Tag Archives: Bitcoin Foundation

LOOKS like Bitcoin has got too big to ignore. Virtual currencies are to be regulated by the US Treasury after the Financial Crimes Enforcement Network (FinCEN) moved to clarify their status under anti-money-laundering laws.

The move comes as Bitcoins doubled in value in just a few weeks to hit a record high of more than $70 each, possibly fuelled by the banking crisis in Cyprus and the rest of Europe.

Bitcoin is run on a decentralised network controlled by its users, making it difficult to regulate transactions within the currency. However, exchanges that swap Bitcoins for real-world currencies, such as MtGox, are another matter.

FinCEN##Q##s new guidelines don##Q##t mention Bitcoin by name, but say that anyone involved in exchanges of decentralised virtual currency for real currency must register as a money services business and obey existing regulations. The same applies for centralised virtual currencies, such as Facebook credits.

But in a peer-to-peer currency it is not so obvious what counts as an exchange. Bitcoin “miners”, who run software to create Bitcoins, might also have to register if they sell the newly minted currency for its real equivalent. Patrick Murck of the advocacy group Bitcoin Foundation called the guidelines “infeasible for many, if not most, members of the Bitcoin community to comply with”.

US to regulate Bitcoin currency at its all-time high – tech – 26 March 2013 – New Scientist.

Michael Hajduk had sunk one year and about $20,000 into developing his online poker site, Infiniti Poker, when the U.S. online gambling market imploded. On April 15, 2011, a day now known in the industry as Black Friday, the U.S. Department of Justice shut down the three biggest poker sites accessible to players in the U.S., indicting 11 people on charges of bank fraud, money laundering, and illegal gambling. Player accounts were frozen, leaving thousands of Americans without access to their funds. “It was like a bomb went off,” Hajduk says. To continue gambling, “U.S. players were uprooting their families and moving to Malta. Crazy stuff was happening.”

Hajduk, though, was barely fazed. Calgary-based Infiniti Poker, like several other new online gambling sites, plans to accept Bitcoin when it launches later this month. The online currency may allow American gamblers to avoid running afoul of complex U.S. laws that prevent businesses from knowingly accepting money transfers for Internet gambling purposes. “Because we’re using Bitcoin, we’re not using U.S. banks—it’s all peer-to-peer,” Hajduk says. “I don’t believe we’ll be doing anything wrong.”

Developed in 2009 by a mysterious programmer known as Satoshi Nakamoto, Bitcoins behave much like any currency. Their value—currently about $13 per Bitcoin—is determined by demand. Transactions are handled through a decentralized peer-to-peer network similar to BitTorrent, the protocol for sharing films and music over the Internet. An assortment of merchants around the globe accept Bitcoin; it’s also the currency used on online black markets such as Silk Road, which processes an estimated $1.2 million a month in sales of illegal drugs, according to Nicolas Christin, the associate director of Carnegie Mellon’s Information Networking Institute.

Individuals can buy and sell Bitcoins using global currencies through such online exchanges as Mt. Gox. There’s even a service facilitated by BitInstant, a payment-processing company, that allows you to purchase the virtual currency for cash at 700,000 U.S. locations, including participating Wal-Mart (WMT), Duane Reade, and 7-Eleven stores. Once users have Bitcoins, they store them on their computers or mobile devices in files known as Bitcoin wallets or in cloud-based “e-wallets.”

Hajduk says Infiniti Poker will accept credit cards, wire transfers, and other payment options, but players in the U.S. will be able to play only using Bitcoins. He originally included the currency not to get around U.S. law but to reduce the time it takes to cash players out. Bank transactions can take up to 12 weeks; players who use Bitcoin can get a payout in a matter of hours, he says.

GamblingCompliance, which tracks the global gaming industry, says most estimates value the U.S. online gambling market at $4 billion to $6 billion. On Black Friday, gamblers in the U.S. had more than $100 million in online accounts frozen. Nearly two years later, the U.S. government is still working to reimburse the players, who were not targeted in the crackdown.

Hajduk says the ability to store Bitcoins on players’ computers is appealing. “At the end of the day, [the government] cannot freeze your account because they cannot kick down the door to Bitcoin,” he says.

It’s unclear whether the government will go after Bitcoin gambling sites. “Bitcoin poses some new legal challenges for financial authorities,” says Martin Williams, the Asia editor of GamblingCompliance. “I suspect that much of it will involve playing catch-up, as with so many other things relating to the Internet.” The Justice Department declined to comment.

There are other risks as well. In recent months hackers have pulled off several Bitcoin heists, and this summer Bitcoin Savings & Trust, billed as a “Bitcoin hedge fund,” made off with more than $5 million entrusted to the site by investors, in what appears to be a Ponzi scheme. Also, Bitcoin wallets can vanish as a result of hard-drive crashes or other computer problems. That’s how at least one user lost 50,000 Bitcoins, according to Peter Vessenes, chairman of Bitcoin Foundation, an organization that helps develop and promote the virtual currency.

“It’s still a pretty raw technology,” says Gavin Andresen, chief scientist at Bitcoin Foundation. “It’s pretty obvious that it’s been designed by geeks for geeks. It’s not easy to use yet, but it’s getting easier to use all the time.”

Bitcoin gaming sites keep popping up. Erik Voorhees, director of marketing and communications at BitInstant, helped design SatoshiDice, a gambling site hosted in Ireland and owned by an anonymous investor. Since launching in April, the site has taken in about $15 million in bets, Voorhees says. SatoshiDice is careful to keep everything in Bitcoin; until it’s clear how the site will be treated legally, “it’s better to keep it completely separate from real life,” he says.

When it comes to letting Americans gamble with Bitcoins, not everyone is as bold as Hajduk and SatoshiDice. Josh Strike, who in 2011 launched the Costa Rica-based Bitcoin casino site Strike Sapphire, says he makes sure Americans can’t access his games. “I’m an American, and the guys who help me with this—lawyers, part-owners, guys I’ve known since high school—they’re American,” he says. “I don’t want to get anyone in trouble.”

The bottom line: Bitcoins may help satisfy Americans’ appetite for online gambling—if using the online currency to place bets remains legal.

Bitcoin: Making Online Gambling Legal in the U.S.? – Businessweek.