This week, bitcoin (BTC) has dominated the headlines after numerous digital currency exchanges have shut down their services after experiencing denial of service (DOS) attacks. This has caused the value of bitcoin to drop to less than $650 – there was also a flash crash that saw bitcoin fall to $102 in a matter of seconds.
Exchanges like Mt. Gox and Bitstamp are responding to the phantom transactions that have used transaction malleability, a malfunction that allows fake transactions that did not actually occur by utilizing a counterfeit transaction similar to a genuine one. In laymen’s terms, it seconds transactions twice.
What’s one thing that all of these exchanges have in common? None of them originate from the United States. Mt. Gox is headquartered in Japan, while Bitstamp is located in England. BTCe is based in Bulgaria. Why aren’t any exchanges located in a nation that has an immense number of bitcoin users? One reason: uncertainty regarding potential regulation of the cryptocurrency market.
The Federal Reserve has noted that it does not have the authority to issue regulations in relation to the bitcoin market, though it did say that it does monitor alternative currencies and various electronic payment systems. In fact, it seems as if the only part of the United States that is taking any sort of action is New York.
Benjamin Lawsky, superintendent of New York’s Department of Financial Services, unveiled new details Tuesday to regulate virtual currencies, like bitcoin. The top financial regulator will implement consumer disclosure policies, capital requirements and a structure for acceptable investments with consumer money.
“We do not have to throw out all of our existing rules for money transmitters or banks, which have generally served consumers well when vigorously enforced,” said Lewsky in a speech to a New America Foundation conference in Washington. “Certain aspects of virtual currency could dovetail with existing regulations.”
In addition, the public agency will soon adopt BitLicenses, a license to for businesses that deal with bitcoin transactions. Essentially, New York would become the first state to regulate the digital currency marketplace.
Aside from that, the federal government hasn’t taken any measures in favor or against bitcoin. Even the Internal Revenue Service has been lambasted for dragging its feet when it comes to subjecting taxes to cryptocurrencies – finance experts say to just declare any income from bitcoins as capital gains.
Critics of bitcoin have repeatedly stated that the growing popularity of digital currency would lead central banks, financial institutions and credit card companies would crack down on bitcoin because it provides competition to the establishment (the U.S. dollar, traditional payment systems and banking routines) – central banks across the globe have already installed tough regulations and prohibitions.
Until the U.S. makes it clear that bitcoin will not be banned or restrictions will not be put in place, exchanges will not touch the shores of the U.S., which could be a mistake in the future because some of the most ardent bitcoin enthusiasts and developers reside in the country.
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