New York takes first step to regulating Bitcoin

Admitting regulators are in "new and unchartered waters" when dealing with virtual currencies, Benjamin Lawsky, superintendent of financial services, said: "Serious people – in the technological and investment community – are taking virtual currencies seriously. They are putting significant amounts of time, attention, and capital behind them. We, as a regulator, cannot turn a blind eye to something like that. We don’t really have a choice.

Mr Lawsky has ordered two days of hearings to establish whether companies dealing with virtual currencies need a "BitLicence".

"The goal of these hearings is to provide a 360-degree view of this new and constantly evolving industry – both its promise and its potential pitfalls," he said, adding that his agency is approaching the issue of virtual currencies "without any prejudgements".

Critics of Bitcoin claim the virtual currency is precarious because it is not regulated by any central bank. They also argue that it is a magnet for money launderers, who use it to fuel black market trading in weapons and drugs.

On Monday, Charlie Shrem, the chief executive of a New York Bitcoin exchange with links to the Winklevoss twins, was arrested on money laundering charges.

The 24-year-old millionaire, who ran New York’s BitInstant.com, was accused of attempting to sell $1m of Bitcoins to a user of Silk Road, the notorious online marketplace. Silk Road was used to sell illegal drugs and weapons before it was shut down last September.

Along with Robert Faiella, who ran BTCKing, he was charged with conspiring to commit money laundering and operating an unlicensed money transmitting business.

However, Mr Lawsky believes the virtual currencies could benefit the financial system if properly regualated.

"It could force the traditional payments community to 'up its game' in terms of the speed, affordability and reliability of financial transactions.," he said.

!I think many consumers – myself included – are perplexed that, in a world where information travels around the globe in a matter of milliseconds, it can often take several days to transfer money to a friend’s bank account."

more