Digital cryptocurrencies, like Bitcoin, still have a long way to go before mainstream use, but they seem to pose a huge threat to the existing financial paradigm as evidence by the recent frantic reaction by regulators.
To be clear, cryptocurrencies are threatening because no central entity can fully control them, and they also represent a nearly free and anonymous payment application. It’s an algorithm that has the potential to make central banks, commercial banks, private banks, and the tax collectors obsolete.
In other words, cryptocoins may be epoch changing for society. In the same way the Internet killed publishing or how VoIP killed long distance telephone carriers, cryptocoins may in fact kill debt-based money and brick-and-mortar banking.
The banking cartel along with the government are scrambling to protect their territory and regulate Bitcoin so it doesn’t have an unfair market advantage (and to protect the public from fraudsters of course).
The industry leaders in the Bitcoin digital currency community just got subpoenaed yesterday by financial regulators in New York. New York’s Department of Financial Services declared that Bitcoin is “a virtual Wild West for narcotraffickers and other criminals.”
“We believe that – for a number of reasons – putting in place appropriate regulatory safeguards for virtual currencies will be beneficial to the long-term strength of the virtual currency industry,” said NY Financial Services superintendent Benjamin Lawsky in a statement.
The formal reasons for the subpoenas were described:
First, safety and soundness requirements help build greater confidence among customers that the funds that they entrust to virtual currency companies will not get stuck in a digital black hole. Indeed, some consumers have expressed concerns about how quickly their virtual currency transactions are processed. Taking steps to ensure that these transactions – particularly redemptions – are processed promptly is vital to earning the faith and confidence of customers.
Second, serving as a money changer of choice for terrorists, drug smugglers, illegal weapons dealers, money launderers, and human traffickers could expose the virtual currency industry to extraordinarily serious criminal penalties. Taking steps to root out illegal activity is both a legal and business imperative for virtual currency firms.
Finally, both virtual currency companies – and the currencies themselves – have received significant interest from investors and venture capital firms. Similar to any other industry, greater transparency and accountability is critical to promoting sustained, longterm investment.
This statement seems conflicted because everyone already knows the big banks are the “money changers of choice for terrorists, drug smugglers, illegal weapons dealers, money launderers, and human traffickers” — despite futile efforts to regulate them.
Secondly, Bitcoin became an over $1.2 billion currency without the “protection” of the regulators. Now that there is money to be made with Bitcoin, here come the vultures.
The subpoenas came shortly after a federal judge ruled that Bitcoin is a currency in a Ponzi-scheme case involving Bitcoin. “It is clear that Bitcoin can be used as money,” writes Judge Mazzant in the ruling. “It can be used to purchase goods or services, and as Shavers stated, used to pay for individual living expenses.”
What’s more, Congress just announced it’s opening an investigation of Bitcoin today.
A Senate committee is pressing federal regulators and law enforcement officials to explain how they plan to oversee Bitcoin and other virtual currencies as the issue gains increasing attention from government officials concerned about the role these new markets will play in the future.
The Senate Homeland Security and Government Affairs Committee on Monday sent letters to several agencies requesting that they disclose their virtual currency policies, how they developed them, how agencies are coordinating and finally what they plan to do going forward.
“The more folks that we talked to related to this issue, it became very clear to us that this is not a sort of technology that’s going away,” a committee aide told Politico. “This isn’t something that’s a flash in the pan. It’s something that’s going to be with us.”
The committee for DATA will “work proactively with regulators and policymakers to adapt their requirements to our technologies and business models,” the group said in an announcement late last month.
“We must develop and implement common risk management and compliance standards that address the public policy concerns associated with our businesses. And our firms must build risk management and compliance programs that meet those standards,” it added.
Many of the entrepreneurs in this working group have also received subpoenas to appear in New York in front of regulators.
List of companies subpoenaed by the New York State Department of Financial Services:
TrustCash Holdings Inc.
Bitcoin Opportunity Fund
Boost VC Bitcoin Fund
Lightspeed Venture Partners
Tribeca Venture Partners
Union Square Ventures
Winklevoss Capital Management
To make matters worse, authorities are already seizing bank accounts of Bitcoin exchanges and vendors prior to any formal regulations. They are even holding up cryptocurrency mining equipment at customs.
What do you think will happen to Bitcoin if it gets regulated like other currencies? Will the transfer fees explode? If Bitcoin gets over regulated, will a different cryptocurrency replace it as the “private” option?
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