Bitcoin is being kept under regulation by the Texas banking regulators who have established licensing and security guidelines for virtual currencies and their exchanges. The latest decision on the part of the authorities is an indication that virtual currencies which have proliferated in recent years need regulation, particularly after the collapse of Mt. Gox.
Mt. Gox collapse led to huge losses for investors and the demand to bring Bitcoin exchanges under the regulation got louder. According to Texas Banking Commissioner Charles G. Cooper cryptocurrencies such as Bitcoins, Litecoins, Peercoins and Namecoins lack intrinsic value because as they are not centralized or backed by a neither commodity nor convertible by law.
In such a situation he says that a cryptocurrency like Bitcoin is best viewed like a speculative investment, not as money. According to the memo written by Cooper as Bitcoin develops, the Texas Department of Banking will continue to evaluate whether the nature of cryptocurrencies and the potential harm to the public warrant additional action.
However, a major concern for such regulatory bodies is that as these are not considered currencies, the laws and bylaws that are applicable on a currency are not applicable on Bitcoin. The similar problem is being faced by Texas and for that reason Cooper says that since they are not money, cryptocurrencies themselves do not trigger licensing requirements under the Texas Money Services Act.
Bitcoin Exchanges are Providing Escrowlike Services and Need to Follow the Law
According to Mr. Cooper the exchange of cryptocurrency between two parties for sovereign currency is therefore not a money transaction. He also concluded that in such a situation neither the exchange of one cryptocurrency for another or the transfer of cryptocurrency by itself falls under the money transactions.
Mr. Cooper however, believes that some common business activities relating to cryptocurrency that involve the receipt of government-issued currency can trigger the licensing requirements of the act. He says that the exchange of cryptocurrency for sovereign currency through a third-party exchange like Mt. Gox is “generally” a money transmission.
He says that Mt. Gox is kind of providing an escrowlike intermediary service and any such services providers must meet the act’s licensing requirements, including having a minimum net worth of $500,000. The companies have also been asked to submit to a security audit of their computer systems to be conducted by a third party.
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