB +0.34%  fame, think the market for Bitcoins could increase 100-fold to more than $400 billion. And a Costa Mesa, Calif., luxury car dealer is reportedly selling cars, including a Tesla S and a Lamborghini Gallardo, for Bitcoins.

Bitcoins are “mined” by running a computer algorithm, creating a digitized code. That code can then be used to complete online transactions. The algorithm makes it progressively harder to mine Bitcoins as the total number increases. Preset limits supposedly cap the maximum number of Bitcoins at 21 million, and right now there are roughly 12 million in existence. Rising hope of wider acceptance drove the price of a Bitcoin to more than $1,200 a few weeks ago. But when Baidu.com, BIDU +2.85%  the Chinese web services company, said it would not accept the scrip, the price fell sharply and it currently trades near $900.

Bitcoins meet most of the criteria of money. They are a medium of exchange, a unit of account, a store of value and a standard of deferred payment. But what ultimately gives money value is that it is accepted by others in trade for something of value. And that is why scrip doesn’t work.

Let’s say a barber in a Wisconsin town accepts scrip for haircuts and uses it to eat at a local restaurant that buys its produce from a local farmer. As long as each of these businesses kept all their purchases in the community, all would be well. But why would a scissor manufacturer in Germany or China or even Chicago accept this scrip? The car dealer in California, for example, is not actually accepting Bitcoins for his vehicles—they first have to be converted to U.S. dollars.

To become a true alternative currency, Bitcoins need to be accepted in a wide enough swath of society to facilitate the normal transaction of business. If they aren’t, they will always trade at a discount to their potential value.

Right now, total cash and deposits in the U.S. banking system (the M2 money supply), is roughly $11 trillion. Assuming 21 million Bitcoins are mined and they become an accepted currency, each one could be worth as much as $524,000. This is a massive potential appreciation from their current level.

However, the list of companies that accept Bitcoin as payment for actual transactions make up what I estimate to be less than one-hundredth of a percent of all spending, or GDP. Since money gets its value from the goods, services and assets that it can purchase, a Bitcoin is currently worth only 0.01% of its true potential, or about $52.40.

Bitcoins require storage space (in a computer), power to run the computer (electricity), security (from hacking), and computational power (serious encryption) on both sides of a transaction. There are firms that act as middlemen in Bitcoin transactions, and firms that make a market in Bitcoins, but they are new and have no serious financial track record. Many Bitcoin transactions facilitate illegal commerce. The Bitcoin world is not friction-free, or clean.

And is it really true that no more than 21 million Bitcoins can be produced? Hackers keep getting better, and the temptation to expand the supply of money has been powerful (and profitable, for the issuer) since the time of the Romans. These costs and questions all impact the value of a Bitcoin substantially.

To become a real alternative currency, Bitcoins must be recognized by a majority of businesses and consumers. They must be as safe, or safer, than currency issued by a central bank. And they must be transportable. Currently, the Bitcoin does not meet any of these requirements, and this is why it is trading for much less than its actual convertible U.S. dollar value.

If you believe Bitcoin in time will become an alternative to the world’s currencies, there are huge potential profits as the value of a Bitcoin rises to $524,000—or higher if drug dealers and other nefarious users are willing to pay a premium for anonymity.

But to be truly successful, Bitcoins have to win the battle of money on all levels of competition and that is a very high hurdle to clear.

Source: online.wsj.com

Posted by:  Steven Maimes, The Trust Advisor

Permalink:   http://thetrustadvisor.com/news/bitcoins

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Feds Close “Web Money” Loophole With New Laundering Rule

WSJ article by Jeffrey Sparshott

The U.S. is applying money-laundering rules to “virtual currencies,” amid growing concern that new forms of cash bought on the Internet are being used to fund illicit activities.

bitcoin 2The move means that firms that issue or exchange the increasingly popular online cash will now be regulated in a similar manner as traditional money-order providers such as Western Union Co. They would have new bookkeeping requirements and mandatory reporting for transactions of more than $10,000.

Moreover, firms that receive legal tender in exchange for online currencies or anyone conducting a transaction on someone else’s behalf would be subject to new scrutiny, said proponents of Internet currencies.

The rising popularity of virtual currencies, while no more than a drop in the bucket of global liquidity, is being fueled by Internet merchants, as well as users’ concerns about privacy, jitters about traditional currencies in Europe and the age-old need to move money for illicit purposes.

The arm of the Treasury Department that fights money laundering said Monday that the standard federal banking rules aimed at suspicious dollar transfers also apply to firms that issue or exchange money that isn’t linked to any government and exists only online.

