Hearing highlights more regulation coming for Bitcoin

By Nicel Jane Avellana

Feb 04, 2014 08:31 AM EST

The held by the top banking regulator of New York State Benjamin M. Lawsky last week shows what's in store for virtual currencies like the Bitcoin. Companies that are coming up with new methods to transmit payments with currencies not approved by government will need to brace themselves for more regulation, The New York Times The Dealbook reported.

Apparently, the concept that Bitcoin could be used to conduct anonymous transactions and serve as an alternative to regular currencies was no more than just fantasy. Bitcoin Investment Trust Founder Barry E. Silbert testified in the hearing that "it may be appropriate to regulate any transaction that involves an unregulated intermediary converting Bitcoin to dollars on behalf of a third party."

In what is seen as an effort to drill the regulation message home, the report said that on the day before the hearing, the Justice Department cited a criminal complaint which charged two men with using Bitcoin as payment in transactions involving illegal narcotics. One of the defendants was Charlie Shrem who sits on the Bitcoin Foundation board. The foundation works to further make use of the digital currency as a new method of doing business worldwide, the report said.

Federal regulators are already setting their sights on companies that permit payments using virtual currencies. The Treasury Department's Financial Crimes Enforcement Network gave guidance in March last year which said that businesses that operate as an exchange for virtual currencies would be viewed as a money transmitting business. As such, they are required to get customer information under the regulations of the Bank Secrecy Act. Bitcoin miners, except for users that mine Bitcoins for their own personal use, were also covered by the regulations, the report said.

The regulator, however, exempts transactions done by Bitcoin users to buy and sell goods and services. Thus, individuals and merchants are not covered by the regulations that operating exchanges must follow for as long as they use Bitcoin like cash, the report said. 

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