Lawmakers, Banking Regulators Take On Bitcoin

The New York Department of Financial Services has issued subpoenas to several companies using the virtual currency Bitcoin for more information on how they do business. Audie Cornish talks to Jerry Brito, senior research fellow at the Mercatus Center at George Mason University, about the complications of regulating digital money.

AUDIE CORNISH, HOST:

Right now, somewhere in the world, someone is buying and selling virtual currency. And it sounds like this...

(SOUNDBITE OF TONES)

CORNISH: This is from the website called ListenToBitCoin.com. It tracks and marks Bitcoin transactions in real time with a ring.

(SOUNDBITE OF TONES)

CORNISH: As a virtual currency, Bitcoin is traded peer-to-peer. There's no issuing country, no overseer like a federal reserve, no middle man like a bank. So, how to regulate it? Senate lawmakers are asking that question this week, so are banking regulators in New York.

To better understand what they are up against, we turn now to Jerry Brito. He's a senior research fellow at the Mercatus Center at George Mason University and director of the Technology Policy Program. Welcome to the studio.

JERRY BRITO: Thanks for having me.

CORNISH: So first, to start, what rules do apply to Bitcoin, right? It's not quite cash. It's not quite a commodity. Like, what is it?

BRITO: Well, I think that's what we're trying to figure out right now. Whenever there's a new disruptive technology, like Bitcoin, regulators look at it and they try to fit it into one of their preexisting buckets. And Bitcoin really doesn't fit neatly into any of these buckets, as you say.

You know, it has some qualities that make it seem like a commodity, but it's not a commodity the way that corn or pork bellies are and it's a currency, but it's not issued by a national government. So when you look up the definitions of these things, Bitcoin doesn't really fit into any of these.

So right now, ones we're absolutely sure that apply to Bitcoin are sort of the money transmission rules and the money laundering rules. But aside from that, we're still trying to figure that out. And I think that's why government's getting involved.

CORNISH: So at this point, what, if any, regulations actually do apply to Bitcoin here in the U.S.?

BRITO: So I think you have to think about it at the federal level and the state level. At the federal level, they're concerned about anti-money laundering laws and terrorist financing. And so, the Treasury Department, earlier this summer, issued guidance that applies to Bitcoin exchanges and other businesses. At the state level, they're more concerned about consumer protection and making sure that consumers don't lose their money or that their companies don't run away with the money.

And so you have to be licensed as a money transmitter if you are a certain kind of Bitcoin business. But the issue still is, it's very unclear which kinds of businesses have to register with which kinds of regulators.

CORNISH: Do you feel that Bitcoin shouldn't be regulated?

BRITO: So it's an interesting question. People often ask me, you know, should Bitcoin be regulated, can Bitcoin be regulated. And the interesting thing about that is what are you saying when you say Bitcoin? Bitcoin is a network, like email, like the Web. So can you regulate email? No, you can't really regulate email. It is a protocol on the Internet and it's peer-to-peer, but you can regulate Gmail, right, which is a specific company, Google, who is providing the service.

So you have companies that are providing certain services that qualify for regulation and that will be regulated. But the network itself, the currency itself, it's really outside of the reach of government.

CORNISH: How significant is New York's move to launch an investigation, to issue these subpoenas?

BRITO: So it's interesting, people hear the word subpoena and they think something bad, right? But all the word subpoena means is that it is a request for information, right? And you're compelled to, you know, produce, you know, you're asked questions and you have to answer them. And I think that's very good.

When you look at the federal guidance that was issued by the Treasury Department, they issued them without consulting anybody in the Bitcoin community that I'm aware of. And this has lead to this uncertainty with that guidance. If they had sort of proposed the guidance and asked for comments before issuing the final guidance, I think we would've, you know, avoided the problems that we have now with that guidance.

So when I see New York issuing these subpoenas, being very transparent about the fact that they're going to be looking at this and asking for input, you know, I think that's very good.

CORNISH: Jerry Brito, he's senior research fellow at the Marcatus Center at George Mason University and director of the technology policy program. Thank you so much for coming in.

BRITO: Thank you for having me.

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