18 Nov 2013 / Time.com – The first congressional hearing on how to regulate virtual currencies will take place on Monday afternoon before the Senate Homeland Security and Governmental Affairs Committee. Called “Beyond Silk Road: Potential Risks, Threats and Promises of Virtual Currencies,” the hearing comes six weeks after federal authorities took down the Silk Road, known as the “Amazon for drugs,” and arrested its alleged founder, 29-year-old Ross Ulbricht. (It also comes less than a month after TIME’s cover story, “The Secret Web,” which explored these issues.) Though the session promises to look at all virtual currencies, it will primarily focus on bitcoin, the cryptocurrency used by the Silk Web, according to advance testimony given to TIME.
Pages and pages of explanations and definitions mark the testimony. What are bitcoins? How are they made? How do they differ from centralized virtual currencies? It is clear Washington has a ways to go in understanding, let alone regulating, cryptocurrencies. The hearing is a first step in what will likely be a long process toward any kind of lawmaking. “Honestly, the environment seems to be a game of hot potato where no politician wants to be caught being pro or anti bitcoin,” says Charles Hoskinson, director of the Bitcoin Education Project. “Once the market cap gets to around $10 billion or so [it’s currently just over $2 billion], then expect real hearings and a lot of lobbying.”
(MORE: 3 Reasons Why the Price of Bitcoin is Surging)
Over the summer committee chairman Tom Carper, a Delaware Democrat, and ranking member Tom Coburn, an Oklahoma Republican, sent letters to nine U.S. agencies asking for guidance on what is already being done to deal with cryptocurrencies. Ahead of the hearing, the panel released five of the responses. The Securities and Exchange Commission reviewed whether bitcoin should be treated as a security, and the Department of Homeland Security has adopted an “aggressive posture” to address the “emerging threat and criminal exploitation of virtual currency systems.” The Treasury’s Financial Crimes Enforcement Network has gone the furthest, producing two rules that define how exchanges should handle bitcoin and other virtual currencies. The Bitcoin Foundation protests these rules as too onerous as they force bitcoin exchangers to register state by state as wire services.
If anything, the letters and other testimony highlight Washington’s challenge in dealing with bitcoin. While the Treasury refuses to define bitcoin as a currency, a federal judge hearing a case about a Ponzi scheme recently ruled bitcoin was indeed currency. And noticeably absent from the agency responses were those from the Internal Revenue Service, which has been looking into virtual-currency tax shelters, and the Commodity Futures Trading Commission, which has said it is looking into regulating bitcoin as a commodity. The question of jurisdiction will remain up in the air until Washington can settle on a definition for bitcoin. Is it a security? A currency? A commodity?