One of the fastest-growing alternative cash products is Bitcoin, an online currency launched in 2009 that isn’t backed by a central bank or controlled by a central administrator. Currency units, known as “bitcoins” and consisting of a series of numbers, are created automatically on a set schedule and traded anonymously between digital addresses or “wallets.” Certain exchange firms buy or sell bitcoins for legal tender at a rate that fluctuates with the market.

It isn’t clear if the latest guidance would apply to a merchant’s online scrip. Amazon.com Inc., for example, in February announced Amazon Coins, which starting in May can be used to buy apps and games on Kindle Fire. An Amazon Coin is worth one cent.

Amazon didn’t respond to a request for comment.

“We are beyond the stage where this was just funny money and a fun online thing. This is used as a currency,” said Nicolas Christin, associate director of Carnegie Mellon University’s Information Networking Institute.

Bitcoins can be used in a host of legitimate transactions—for example, website Reddit allows users to upgrade services using bitcoins and blog service WordPress.com’s store accepts them as a form of payment. Pizzaforcoins.com also lets bitcoin savers pay for deliveries through Domino’s and other pizzerias.

On the other hand, at least one online service takes bitcoins as payment for illegal drugs, according to a Federal Bureau of Investigation report last year. Bitcoin’s backers point out that criminals will use any currency for money laundering or illegal purchases.

“I think it’s inevitable that just like you have U.S. dollars used by thieves and criminals, it’s sadly inevitable you will have criminals use a virtual currency. We want to work with authorities,” said Jeff Garzik, a Bitcoin developer.

Still, law enforcement, regulators and financial institution have expressed worries about the hard-to-trace attributes of virtual currencies, helping trigger this week’s move from the Treasury’s Financial Crimes Enforcement Network, or FinCen.

Creating clear-cut rules for virtual currencies is difficult. A FinCen official said that anti-money-laundering rules would apply depending on the “factors and circumstances” of each business. The rules don’t apply to individuals who simply use virtual currencies to purchase real or virtual goods.

The new guidance “clarifies definitions and expectations to ensure that businesses…are aware of their regulatory responsibilities,” said Jennifer Shasky Calvery, FinCen director.

The FBI report last year said Bitcoin attracts cybercriminals who want to move or steal funds. “Bitcoin might also logically attract money launderers and other criminals who avoid traditional financial systems by using the Internet to conduct global monetary transfers,” the report said. An FBI spokeswoman declined to comment when asked about the agency’s concerns regardingvirtual currencies.

bitcoinsFor now, the size of the bitcoin market is so small that it could be difficult or costly to move and exchange large amounts of illicit funds. Another danger: extreme price fluctuations.

The value of a bitcoin rose to more than $60 a unit from less than $49 on one exchange following the release of FinCen’s new guidance—a move that Mr. Garzik attributed partly to a new level of certainty and legitimacy that federal recognition attaches to bitcoin transactions.

The American Bankers Association in 2011 asked the Consumer Financial Protection Bureau to apply consumer financial protection laws uniformly across the financial sector regardless of whether an entity is a traditional bank or one of the evolving nonbank payment providers.

A CFPB spokeswoman declined to comment on the matter.

“This framework would wildly expand the reach of FinCen and the [Bank Secrecy Act],’ said Patrick Murck, legal counsel for the Bitcoin Foundation, a trade group that promotes Bitcoin software and security standards. He said the government’s rules “would be infeasible for many, if not most, members of the Bitcoin community to comply with.”

Some firms say they anticipated the rules. Charlie Sherm, chief executive of bitcoin payment processor BitInstant, said his company is already compliant.

Mr. Christin of Carnegie Mellon said that he believes Bitcoin’s dominant use right now is speculation.

“When you have a commodity or currency whose value has grown as rapidly as Bitcoin it makes sense to hold on to it as a speculative instrument,” he said. It also is commonly used for online black markets or gambling sites. “Whether used for money laundering…there is no smoking gun.”

Trading also is limited. On the biggest exchange, Japan-based Mt. Gox, volume has ranged from the equivalent of about $427,000 a day to just over $8 million a day during the past month, according to BitcoinCharts, a website that provides financial and technical data on bitcoins.

The jump in the bitcoin exchange rate this week also coincides with concerns euros could be taken from retail bank accounts in Cyprus to fund a bailout. Internet blogs say speculators are looking toward currency alternatives.

Source:  online.wsj.com

Posted by Steven Maimes, The Trust Advisor

Permalink:  http://thetrustadvisor.com/news/web-money

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