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Archive for Monday, November 25, 2013

Senator says ‘Bitcoins’ are challenge for regulators

November 25, 2013

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Before going into politics, U.S. Sen. Jerry Moran studied economics at Kansas University and worked briefly in the banking industry before going to law school.

And since being elected to the Senate in 2010, he has served on the Banking Committee, as well as a subcommittee that deals with the banking aspects of national security and international trade and finance.

But he freely admits that nothing in that background prepared him to deal with "Bitcoin," a new form of currency that exists only on the Internet and which is neither minted nor controlled by any government or central banking system.

"It's a difficult subject to get your arms around and understand," Moran said during an interview Friday after speaking at a Lawrence Chamber of Commerce breakfast.

Last week, the subcommittee held its first hearing on the subject, mainly to educate members about what the currency is and and what some of the concerns are surrounding it.

Bitcoin is not the first "virtual currency" to appear on the Internet, but it's the one currently grabbing most of the attention from currency regulators in the United States and elsewhere. That's mainly because of its rapid growth in recent months and its potential for being used as a medium for illicit transactions like drug trafficking and money laundering.

According to BitPay, a payment service provider, there are now about 10,000 merchants worldwide who accept bitcoin for payment. Many of those are eCommerce retailers such as BitcoinShop that offer a wide variety of consumer products.

Traditional currencies like the U.S. dollar are minted by national governments and their supplies are controlled by some kind of central bank like the Federal Reserve.

But the origin of Bitcoin is much more mysterious. It is widely believed that Bitcoin was invented by someone identifying himself, or herself, as "Satoshi Nakamoto," but no one can be sure if that is a real person.

The currency is also traded on a peer-to-peer network, similar to the way Napster and other networks used to swap music and video files, which means transactions can easily avoid detection from law enforcement and taxing authorities.

New bitcoins are "minted" periodically and awarded to individuals through a contest that involves solving complex computer algorithms. But supposedly the total number of bitcoins in circulation can never exceed about 25 million.

And while that may seem small, other Internet-based services and technologies have been known to grow rapidly in very short periods of time. As recently as 2004, for example, Facebook reported signing up its 1 millionth member. Today it has more than 1.1 billion.

That may be reason enough for national governments to get concerned about the impact Bitcoin could have on their own currencies.

"Particularly as I learned about how the value fluctuates so radically, there is great harm that can be had to a consumer in this virtual currency," Moran said.

The anonymous nature of Bitcoin and the people who control is also cause for concern, Moran said, because ultimately nobody who can be held accountable for its management.

It also has implications for the nation's monetary policy, he said, because "in a broad sense, currency has an effect upon interest rates. Outside the Fed, there's no ability to control the volume of our currency."

At the same time, however, Moran raised concerns during the subcommittee hearing last week that if the United States acts alone in regulating Bitcoin, or any other virtual currency, it could inadvertently drive a new and potentially beneficial economic system offshore, depriving Americans of its benefits.

"I don't know what happens next," Moran said. "The Banking Committee is going to continue to pursue this. We're just getting started on trying to understand the topic."

Comments

Jason Johnson 8 months, 1 week ago

sigh

Yet another Senator that doesn't "get it".

"The anonymous nature of Bitcoin and the people who control is also cause for concern, Moran said, because ultimately nobody who can be held accountable for its management."

That's the beauty of it. No one entity or government can freeze your money, or take it from you (like what happened in Europe recently) to cover their debts. Your money is finally your money, to do with what you want. I'm all for taxing it, sure, but no one should be able to freeze your assets with just a few keystrokes like they can do now.

Until they break the encryption key, our world's citizens are finally able to start freeing themselves from the banking cartels.

By the way, the maximum number of bitcoins will be 21 million.

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Raymond Munoz 8 months, 1 week ago

Oh Bitcoin. I love how you give politicians fits! Nice to finally see a Bitcoin article in the LJWorld. I'm a bit sad because it's going so mainstream, but at the same time it's really enjoyable to see something I've been so obsessed with over the last few years take off!

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Beator 8 months, 1 week ago

The problem I have with Bitcoin is they don't jingle in my pocket.

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Glenn Reed 8 months, 1 week ago

Of course it's hard for a senator to grasp the concept of a cryptocurrency. These idiots are elected for being vicious towards people wanting abortions and compliant to psychos about guns. Maybe there's some god-related stuff they're focused on, too. Everything else is over their heads...

That said...

This article kind of inspires a facepalm reaction. There's no point in giving the little bits of info outside of a context where they make sense.

The bit about 25 million bitcoin max (supposed to be 21) doesn't seem like a reasonable segue to the number of users facebook has. Also, I'm unsure how this is supposed to inform a layman about the currency. Really, every time someone hears this factoid for the first time, they ask, "only 21 million?" This is a reasonable reaction, there's far more people than that on the planet. However, each coin can be subdivided up to 8 decimal points, there's specs for more when needed. Meaning, while there's a finite number of coins, they can be divided infinitely.

You can use P2P protocols for any purpose, not just trading low-quality video and audio that you ripped off. I play a video game that takes advantage of the protocol for updates. Bitcoin uses this to push the ledger of transactions (the blockchain) to every user of the standard Bitcoin client. When I buy a coffee, everyone on the network knows that .004 bitcoins went from one bitcoin wallet to another.

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Julius Nolan 8 months, 1 week ago

So exactly what good are bitcoins? Can I drop them in Salvation Army kettles? Can I give them to beggars on street? Can I use them in vending machines? Do they fit parking meters? Can I use them to tip for services rendered? Are they usable everywhere? If not what good are they?

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Glenn Reed 8 months ago

--So exactly what good are bitcoins?

Kind of a vague question. You mean currency in general, or bitcoins specifically? Honestly, it depends on who's involved. If the people trading bitcoin think it has value, then bitcoins have value.

--Can I drop them in Salvation Army kettles? Can I give them to beggars on street?

Yes and yes. Salvation Army Kettles would probably have a bitcoin address pasted on the side of the kettle. The beggar on the street would probably have a prominently displayed QR code as well. If you're really wanting a trinket to drop, you could attach a private key to a piece of paper, and drop that. (though I'd avoid trading private keys. There was a bitcoin tipping service somewhere....).

--Can I use them in vending machines? Do they fit parking meters?

Eventually and eventually. Vendors for both would have to make them.

--Can I use them to tip for services rendered?

Sure, same solution as the charity thing...

--Are they usable everywhere?

So long as you can find people that accept it. This is an accurate critique of every currency. There's places in the world where the US dollar is just so much toilet paper.

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David Campbell 8 months, 1 week ago

Publishing this story only serves to demonstrate: 1) the fecklessness of the Senator 2) the poor, poor job done by the writer in researching his subject.

News is supposed to inform. This story manages to totally muddle and confuse a simple concept. It feels almost as if the author researched it by talking to his kid, who "heard about it from a friend at school".

Try again LJW, this first attempt was embarrassing.

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