With New Virtual Currency Rules, N.Y. Regulators Tread A Fine Line

Jul 16, 2014
Originally published on July 18, 2014 12:00 pm
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Transcript

ROBERT SIEGEL, HOST:

Banking regulators in New York State are expected to release new rules this week governing Bitcoins and other virtual currencies. From member station WSHU Charles Lane reports that many industry experts welcome the regulations but some worry that they could end up limiting the creative potential of this new way of doing business.

CHARLES LANE, BYLINE: In many ways virtual currencies are just like old-fashioned money. You can buy furniture, books, beer, whatever. But some say it's even better than money.

JOHN JOHNSON: Just anecdotally I was getting my haircut this weekend at my...

LANE: That's John Johnson he's chairman of the Internet retailer overstock.com. At a public hearing in New York he told regulators even hairstylists will want the Bitcoin.

JOHNSON: She asked me, tell me about Bitcoin.

LANE: Johnson knows a lot about virtual currencies because his company was one of the first to accept Bitcoins, the digital money invented a few years ago. He says Bitcoin is better than money because anyone online can cut out middlemen making transactions cheaper.

JOHNSON: She said, I would love to have something that didn't have interchange fee, where I wasn't 3 percent of every haircut to the credit card companies.

LANE: Virtual currencies stand to revolutionize financial services. But they are still largely unregulated, a fact that ignites the imagination and consternation of many in the financial sector. Now New York State is about to step into this regulatory void. Within days it will issue far-reaching rules focusing on three things, consumer protection, cyber security and anti-money laundering rules. Gil Luria studies financial technology companies at Wedbush Securities.

GIL LURIA: It's very difficult for a Bitcoin business to function now because they don't have a natural regulator.

LANE: Luria says there are some federal laws that Bitcoin companies have to obey, so as to not launder money or fund terrorism. But the rules aren't clear enough.

LURIA: There's processes to make sure that you know what the customer's doing and then there's processes of reporting things that look suspicious. So, the regulation of all that, for Bitcoin business, you don't necessarily have that.

LANE: But some in the industry worry that New York could go too far and create anti-money laundering rules that define and limit Bitcoin before we really know what it can do.

MARCO SANTORI: So that's just it. We have no idea the power of the Bitcoin protocol is enormous.

LANE: Marco Santori is a lawyer specializing in financial transactions. He says that while on the surface Bitcoin is a currency underneath it's something more. It's a secure system for electronically transferring things of value from person-to-person. That could be money or it might the deed to a house or a copyright or really anything you wouldn't want counterfeited. Santori says it's shortsighted to regulate Bitcoin as if it were money, when in 20 years it could be so much more.

SANTORI: Had the federal come down say, and started regulating the predecessor to the internet, and said look, this is a very powerful tool for terrorists communications. We should require licensing for anybody using this tool. It's unlikely that we would now have Amazon.com.

LANE: Most in the industry agree that rules dealing with consumer protection and cyber security would be welcome. As of right now there is no single authority that could help consumers recover lost funds if a Bitcoin company goes under. Nor are there rules that require third- party security audits that could prevent the theft of what is essentially bits and bits on a computer somewhere. For NPR News I'm Charles Lane in New York. Transcript provided by NPR, Copyright NPR.