A US Senate committee has launched an investigation into the virtual Bitcoin currency after concerns over criminal activity, days after a number of Bitcoin companies are subpoenaed in New York. Earlier this week, New York state issued subpoenas to around two dozen companies who operate with Bitcoin, including those invested in by Cameron and Tyler Winklevoss, the twins most well-known for their legal battles with Mark Zuckerberg over the ownership of Facebook.
Bitcoin is a digital currency that can be transferred via computer or smartphone without oversight from a financial institution. Bitcoin has existed since 2009, but didn’t really hit the mainstream until this year. Bitcoin’s value exploded in April, hitting more than $200 a coin then hitting a high of $210.
Mining or trading accumulates Bitcoin’s and there is a separate market for coin value. Coins are held in a virual wallet until need then they are used and are as good as cash. Many sites accept bitcoin as donations and some accept bitcoins as payment for goods and services.
Bitcoin is completely untraceable as it’s like using cash and bitcoin mining is very safe considering it involves breaking a hash using a butcoin miner, CPU or graphics card. Some users have gone as far to setup bitcoin mining farms.
However, Bitcoin has a major downside. Since cryptocurrencies are traded virtually they are vulnerable to criminal activity and sudden, massive dips in value. A few months ago, Bitcoin lost more than a quarter of its value after its largest trading market suffered an outage. Its value dropped 10% in a matter of minutes.
In May, the Feds shut down Liberty Reserve, a virtual currency exchange system whose $6 billion money-laundering scheme earned it the nickname “Paypal for Criminals.” As the US begins the task of building a legal framework around Bitcoin and other virtual currencies, the Commonwealth Bank, Australia’s largest bank, has closed accounts belonging to local Bitcoin payment processor CoinJar. The company offers tools to buy and sell Bitcoins and accepts them as payment from customers
It remains to be seen what the senate and the investigation will bring when it comes to bitcoin framework as they are not the only one wanting an investigation. The Senate committee did send a letter to Homeland Security acknowledged that virtual currencies seem to “be an important emerging area” and therefore need to be regulated. What will happen next remains to be seen.