Amid the Senate inquiry into Bitcoin as a financial instrument, Fed chairman Ben Bernanke expressed praise for the digital currency’s potential sending the cryptocurrency’s value to a record $900 before settling to a more stable figure.
The Senate Committee on Homeland Security and Governmental Affairs is holding a hearing on the future and implications of Bitcoin, as part of the first-ever congressional inquiry on the digital currency. So far, feedback from senior administration officials, who are resources in the hearing, have mostly been positive.
For instance, Federal Reserve Bank chairman Ben Bernanke wrote that virtual currencies, Bitcoin included, “may hold long-term promise, particularly if the innovations promote a faster, more secure and more efficient payment system.”
The FBI recognizes digital currencies — both centralized and decentralized — to “offer legitimate financial services” but there is always the risk that these “can be exploited by malicious actors.” The general sentiment at the Senate hearing leans toward looking at Bitcoin and other virtual currencies in a neutral light, citing the benefits of an environment that is not stifling to innovation, but still aware of the potential dangers of illicit usage.
The main point of argument here is whether government needs to monitor and regulate these currencies, in light of the negative perceptions on the likes of Bitcoin. Take for instance the recent FBI raid on online black market site Silk Road. Bitcoin was cast in a bad light at that time, due to the participants’ preference for the currency. It has grown so bad that banks are reportedly starting to turn away businesses that deal with Bitcoin.
The SEC believes that being financial instruments, virtual currencies may be subject to regulation. “Regardless of whether an underlying virtual currency is itself a security, interests issued by entities owning virtual currencies or providing returns based on assets such as virtual currencies likely would be securities and therefore subject to our regulation,” wrote SEC chairman Mary Jo White in a letter earlier this year.
The idea that government is likely to keep a laissez-faire or hands-off approach to Bitcoin has been well-received by the market. Bitcoin’s value surged to a record $900 before settling to a value of $770 as per popular Bitcoin exchanges yesterday and about $640 as of writing. Bitcoin looks to be a promising financial instrument, after all, if governments would let its use go un-restricted.
However, as with cash and any payment method that’s easy to use with anonymity, Bitcoin does pose some potential risks when it comes to illicit use. Services like “Assasination Market” come to mind here. The online service aims to crowd-fund assassinations, by putting up a bounty on the heads of government officials using crowd-funded resources. The preferred currency: Bitcoin.
Money is neutral, after all, whether it’s an official currency from any country or a virtual one that knows no geographic boundaries. Whether it is used for good or evil would, therefore, be the responsibility of its users. Meanwhile, regulators and law enforcement agencies should also be on the lookout against illicit use.