DGC http://www.dgcmagazine.com — Covering digital currencies, precious metals and online payments Tue, 17 Sep 2013 23:30:47 +0000 en-US hourly 1 http://wordpress.org/?v=3.5.1 Bitcoin Money Supply and Money Creation http://www.dgcmagazine.com/bitcoin-money-supply-and-money-creation/ http://www.dgcmagazine.com/bitcoin-money-supply-and-money-creation/#comments Tue, 17 Sep 2013 23:26:56 +0000 Radoslav Albrecht http://www.dgcmagazine.com/?p=1723 Continue reading ]]> Many articles mention, that the limited Bitcoin money supply is a major advantage of this digital currency. The reasoning usually goes like this. Since Bitcoins can only be created through mining and there is an upper limit of 21 million, Bitcoin is supposed to be inflation proof. This article for instance says, Bitcoin “theoretically eliminates inflation”. If this was true, Bitcoins would not lose purchasing power. The Bitcoins I own today would buy me the same amount of goods and services tomorrow. Or a larger amount in the case of deflation.

From the quantity theory of money we know, that there is a link between inflation and the money supply. A substantial growth of the money supply through money printing at some point is going to cause a loss of purchasing power. Therefore it is interesting to take a closer look at how money is created in the Bitcoin world and how the Bitcoin money supply grows.

Money creation of a fiat currency

While Bitcoins are mined, producing fiat money is called money creation. In a simplified view, there are two different types of money creation. Money is either created by the central bank or money is created by commercial and other banks.

Money created directly by the central bank is called the monetary base. It comprises currency in circulation (notes and coins) and deposits of monetary financial institutions (MFIs) at the central bank. The monetary base is also called high-powered money because an increase in the monetary base can multiply to a much larger increase in the total money supply. The central bank applies a number of measures when it wants to create additional money. Through open market operations the central bank grants loans to MFIs against collateral. The loan amount is credited to the MFI whereby the MFI increases the deposits it holds at the central bank.

Commercial banks create money through lending. When a person holds a deposit at a bank, the bank can take this money and lend it out to a borrower. The borrowed money in turn will be held as a deposit at a bank (unless it is converted to paper money) which again can lend this money out. Money creation from lending already existed in ancient societies where all money was represented by physical precious coins. Imagine someone takes one coin to buy a vase. The seller of the vase holds this coin as a deposit at his bank. The bank lends this coin out to a second person. This second person also buys a vase for this coin and the seller brings the coin to the bank again. This process could be continued endlessly, as long as the bank finds enough trustworthy borrowers. In this example, one physical coin bought two vases worth two coins in total.

When money is created through lending this is also called fractional reserve banking. That’s because central banks require commercial banks to hold a certain fraction of its client’s deposits as a reserve in a central bank account. The European Central Bank’s reserve ratio is currently 1%. So if a client holds a deposit of EUR 100 at a given bank, only EUR 99 can be lent out to borrowers. We can calculate the maximum amount of money created from fractional reserve banking with the money multiplier. The money multiplier equals 1 divided by the reserve ratio. With a reserve ratio of 1% the theoretical money multiplier is 100, therefore a deposit of EUR 100 can be lent out so often that in total EUR 10,000 have been created.  This also highlights why the monetary base is called high-powered money.

The money supply M1

The money supply of fiat currencies is clustered in three groups called M1, M2 and M3. The definitions of what counts as money and to which of the three groups it belongs varies. An overview is sufficient for our purposes.

M1 is also called narrow money. It includes notes and coins in circulation plus deposits of people and non-financial businesses (the public) held in current or checking accounts at MFIs. M2 includes M1 plus savings deposits and time deposits. M3 includes M2 plus money market instruments with a maturity of less than 2 years.

Let’s take a closer look at the components of M1 for the Euro zone. It is important to note that M1 contains both, money created by the central bank as well as money created by commercial banks. 75% of M1 were created from fractional reserve banking by commercial banks. Only 22% of M1 is comprised of the monetary base which was created by the central bank. The monetary base contains EUR 300 bn of MFI reserves held in central bank accounts. These EUR 300 bn are the basis for fractional reserve banking. Therefore the effective money multiplier in the Euro zone is currently somewhere at 14.


