New York planning a reality check for virtual currencies

Tue Feb 11, 2014 6:32pm EST
 
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By Douwe Miedema and Karen Freifeld

WASHINGTON/NEW YORK (Reuters) - New York's financial regulator on Tuesday revealed new details on how the state plans to govern virtual currencies such as bitcoin, just as problems in the nascent market took a turn for the worse.

Benjamin Lawsky, superintendent of New York's Department of Financial Services, expects to adopt consumer disclosure rules, capital requirements and a framework for permissible investments with consumer money.

"Our objective is to provide appropriate guard rails to protect consumers and root out money laundering without stifling beneficial innovation," Lawsky said in a speech at the New America Foundation in Washington.

Lawsky said last month that his agency plans to issue rules for businesses handling virtual currencies, including a "BitLicense", which could make New York the first U.S. state to regulate virtual currencies such as bitcoins.

Bitcoin proponents like the fact that it and a host of other currencies generated by computer programs are not backed by a government or central bank, and that their value fluctuates only according to demand.

But the industry has been plagued by scandals. Last month, the vice chairman of a trade group was charged by U.S. prosecutors with conspiring to commit money laundering using Bitcoin.

On Tuesday, Slovenia-based Bitstamp became the second major bitcoin exchange to halt customer withdrawals in the past several days, citing "inconsistent results", and blaming a denial-of-service attack.

That was a day after the value of bitcoin slid to its lowest in nearly two months after Mt. Gox, the best known digital marketplace operator, said a halt on withdrawals would continue indefinitely.   Continued...

 
A chain of block erupters used for Bitcoin mining is pictured at the Plug and Play Tech Center in Sunnyvale, California October 28, 2013. REUTERS/Stephen Lam