New forms of virtual currency, such as Bitcoin, continue to garner attention. Bitcoin began to rise in popularity, presumably to some extent, because it is not currently restricted by the laws or regulations of any jurisdiction.
Due in part to this lack of regulation, the rate of fraud and online scheming seems to be extremely high. According to DealBook, there have been more than 30 instances in which at least 1,000 Bitcoins — or almost $1 million at the recent rate of exchange — have been stolen or transferred illegally. Recently an online Bitcoin scheme was shut down and the person responsible, a trader known on Twitter as Fontas, said that he operated with little fear of a crackdown. Fontas said he would “stop his schemes when [someone steps in to police this financial wild west].” It seems that the very survival of Bitcoin could now depend on some form of regulation in order to continue to prosper and prevent theft or fraud.
In a recent DealBook article, Professor Peter J. Henning stated, “the rise of virtual currencies may have started out as an effort to avoid government scrutiny. But with greater acceptance comes increased regulation, including the application of criminal laws to this new medium for conducting business.” Henning discussed the potential existing laws that could be utilized in situations involving Bitcoin. Title 18 of the United States Code is used to prosecute the interstate transportation of stolen property, but it only applies to cases involving “goods, wares and merchandise.” In the 1985 case, Dowling v. United States, the Supreme Court limited the reach of this law to the theft of physical items and not intangible property, such as virtual currency. The statute also covers transporting “money,” but it seems unlikely that Bitcoin would be included under this umbrella, as is it privately sponsored and not currently not regulated.
Currently, the U.S. statutes don’t directly govern or address the unique situation created by using Bitcoin. For example, the current money-laundering statute only includes “coin or currency of the U.S. or any other country,” which is unlikely to include Bitcoin, since it is not the currency of any country.
Additionally, Bitcoin’s value is currently unstable. In early December 2013, Bitcoin’s price hit a new high of $1,240, but after news that China moved to restrict its banks from using Bitcoin as currency on December 5, 2013, the price fell by more than 20%. Due to this instability and with the volatile changes in price, consumers and merchants might be unwilling to use or depend on Bitcoin as a form of legitimate currency. To that end, merchants may be unwilling to accept digital currency, as it could drastically lose value over night.
At this point, greater reliance on Bitcoin will likely only come with increased regulation. This can provide greater protection against theft and fraud and help steady the price.
Would you consider using a digital currency, such as Bitcoin?
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