New York eyes tougher control on virtual currencies

New York's Department of Financial Services on Tuesday uncovered more details about tightening control over virtual currencies like bitcoin, as money laundering and terrorist financing accusations as well as computer hacking haunt the young market. New measures that will be adopted include consumer disclosure rules, capital requirements and a framework for permissible investments with consumer money, said Benjamin Lawsky, director of the department, in a speech at the New America Foundation in Washington. "Our objective is to provide appropriate guard rails to protect consumers and root out money laundering without stifling beneficial innovation," said Lawsky, adding that New York welcomes "those who want to do this the right way." "The really tricky question for regulators is how we structure those types of rules in light of the fact that the funds these firms hold are not denominated in dollars or other forms of traditional fiat currencies," Lawsky said. He hoped that his department could release the regulations in this spring or summer, noting that the supervising body would seek public comment once it had published the plan. Also on Tuesday, Canada said it would carry out tougher rules on money laundering and terrorist financing to closely monitor the use of virtual currencies. Bitcoin, a form of digital e-money stored in a virtual wallet, bypasses banks, allowing users to remain anonymous for online and offline purchases. It has been heating up around the world since it was created by Satoshi Nakamoto in 2008, but the nascent industry has been deeply disturbed by problems and turbulence recently. It is difficult for police to obtain the password to the virtual wallet for Bitcoin storage, and users' identities are also hard to trace on websites which serve as platforms for those illegal trades such as deals of drug, weapon and other services. Furthermore, Bitcoin uses cryptography to control transactions between the users and therefore the process is independent from banks or financial institutions. On Tuesday, the Bitcoin Foundation confirmed in a statement that unknown computer hackers had launched "denial-of-service" attack to the program that runs the virtual currency, forcing the two bitcoin exchanges, Bitstamp and Mt. Gox, to temporarily halt withdrawals by customers. On Sunday, Swedish media revealed that Bitcoin has become a common medium of exchange in illegal drug deals in Sweden. It was used in at least six transactions in Sweden last year by drug dealers. The price of bitcoin took a nosedive in past months, with prices varying dramatically from one exchange to another. It was quoted at 645 dollars per coin on Bitstamp's exchange, down 6 percent on Tuesday.