A day after a prominent advocate of virtual currency Bitcoin was charged with conspiracy to commit money laundering, New York’s banking regulator said he plans to propose regulations for virtual-currency firms that operate in the state. At a hearing Tuesday on online currencies, New York state banking regulator Benjamin Lawsky said his agency is considering issuing “BitLicenses” specifically tailored to virtual currencies, according to a Reuters report.
Lawsky said the growing popularity of the digital currency could encourage banks to improve their services. “It could force the traditional payments community to ‘up its game’ in terms of the speed, affordability and reliability of financial transactions,” he said. In particular, Lawsky mentioned his perplexity over the delay consumers face when trying to transfer money to a friend’s bank account.
At the hearing, organized by the New York State Department of Financial Services, Bitcoin investors Cameron and Tyler Winklevoss urged Lawsky that “over-regulation could cripple [Bitcoin’s] development,” according to Reuters.
While Lawsky wants to set clear rules, he said, he also recognizes that the technology behind Bitcoin and other virtual currencies is still evolving. California is also reportedly developing regulations for Bitcoin, after the U.S. Treasury Department’s Financial Crimes Enforcement Network said last March that virtual-currency firms could be regulated as money transmitters, a business that states usually license.
The New York hearings began on the same day that Charlie Shrem stepped down as vice chairman of the board of the Bitcoin Foundation, the digital currency’s industry group. He is accused of funneling more than $1 million of bitcoin to users of an online black-market site.
Launched in 2009, Bitcoin is a digital currency and protocol that enables worldwide peer-to-peer payments. Despite numerous legal troubles from, among other things, use of the currency to buy drugs online, many tech experts are predicting great things for it. According to former Netscape co-founder Marc Andreesen, “Bitcoin gives us, for the first time, a way for one Internet user to transfer a unique piece of digital property to another Internet user, such that the transfer is guaranteed to be safe and secure, everyone knows that the transfer has taken place, and nobody can challenge the legitimacy of the transfer.”
As Edward Harrison wrote on his blog Credit Writedowns on January 23, “People need to stop fixating on Bitcoin the currency and start focusing on Bitcoin the technology. The technology is the big deal because Bitcoin is a low-cost and global instantaneous payments system that uses the distributed nature of the internet to create a robust platform with hundreds of potential uses.”
What will such a ubiquitous payment platform do? Replace banks’ role in the payments system and thus drive down their fees, concludes Harrison.
“In developed economies, banks are racking up transaction fees and overdraft fees, and late fees; you even have to pay a fee in order to have a bank account unless you meet minimum account requirements,” Harrison wrote. “All of that goes away if you use an online payments system for most of your transactions. And all you need then is a ubiquity of payment like you see with Visa, Mastercard and American Express.”