Lately, I’ve been talking a lot about Bitcoins (and other cryptocurrencies) and their benefits in the foreign exchange market. However, I have yet to truly touch upon the problems that they bring. In this issue of Espipionage, I’m going to tackle some of these issues.
The biggest concern about cryptocurrencies is that people do not exactly know how they move. Early adopters of the idea like the anonymity it brings, but at the same time, they also fear that it could lead to money laundering. People with bad intentions could convert their money to Bitcoins before doing their business to hide their illegal transactions.
People are also concerned about the legitimacy of Bitcoins. The currency was made by an anonymous programmer using an open source code that very few people could understand. Absolutely no one is guaranteeing the currency.
Despite the public’s concern, Bitcoin and other cryptocurrencies have been rising in popularity. Recently, there had been rumors that Thailand’s central bank was looking to ban Bitcoin trading. Halfway across the globe, we see that the Bitcoin is becoming increasing popular for Argentinians, who have had their fair share of problems with their fiat currency in the past.
Meanwhile in the United States, FinCEN (Financial Crimes Enforcement Network) does acknowledge the existence of Bitcoin transactions and has provided some guidance on it, while the IRS (Internal Revenue System) is closer and closer to taxing people on such transactions.
In order to get ahead of the curve and establish cryptocurrencies as legal and legitimate currencies, a movement has started to help establish a self-regulatory organization to oversee virtual currency transactions.
The agency is going by the catchy name DATA, which stands for Digital Asset Transfer Authority. The group was started by two people, Ms. Constance Choi and Stan Stalnaker. Choi currently serves as general counsel at Payward, which is the company behind the Kraken Bitcoin trading platform, while Stalnaker is the founder of Hub Culture, a social networking service that currently operates the Ven virtual currency.
Recognizing the need to be, uh…. recognized, Choi and Stalnaker formed DATA and recruited top executives from such companies like OpenCoin, BitPay, Tradehill, CoinX, and eToro to help form the two sub-boards of DATA, which are the Technology Advisory board and the Community board.
Together, the DATA group aims to establish strong standards that are in compliance with other regulatory agencies, and will push for anti-money laundering and anti-tax evasion practices. Furthermore, it will act a mediator between consumers, brokers, businesses, and government agencies that make cryptocurrency transactions.
Since the Bitcoin and other virtual currencies are global in nature, DATA has to deal not only with the U.S. government, but with other non-U.S. countries as well. This includes numerous financial regulatory bodies from various countries, each of them having a different set of rules.
If the traditional financial communities reject the idea of the Bitcoin and other virtual currencies, they could pressure the government to making it illegal. Commercial banks see bitcoins as a big unknown and the idea is making them nervous. Think about it for a second. Money is going inside this unknown and going out again. What transactions inside this unknown is anyone’s guess.
Another issue that DATA faces is keeping the two types of cryptocurrency users happy as well. On the one hand, they have to make sure that the early adopters, the people who love the idea of anonymity and decentralization, keep on using the currency. But on the other hand, they also have to make Bitcoins attractive enough for the big companies whose users to have some sort of accountability or abide by their own requirements.