Caption: Euro area money supply M1 as of June 2013; data source: ECB statistical data warehouse

Creation of the Bitcoin monetary base

Now that we have introduced money supply and money creation for a fiat currency, we can look at these terms from a Bitcoin point of view.

Bitcoins are created through mining. Mining is comparable to the original endowment of the public with money that was created by the central bank. Therefore mined Bitcoins are part of the Bitcoin monetary base. However, there are significant differences between mining and money creation by the central bank. When the public is endowed with new money after a currency reform, money creation by the central bank does not stop. The central bank keeps increasing the monetary base further which can cause inflation. In the Bitcoin currency system nobody can increase the Bitcoin monetary base beyond the Bitcoins that are created from mining. There is no central bank in power. Mining is the only source for the Bitcoin monetary base. Thus, mined Bitcoins are the Bitcoin monetary base – and not just a part of it.

Also, we never know how much money will be created by a central bank in the future. The central bank doesn’t know it itself because monetary policy depends on economic variables that can change quickly. In contrast, Bitcoin mining is predictable. We know with high certainty how many Bitcoins will be mined over a specified time and therefore the growth rate of the Bitcoin monetary base is predictable. As we can see on the following chart the growth rate will decline dramatically in the near future.


Caption: Bitcoin monetary base and growth (actual 01-2009 until 08-2013 and projection until 2029); data source: blockchain.info, own calculations

Bitcoin money creation from lending

As we have seen with the fiat currency, the second way of money creation is lending by commercial banks. If lending activities existed in the Bitcoin currency as well, the total Bitcoin money supply would exceed the number of mined Bitcoins (the Bitcoin monetary base). Such Bitcoin lending operations already do exist. Such sites are listed under the lending section of the Bitcoin Wiki Trade page.

Some of these sites are based on a peer-to-peer lending model and some operate like a Bitcoin bank. In the latter case the site collects deposits and grants loans to Bitcoin borrowers directly. Both models have certain advantages and drawbacks. I won’t go into this here. The important point to note is that Bitcoin lending does take place.

This means Bitcoins are not only created from mining but also from lending. However, the number of Bitcoin lending sites is not large. Even though they do not publish any figures, it can be assumed that relative to mined Bitcoins, the number of Bitcoins created through lending is small. Since Bitcoin lending currently is not explicitly regulated, there is no fractional reserve requirement. One could argue, this means that the money multiplier is theoretically infinite. A Bitcoin bank could lend the deposits it holds ad infinitum. It will be interesting to see how this evolves. Anyhow there something like a natural cap just from the fact that those who are willing to lend will not find infinitely many borrowers with sufficient creditworthiness.

Bitcoin money supply

If we want to know the Bitcoin money supply we first need to look at the number of Bitcoins in circulation from mining. This figure is currently at about 11.7 million Bitcoins. It represents the Bitcoin monetary base. The calculation of the Bitcoin market capitalization is also based on this figure. They are the same thing, in one instance expressed in Bitcoins and in another instance expressed as the US dollar value. That means the Bitcoin market cap equals the monetary base, currently it is USD 1.3 bn. If we want to compare the Bitcoin money supply to the money supply of other currencies we have to compare this USD 1.3 bn to the monetary base of the respective currency. Sri Lanka for example has a monetary base of approximately USD 2.5 bn which means that the Bitcoin monetary base is slightly more than a half of Sri Lanka’s monetary base.

What should not be done is to compare the Bitcoin monetary base to the M1 money supply of fiat currencies. As long as there are no figures on the total outstanding Bitcoin loan volume available, we won’t know what Bitcoin M1 is. We would need to sum up mined Bitcoins and outstanding Bitcoin loan volume in order to get Bitcoin M1. As we have seen on the Euro zone example, the larger part of M1 is created from lending. A comparison of the Bitcoin monetary base with M1 of other currencies would try to compare two incomparable figures.

Bitcoin has the potential to preserve long-term purchasing power

When we sum this post up, two things become clear. One, Bitcoins are not only created from mining but also from lending. Two, in order to measure the total Bitcoin money supply we need to add lending volume to the number of mined Bitcoins. What is the conclusion from this regarding the growth of Bitcoin money supply?

