Bitcoin is a digital currency which is similar to more popular digital currencies on the market including PayPal, Alertpay and Liberty Reserve. Bitcoin was created in 2008 and quickly became one of the most popular peer-to-peer electronic currency systems. The network is not managed by any central authority, and rather can be manipulated by any institution, creating the great risk of currency manipulation, loss of Bitcoins and other problems which can have drastic effects on the service. Lately the United States government has noticed the potential problems posed by the service and have decided to take action.
US Government Action
The US government, along with an immigration attorney Seattle, took action in May of 2013 by freezing the accounts of Mt. Gox, which is an institution that controls over 75% of the global Bitcoin exchanges. This caused a major disruption in the service, with thousands of users closing their accounts and attempting to make withdrawals. The closure of the Mt. Gox exchange poses numerous questions for the future of Bitcoin including will it stick around, what is it’s official legal status in the United States, and what does this mean for other digital currency services such as Liberty Reserve?
Legal Status
The recent action by the US government has raised doubts in regards to the legal status of the Bitcoin service. Most immigration attorney Tacoma have agreed that Bitcoin itself is a legal service in the United States, but some of the regulations and rules they were following were illegal, which is what forced the government intervention. A recent government paper released in March of 2013 has stated that Bitcoin as a decentralized digital currency is legal in the United States. Users who use the service only for purchasing or selling goods and using the currency as a means of exchange of money are not subject to regulation or scrutiny by the government.
The paper also states that exchangers and administrators are the ones subject to government oversight and regulations. These processors must register themselves as a money transmission business, meaning they deal in the exchange of money and currency. This registration status is required on a federal level in the United States for legal operation. The law defines administrators as somebody who is involved either individually or with a business with issuing additional virtual currency into the market, and who has the authority to “withdraw” money from the system. Because Bitcoin cannot be withdrawn or “redeemed” for other currency, there are technically no administrators in the Bitcoin system.
Exchangers on the other hand are those that exchange the Bitcoin currency for other types of currencies including stocks, bonds, cash, investments and other digital virtual currencies. Mt. Gox, the largest Bitcoin exchanger that was dealt a hit by the government last week was targeted not because they were the largest exchanger of Bitcoin currency, but rather because they failed to register as an official Bitcoin exchanger with the federal government. US law explicitly states all Bitcoin operations are legal if they are registered properly.