Whenever I talk to people within the payments industry about Bitcoin the absence of a central issuer and the regulatory void it is operating in will be one of the first aspects to be mentioned. Recently FINCEN of the USA has issued a report on the regulatory aspects of virtual currencies:
via FINCEN: Bitcoin Users Not Regulated, Exchanges Are | Bitcoin Magazine. (NB This Bitcoin Magazine article neatly describes/summarizes what virtual currency is considered to be. “Must read” for payments professionals!)
The problem is a difficult one; nearly all laws to date that attempted to regulate online payments of any form have all assumed a central issuer, and in the case of Bitcoin it could be just as easily argued that everyone is an issuer or that no one is. Today, however, we have gained a much clearer picture of what regulation for Bitcoin will look like, as FINCEN just released a paper clarifying their position on virtual currencies, touching on the concept of “decentralized digital currency” in detail with Bitcoin clearly in mind.
Although the requirement for exchanges to get a money transmitter license is highly problematic, for the most part this guidance paper is a positive sign for Bitcoin for one simple reason: Bitcoin itself is now unambiguously legal, and that will not change any time soon. Even though the document does place Bitcoin exchanges under a very significant burden of regulation, what it also means is that nothing worse is going to come. Many organizations, including the popular independent video game collection Humble Indie Bundle, have been hesitant to accept Bitcoin over legal uncertainty, but now that the matter is settled they have no reason to fear; as long as they are not acting as money transmitters for BTC as well, under the new rules they are now fully protected.
At the same time somewhere else on the web a link has been suggested between the Cyprus rescue package conditions to tax small savings account holders and the surge of Bitcoin use in Spain.
With the FINCEN report in mind as reported by the Bitcoin Magazine these (Spanish) Bitcoin users are bringing their value out of sight of the regulators legally:
In fact, FINCEN does not intend to touch mere users of virtual currency at all; the document states, “a user who obtains convertible virtual currency and uses it to purchase real or virtual goods or services is not an MSB under FinCEN’s regulations. Such activity, in and of itself, does not fit within the definition of “money transmission services” and therefore is not subject to FinCEN’s registration, reporting, and record-keeping regulations for MSBs.”
Update 3 March 2014:
Says Yellen: "To the best of my knowledge there’s no intersection at all, in any way, between bitcoin and banks that the Federal Reserve has the ability to supervise and regulate. So the fed doesn’t have authority to supervise or regulate bitcoin in anyway."However, she adds: "But certainly it would be appropriate for Congress to ask questions about what the right legal structure would be for digital currencies…It’s not so easy to regulate bitcoin because there’s no central issuer or network operator."