The Bitcoin monetary base grows at a predictable rate and the growth rate goes to much lower levels from 2014. That’s when the 2013 reduction to 25 Bitcoins per block jumps in. This means the Bitcoin monetary base is not of concern. Bitcoin lending deserves more attention as it is only at the beginning and could evolve to become more significant.

As a first estimate about the impact of Bitcoin lending two things can be noted. Currently a high Bitcoin volatility poses an exchange rate risk on both, borrowers and lenders. We can expect lending to increase with declining volatility. The second thing is that Bitcoin will remain in deflation as long as the user base keeps growing faster than the Bitcoin money supply. A deflationary currency increases incentives to build savings instead of borrowing money. Therefore we can expect the Bitcoin lending volume relative to the monetary base to be low. Probably much lower than we have seen it in the Euro zone example.

Since the Bitcoin monetary base growth will decline and Bitcoin lending is less significant than for a fiat currency, Bitcoin can be expected to remain deflationary for the years to come. This is a good message. It means that Bitcoin is not just an instant and cost effective payment network but also a stable currency that preserves purchasing power. Inflation is not fully eliminated because the money supply can grow significantly from lending. But as we have seen this is quite unlikely.

Written by Radoslav Albrecht


Radoslav Albrecht studied economics and finance in Germany and Great Britain. He worked in investment banking and strategy consulting before he became a Bitcoin entrepreneur. At the beginning of 2013 Radoslav cofounded the peer-to-peer Bitcoin lending site Bitbond.net. He also runs the German website bitcoins21 which explains brick and mortar shops how they can integrate and accept Bitcoin as a means of payment.

http://www.dgcmagazine.com/bitcoin-money-supply-and-money-creation/feed/ 0
900% increase in Bitcoin merchants http://www.dgcmagazine.com/900-increase-in-bitcoin-merchants/ http://www.dgcmagazine.com/900-increase-in-bitcoin-merchants/#comments Tue, 17 Sep 2013 11:01:23 +0000 Julia Dixon http://www.dgcmagazine.com/?p=1713 Continue reading ]]> Bitcoin-accepted-here-printableBitPay has announced the approval of its 10,000th merchant while at this time last year the company had just reached 1,000 merchants. That’s an increase of 900% for the leading payment processor.

While BitPay is only one option available to merchants it is the largest Bitcoin payment processor and these numbers give a glimpse into the Bitcoin economy.

BitPay’s merchants are still largely ecommerce, 90%+, but they have experienced increased growth in non-US merchants. Earlier this year 40% of BitPays merchants were located outside the US, however these latest numbers show a 10% increase to 50% of customers based outside North America.

In line with the growth in merchants, the volume of Bitcoin sales through the business has also had a dramatic increase. “The month of August was another record month for BitPay, processing over 10,000 merchant transactions worth over $6.4 million.  Year-to-date in 2013, over $34 million worth of bitcoins have been spent on goods and services through merchants using BitPay’s platform.”

The Bitcoin economy may be small, but it’s growing rapidly!

http://www.dgcmagazine.com/900-increase-in-bitcoin-merchants/feed/ 0
eBay flirting with Bitcoin http://www.dgcmagazine.com/ebay-flirting-with-bitcoin/ http://www.dgcmagazine.com/ebay-flirting-with-bitcoin/#comments Tue, 10 Sep 2013 09:43:13 +0000 Julia Dixon http://www.dgcmagazine.com/?p=1707 Continue reading ]]> It seems that the online commerce giant eBay has its eyes on Bitcoin. This is of course a bit surprising as eBay is the owner of PayPal which has a lot to loose from Bitcoin’s success. However, in the past week two indications of eBays interest in Bitcoin have popped up.

First eBay added, and then removed, ‘Virtual Currency’ to its categories of items for sale.

But even more interestingly eBay appears to have produced a video about Bitcoin which they posted to their blog.  The post is titled What’s the Deal with Bitcoins anyway? And curiously is presented without a date, seems to be only accessible directly via the URL and with this disclaimer at the top, “*This video was created for informational and educational purposes.”

The video does present Bitcoin in an unbiased and educational fashion.

