First, let me start by telling you what a Bitcoin is as defined by Wikipedia on November 23, 2013. That website defines it as “a peer-to-peer digital currency that functions without the intermediation of a central authority, “ which means that no one government controls it, much like friends trading baseball cards, thus the peer-to-peer reference. That fact is evident as reported by Max Raskin, Bloomberg News, in his November 18, 2013 article entitled U.S. Agencies to Say Bitcoins Offer Legitimate Benefits. He wrote that Ben Bernanke, Chairman of the Federal Reserve, noted to a Senate Committee that “although the Federal Reserve generally monitors developments in virtual currencies and other payments system innovations, it does not necessarily have authority to directly supervise or regulate these innovations or the entities that provide them to the market.” As you can deduce, the substained value of Bitcoins will be determined by those who choose to use Bitcoins in commerce and by those who choose to accept them for goods or services.
Just like Central Banks whose primary function is to manage a Nation’s money supply Bitcoins also have a central mechanism to manage the flow and exchange of the digital currency. It’s called the Blackchain ledger, and according to Wikipedia “every individual transaction is permanently recorded in [that] public ledger.” With such a centralized system in place it has made Bitcoins easier to use as noted in an article written on November 18, 2013 by Sophie Song, International Business Times, entitled World’s Biggest Bitcoin Exchange, BTC China, Secures $5 Million Funding. She wrote that Chineese holders of Bitcoins use them as an alternative means to save and also wrote that they are becoming an increasingly popular vehicle to purchase housing units in that country. You may be asking yourself how does one save digital currency, well one does so by storing it on a server, personal hard drive, web service or on a mobile device. As noted on Wikipedia Bitcoins are “stored by associating them with addresses called ‘wallets . . . . [which] allow a user to complete transactions between addresses by requesting an update to the blackchain.’”
Bitcoins are usually bought and sold on one of three Bitcoin Exchanges, the largest according to a November 18, 2013 Markerwired news article entitled China’s Bitcoin Market Grows in Popularity, is BTC China as measured by volume which is then followed by Japan’s Mt. Gox and Eurpoe’s Bitstamp. According to Mr. Raskin by mid 2013 there were 11 million Bitcoins created and based upon his report there will never be more than 21 million Bitcoins created. As you can imagine, an anticipated cap of 21 million Bitcoins could lead individuals to believe that the digital currency will not diminish in value based upon the possibility of additional Bitcoins being created beyond what was stated by the creator(s) of the Bitcoins and based upon that expectation it is easy to understand why the Chinese have decided to use them as an alternative means to save especially since its popularity and acceptance is becoming more commonplace in that country.
Having an United States’ Department of Justice official, Mythili Raman, stating during a Senate Hearing that Bitcoins can be a “legal means of exchange” also gave the digital currency a great deal of validity and credibility. Mr. Raskin also reported that that Hearing was held “to explore potential promises and risks related to virtual currency for the federal government and society at large” and he added that Principal Deputy Assistant Attorney General Peter Kadzik commented “that online payment systems, both centralized and decentralized, offer legitimate financial services.” If what the SEC Chairwoman Mary Jo White is reported as writing is true then it appears that the U.S. seems to be signaling that it believes that Bitcoins may offer some benefits and utility for its citizens as it does for the Chinese, Japanese, and Europeans. Mr. Raskin reported that on August 30, 2013 Chairwoman White noted that “regardless of whether an underlying virtual currency is itself a security, interests issued by entities owning virtual currencies or providing returns based on assets such as virtual currencies likely would be securities and therefore subject to our regulation.”
This begs the question of why she would note such a comment and imply that based upon the right circumstances Bitcoin transactions may be subjected to U.S. regulations if she wasn’t signaling that the U.S. is now opening its e-commerce portals to companies and individuals willing to conduct business using Bitcoins.
Another lingering question, how will the U.S. record the 173,991 Bitcoins that was discovered on the founder of the Silk Road website harddrive which was seized in October 2013 that is said to be worth about $33.6 million. Will the U.S. allow the creation of a Bitcoin exchange within its borders in order to covert them into paper currency or will the Treasury establish a “wallet” and sell them on one of the exchanges in Asia or Europe.