New York's financial regulator today said that the state will propose regulations for oversight of virtual currencies such as Bitcoin this year.
"Serious people in the technological and investment community are taking virtual currencies seriously," Benjamin Lawsky, the state's superintendent of financial services, said in remarks prepared for delivery today. "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."
Lawsky has convened two days of hearings to consider whether New York should create a "BitLicense" for companies engaged in business related to virtual currencies including Bitcoin.
The hearings come on the heels of a federal indictment of the head of a digital currency exchange, Charlie Shrem, on charges of conspiring to launder more than $1 million in Bitcoin tied to Silk Road, an online bazaar alleged to have hosted the sale of illicit goods. Shrem, the chief executive officer of BitInstant, is also the vice chairman of the Bitcoin Foundation, the group that oversees the currency's software protocols and lobbies regulators.
In October, U.S. authorities shut down Silk Road and arrested its operator for hosting illegal transactions. Manhattan U.S. Attorney Preet Bharara said yesterday the probe of Silk Road is "ongoing."
In August, Lawsky issued subpoenas to 22 companies that deal with digital currencies to obtain information about how they work. Shrem's BitInstant and TrustCash Holdings Inc., a payment processor that he worked with, were among the group.
Cameron and Tyler Winklevoss, brothers who are seeking regulatory approval for a Bitcoin exchange-traded fund, invested $1.5 million in BitInstant in May. They are scheduled to appear at Lawsky's hearings, along with other industry participants.
Bitcoin, a software protocol for issuing and moving money across the Internet, has gained traction with merchants selling everything from Sacramento Kings basketball tickets to kitchen mixers on Overstock.com. Venture capitalists see promise in it as an alternative to the global payment system currently dominated by companies including Visa, Western Union and large banks such as JPMorgan Chase & Co.
Bitcoin was introduced in 2008 by a programmer or group of programmers under the name Satoshi Nakamoto. It has no central issuing authority, and uses a public ledger to verify encrypted transactions.