The post and the video asks “What do you think? Are bitcoins the real deal?” however, comments are not allowed. … What’s the deal with eBay and Bitcoin?


http://www.dgcmagazine.com/ebay-flirting-with-bitcoin/feed/ 0
Bits and Pieces 4thSep2013 http://www.dgcmagazine.com/bits-and-pieces-4thsep2013/ http://www.dgcmagazine.com/bits-and-pieces-4thsep2013/#comments Wed, 04 Sep 2013 07:17:20 +0000 Julia Dixon http://www.dgcmagazine.com/?p=1700 Continue reading ]]>
  • Bitcoin exchange TradeHill halts trading after its banking partner experiences “regulatory issues”.
  • After series of Bitcoin businesses being dropped  by their banking partners earlier this year, the Internet Archive Federal Credit Union (IAFCU)  came to the rescue. The New Jersey based credit union, run by the Internet Archive, has been very friendly to the Bitcoin industry and has worked with a number of businesses who have had trouble establishing relationships with banks.

    One of the businesses the credit union partnered with was the US based TradeHill  exchange. Late last week Jered Kenna, Tradehill’s founder and CEO, confirmed via Reddit that the exchange had suspended trading due to “operational and regulatory issues” faced by its bank.

    IAFCU posted its own statement on the matter , but was not clear on the nature of the regulatory issues.

    • As the rupee continues to struggle, Indian officials continue their attempts to curb demand for gold.

    Via Reuters

    India is considering a radical plan to direct commercial banks to buy gold from ordinary citizens and divert it to precious metal refiners in an attempt to curb imports and take some heat off the plunging currency.

    The RBI will ask the banks to buy back jewelry, bars and coins for rupees. Lenders will have to offer better rates than pawn shops and jewelers to lure sellers.

    “We will start a pilot project among some banks where we will allow them to buy back gold from individual households,” the source, an official familiar with the central bank’s plan, said. “This will start soon, we have discussed (it) with banks.”

    • From New York to Germany, check out a timeline of August events affecting the crypto-currency community here.
    • For those following the Bitcoin Foundation’s board elections Bitcoin Magazine has posted transcripts from Let’s Talk Bitcoin’s interviews with the Individual Seat Candidates

    Two new seats are being added to the Board of Directors. One representing Individual Members and the other is representing Industry (business) Members. In order to be eligible to vote in this election, you must be a current member of the Bitcoin Foundation.

    http://www.dgcmagazine.com/bits-and-pieces-4thsep2013/feed/ 0
    The Bitcoin Foundation hangs out in Washington http://www.dgcmagazine.com/the-bitcoin-foundation-hangs-out-in-washington/ http://www.dgcmagazine.com/the-bitcoin-foundation-hangs-out-in-washington/#comments Thu, 29 Aug 2013 07:26:46 +0000 Julia Dixon http://www.dgcmagazine.com/?p=1696 Continue reading ]]> This week members of the Bitcoin Foundation had a series of meetings with regulators and law makers in DC.

    On Monday 5 Foundation members, Marco Santori, Patrick Murck, Peter Vessenes, Brian Klein and Jim Harper, met with representatives from a number of US agencies including FinCEN, IRS, FDIC, Federal Reserve, OCC, FBI, DEA, Secret Service, and the Department of Homeland Security.

    via CoinDesk

    Murck, who is general counsel for the Bitcoin Foundation, said all parties at the meeting had a “productive and frank” discussion about digital currency. “It was a positive first step for the industry in creating an open and on-going dialog. I left feeling very encouraged that we were able to dispel some myths and misinformation about how the bitcoin protocol works.”

    Another attendee, Jim Harper, director of information policy studies at Cato Institute, shared this sentiment.

    He said a number of topics were discussed at the meeting, which was held at US treasury building in Washington DC, including privacy, law enforcement and how government controls have the potential to strangle the industry before it has even had the chance to really get going.

    “We talked about how the weight of regulation in the US can, and does, drive bitcoin service providers to move outside of the country,” Harper explained.

    He suggested the Bitcoin Foundation was able to set the record straight on a number of digital currency-related issues, and that explaining what exactly the blockchain is and how it works largely dispelled the idea that there is some “magical secrecy” to bitcoin.

    Marco Santori also commented on the meeting via BitcoinTalk

    I, of course, discussed regulatory challenges.  I discussed some of the ways in which the regulatory landscape in the US did not achieve the government’s policy goals.  In particular, I spent a few minutes just going through the ambiguity in the March FinCEN Guidance, and emphasized the importance of supporting innovation in the Bitcoin industry.  I hit some points very hard – like how the regulatory environment has disincentivized businesses from launching in the US and from servicing US customers.  I also discussed how some businesses were simply picking up and leaving the US entirely.

