July 7, 2014
Several recent events illustrate that digital currencies such as Bitcoin are becoming increasingly visible and popular for consumer transactions. Although not yet a mass market payment system, these recent events show that digital currencies already have significant international impact and that they have the potential to play a key role in the marketplace of the future.
Digital currencies provide electronic payment systems. They facilitate the convenient exchange of economic value through use of networked computing resources. Bitcoin and other digital currencies provide convenient global, computer-based platforms for transactions.
Recently, federal law enforcement authorities conducted an auction sale of Bitcoins that were seized as illegal assets. The U.S. Marshals sold nearly 30,000 Bitcoins which were taken by authorities as part of legal action against the operators of the Silk Road website. It’s now being reported that venture capitalist Tim Draper bought all of the nearly 30,000 Bitcoin auctioned by the Marshals. Details about the prices Draper paid are not yet available, however, based on information released by some of the unsuccessful bidders, it appears that the winning bids were likely in the range of the current market value for Bitcoins, approximately six hundred dollars per Bitcoin. The proceeds from the auction provide funds for use by the U.S. government.
This digital currency auction conducted by the U.S. government is significant as it adds to the legitimacy of digital currencies as a medium of commercial exchange. It demonstrates that the U.S. government recognizes digital currencies as valuable assets which can be legally bought and sold. It also illustrates U.S. government recognition that units of digital currencies are “fungible” and should all be treated equally. Through the auction, the U.S. government became a major participant in the emerging digital currency marketplace.
Another important recent milestone in the expansion of digital currency use involves the introduction of oversight for consumer protection. The U.S. Government Accountability Office (GAO) formally requested this year that the U.S. Consumer Financial Protection Bureau (CFPB) examine the impact of digital currencies on consumer finances. The GAO asked the CFPB to look for ways to reduce the risk of fraud and abuse associated with consumer use of digital currencies. This action could pave the way for specific regulatory oversight of digital currencies, thus potentially increasing their popularity among mass market consumers.
Recent legislative action in the state of California also provides a significant digital currency milestone. California enacted legislation granting digital currencies the status of “legal money” in that state. The legislation does not provide a regulatory framework specifically directed toward digital currencies. Instead, it includes digital currencies with coupons, reward points, and other alternative forms of value used by consumers. The new law recognizes all of those diverse alternative forms of value as legal money, thus making them legitimate forms of economic value exchange in the state.
Increasingly, governments in the United States and nations around the world are recognizing that digital currencies are gaining in popularity and have the potential to exert profound influence on commerce. New efforts by governments to create a legal and regulatory environment appropriate for safe and efficient use of digital currencies emerge on a daily basis. Successful development of a regulatory framework to foster widespread consumer use of digital currencies is an important goal for governments everywhere.