You may be one of many still asking, “What is Bitcoin?” Truth is, you’re not alone. Bitcoin has been dominating the mainstream news recently, and its volatility has given it a wild reputation.
Its operation, although similar to that of traditional currency, differs in a few ways. First, there are no physical coins; everything is digital. Second, it is a form of decentralized currency; no central entity can administrate Bitcoin. Last, because Bitcoin is decentralized, it can be used on a global scale. The Bitcoin you use in the United States is the same Bitcoin that you would use in any other country.
Although digital currency, better known as cryptocurrency, has been around for near a decade, the laws and regulations governing it are more recent. Regulations have been put in place to protect prospective investors, deter fraud, and to ensure unlawful funds do not get laundered.
What are the compliance and regulation issues involving Bitcoin? In the United States, Bitcoin exchanges fall under the category of MSB (money service business). This means that cryptocurrency exchanges are labeled as “Financial Institutions.” As they are considered MSBs, cryptocurrency exchanges are mandated to abide by The Bank Secretary Act and its implementing regulations (Anti-Money Laundering Rules). Regarding taxation, as of 2014, the IRS has deemed virtual currencies as property. Ever since this ruling, there have been numerous issues brought up in regards to the obstruction this ruling has caused to the cryptocurrency platform, the tracking and reporting of common transactions and the ability to consider treating this type of currency different than physical currency.
Another aspect of Bitcoin that helps someone unfamiliar with it is the concept and function of blockchain. It is not an entirely new concept as it has been used in a variety of applications before. In regards to Bitcoin, blockchain works as follows; Person A wants to send money to Person B. The transaction is initiated and is represented online as a ‘block’. The block is then broadcasted to miners willing to participate in mining the transaction (mathematical algorithms completed by the miner) to help verify it. Once they have verified and approved the transaction, it is sent and added to a preexisting block of transactions and becomes a part of the chain, more specifically the blockchain. This blockchain provides an indelible record, and once the transaction has reached the blockchain, the money then moves from Person A to Person B. There is almost no doubt that more innovation will happen in regards to cryptocurrency.
Join FTSI in alliance with the California and Nevada Credit Union Leagues on Thursday, May 17 presenting Bitcoin industry experts that will discuss this and much more on the future of Bitcoin and its tremendous impact on the currency landscape.