    Tuesday, in another meeting at Capitol Hill, Foundation members Peter Vessenes, Patrick Murck and Marco Santori meet with representatives from the offices of several congressmen and senators.

    Via CoinDesk

    Santori, who is chair of the foundation’s Regulatory Affairs Committee, said the attendees raised a number of concerns including privacy and anti-money laundering issues, but most just wanted to know how the protocol works.

    There were also people at the meeting who had a very in-depth understanding of bitcoin. Santori said he was surprised to find there were a few attendees who knew more about bitcoin than he did.

    http://www.dgcmagazine.com/the-bitcoin-foundation-hangs-out-in-washington/feed/ 0
    Bitcoin is “Rechnungseinheiten” … what does that mean? http://www.dgcmagazine.com/bitcoin-is-rechnungseinheiten-what-does-that-mean/ http://www.dgcmagazine.com/bitcoin-is-rechnungseinheiten-what-does-that-mean/#comments Wed, 21 Aug 2013 06:38:09 +0000 Julia Dixon http://www.dgcmagazine.com/?p=1689 Continue reading ]]> Frank Schaeffler, a member of German parliament’s Finance Committee has issued a statement recognizing Bitcoin as “Rechnungseinheiten,” which translates to “units of account”.  Many news sources are reporting that this makes Bitcoin ‘private money’  or ‘legal tender’   in Germany.

    But what exactly does the designation of “Rechnungseinheiten” mean for German Bitcoin users and businesses?

    Via Pymnts.com

    The German parliament stopped short of granting bitcoin full currency status on August 19, but recognized bitcoins as “units of account” when it formally issued regulations for the popular virtual currency.

    The ruling means bitcoin will be legal for use in private transactions, PC World reported. German commercial entities that want to conduct business with bitcoin will first need to obtain permission from the Federal Financial Supervisory Authority. 

    The announcement comes at a time when global governments are looking for direction on how best to regulate bitcoin, and commentators told PYMNTS.com that the development can be seen as a win for both bitcoin users and business owners and investors.

    Likewise, the ruling is likely to have reverberations in the international community, where it could serve as a template for lawmakers in countries where the regulatory environment for bitcoin remains unclear.

    Additional Implications For Germany

    German lawmakers also issued directives on key issues, determining if bitcoin would be subject to capital gains tax and sales tax, how bitcoin mining – the process by which additional bitcoins are generated – should be addressed and whether payment processors could avoid taxation.

    Legislators decided commercial activities that use bitcoins should not be tax exempt, TechCrunch reported. Still, there is some confusion regarding this point. The media outlet noted that it was not clear how the sales tax would be implemented, and whether it would affect individuals who only occasionally sell items through third-party businesses such as eBay.

    German lawmakers recommended bitcoin mining be governed as private money creation, and that payment processors be exempt from sales tax when dealing with German customers.

    Further, notable German lawmakers made the philosophical case for bitcoin.

    “We should have competition in the production of money,” said Frank Schaeffler, a member of the German parliament’s Finance Committee, according to CNBC. “I have long been a proponent of Friedrich August von Hayek scheme to denationalize money. Bitcoins are a first step in this direction.”


    The statement made it clear that Bitcoin is not e-money and not subject to the EU’s e-money regulations.  Also bitcoins held for 12+ months are still free from capital gains tax.

    However, there still seems to be some confusion for Bitcoin businesses over whether or not they need to register with Germany’s financial regulator BaFin. There are reports that BaFin classified Bitcoin (and other digital currencies) as “financial instruments“. This would require licensing and other challenging requirements such as €730,000 of capital.

    Recently the German exchange bitcoin.de has collaborated with German based Fidor Bank which has pre-emptively applied for a license from BaFin. The outcome of their application may shed some light on the situation.

    http://www.dgcmagazine.com/bitcoin-is-rechnungseinheiten-what-does-that-mean/feed/ 0
    World Gold Council releases Q2 Demand Trends Report http://www.dgcmagazine.com/world-gold-council-releases-q2-demand-trends-report/ http://www.dgcmagazine.com/world-gold-council-releases-q2-demand-trends-report/#comments Thu, 15 Aug 2013 07:52:32 +0000 Julia Dixon http://www.dgcmagazine.com/?p=1676 Continue reading ]]> Second Quarter 2013 in summary
    Gold jewellery demand rises 37% in Q2 2013, led by Indian and Chinese consumers
    Lower gold prices generated a surge in global jewellery demand to 575.5t, the highest volume for five years. In value terms demand was 20% higher than Q2 2012.
    Sizeable ETF outflows countered by record bar and coin demand of 508t in Q2 2013
    The fall in gold prices led to record demand for gold bars and coins of 507.6t, up 56% in value terms to US$23bn. However, this was mitigated by well-documented outflows from ETFs.
    Technology gold demand saw a marginal increase, up 1% in Q2 2013
    Demand for gold in the technology sector in Q2 2013 increased by 1% to 104.3t. Price declines and improvements in economic conditions provided a boost to demand from the electronics segment.
    Central bank gold purchases slowed in Q2 2013, remain within 70-160 tonne range
    Central banks added 71.1t of gold to official reserves in Q2 2013, marking the tenth consecutive quarter of net purchases but 57% down on the previous year.
    Total supply shrank 62 tonnes in Q2 2013, driven by 21% decrease in recycling
    While Q2 2013 mine production saw a 4% increase year-on-year, the significant reduction in recycling by consumers during the quarter led to the 6% decrease in total supply.


    The full report can be read here.


    http://www.dgcmagazine.com/world-gold-council-releases-q2-demand-trends-report/feed/ 0
    The US Senate jumps on the Bitcoin inquiry bandwagon http://www.dgcmagazine.com/the-us-senate-jumps-on-the-bitcoin-inquiry-bandwagon/ http://www.dgcmagazine.com/the-us-senate-jumps-on-the-bitcoin-inquiry-bandwagon/#comments Thu, 15 Aug 2013 02:17:07 +0000 Julia Dixon http://www.dgcmagazine.com/?p=1673 Continue reading ]]> First NY, then the House and now the Senate, US regulators are turning their attention to virtual currencies.

    On Monday the US Senate Committee on Homeland Security & Governmental Affairs sent a letter to Homeland Security for information on any policies, procedures or guidance they have that pertains to “virtual currencies”.

    The letter states the committee has initiated an inquiry into virtual currencies, list recent legal actions involving Bitcoin and contains the usual ‘hey were all for new tech, but we need to look at the threats and risks’.

    The letter, which can be read here, ask Homeland Security for 3 things to be provided by the end of the month…

    1. Any policies, procedures, guidance, or advisories related to the treatment or regulation of virtual currencies and any minutes of interagency working groups involved in the development of any such policies, procedures, guidance or advisories;
    2. Information related to any ongoing coordination of your agency with any other federal agencies or state and local governments related to the treatment of virtual currencies; and,
    3. Any plans or strategies regarding virtual currencies and information regarding any ongoing initiatives you have engaged in regarding virtual currencies and the name of the person most knowledgeable about any such plans, strategies or initiatives.
    http://www.dgcmagazine.com/the-us-senate-jumps-on-the-bitcoin-inquiry-bandwagon/feed/ 0
    Congress directs the FBI to report on Bitcoin http://www.dgcmagazine.com/congress-directs-the-fbi-to-report-on-bitcoin/ http://www.dgcmagazine.com/congress-directs-the-fbi-to-report-on-bitcoin/#comments Wed, 14 Aug 2013 01:14:29 +0000 Julia Dixon http://www.dgcmagazine.com/?p=1667 Continue reading ]]> FBILogoThe United States House Appropriations Subcommittee on Commerce, Justice, Science, and Related Agencies 2014 appropriations bill recommends spending amounts for a number of government agencies including the FBI.

    In their 2014 appropriations bill, the subcommittee directs the FBI to report on Bitcoin, specifically what the FBI is doing to address the “challenge” that they see from the “ersatz currency“.

    Page 45 of the bill

    Money laundering. —The Committee understands that Bitcoins and other forms of peer-to-peer digital currency are a potential means for criminal, terrorist or other illegal organizations and individuals to illegally launder and transfer money. News reports indicate that Bitcoins may have been used to help finance the flight and activity of fugitives. The Committee directs the FBI, in consultation with the Department and other Federal partners, to provide a briefing no later 120 days after the enactment of this Act on the nature and scale of the risk posed by such ersatz currency, both in financing illegal enterprises and in undermining financial institutions. The briefing should describe the FBI efforts in the context of a coordinated Federal response to this challenge, and identify staffing and other resources devoted to this effort.

    From the wording of the bill, particularly in describing digital currencies as “ersatz” (inferior substitute – merriam-webster.com) we can guess that the members of the United States House Appropriations Subcommittee on Commerce, Justice, Science, and Related Agencies are not big Bitcoin fans.

    LetsTalkBitcoin, which broke the story on Monday, sees this fear from Congress as quite predictable.

    The cash-like nature of Cryptocurrencies such as Bitcoin seem to be fundamentally at odds with the identity-based financial systems we’ve used since the advent of the internet.  What the bitcoin-using community sees as the advantages of Bitcoin; trustless and irrevocable transactions divorced of official identity.  In another light this can be seen as enabling money laundering, consumer fraud and terrorism.

    “It is natural for established industries and their representatives in the Senate to fear new and disruptive technologies.” explained Andreas M. Antopoulos, Expert on decentralized networks  “As with the early Internet, there are those who only look at the empowering effects on criminals, rather than on the vast majority of people who can benefit enormously. It just takes time for the lawmakers and laws to catch up to the technology and adapt”


    http://www.dgcmagazine.com/congress-directs-the-fbi-to-report-on-bitcoin/feed/ 0
    New York’s Department of Financial Services initiates Inquiry on Virtual Currencies http://www.dgcmagazine.com/new-yorks-department-of-financial-services-initiates-inquiry-on-virtual-currencies/ http://www.dgcmagazine.com/new-yorks-department-of-financial-services-initiates-inquiry-on-virtual-currencies/#comments Tue, 13 Aug 2013 06:52:58 +0000 Julia Dixon http://www.dgcmagazine.com/?p=1661 Continue reading ]]> NY-DFSThe New York banking regulator has issued subpoenas to 22 companies associated with Bitcoin as part of an “Inquiry on Virtual Currencies”.

    Via Forbes’ Kashmir Hill

    A subpoena doesn’t mean criminal activity has taken place. A person familiar with the matter says the two-year-old department wants to make sure Bitcoin isn’t a conduit for illicit activities and is gathering information in order to decide whether to issue regulation for virtual currencies. The department has the authority to create regulation if there is no other primary regulator.

    In addition to rooting out illegal activity, the department says it wants to make sure Bitcoin company customers’ funds are “safe and sound,” expressing concern about consumer complaints “about how quickly virtual currency transactions are processed.”

    The virtual currency Bitcoin has already been getting lots of attention on the federal level. The IRS has been encouraged to make sure people pay tax on it. The FBI realizes it’s useful as a currency for illicit activity. The SEC has argued that it is indeed money and that people should go to jail for using it in Ponzi schemes. And the Department of Treasury has issued guidance for Bitcoin money transmitters. State regulators paying attention will help to further legitimize the currency, but it will also increase the start-up costs for Bitcoin money transmitters. The NYSDFS notes in its statement that “virtual currency exchangers may be engaging in money transmission as defined in New York law, which is an activity that is licensed and regulated by DFS.” That means ponying up bond money, as pointed out in the Wall Street Journal

    Below are the companies subpoenaed.

    • BitInstant
    • BitPay
    • Coinabul
    • Coinbase Inc.
    • CoinLab
    • Coinsetter
    • Dwolla
    • eCoin Cashier
    • Payward, Inc.
    • TrustCash Holdings Inc.
    • ZipZap
    • Butterfly Labs
    • Andreesen Horowitz
    • Bitcoin Opportunity Fund
    • Boost VC Bitcoin Fund
    • Founders Fund
    • Google Ventures
    • Lightspeed Venture Partners
    • Tribeca Venture Partners
    • Tropos Funds
    • Union Square Ventures
    • Winklevoss Capital Management
    http://www.dgcmagazine.com/new-yorks-department-of-financial-services-initiates-inquiry-on-virtual-currencies/feed/ 0