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The Bitcoin: What It Is and Where It's Going

bitcoinBitcoin is an application of crypto-currency, which is based on the premise that money can be any object or record that is accepted as payment. Bitcoins use a peer-to-peer networking system and are not managed by any central authority. They can be transferred by a computer or a smartphone without a mediating financial institution. Bitcoins are rumored to have been originated by a computer programmer going by the name of Satoshi Nakamoto, whose real identity remains mysterious.

The value of a Bitcoin fluctuates widely, but its popularity has continued to grow. Because Bitcoins are traded through computer networks, it is possible for owners of Bitcoins to remain anonymous. Recently, the Winklevoss twins, who received a 20 million dollar settlement along with stock worth 200 million dollars in a suit against Mark Zuckerberg over rights to Facebook, have revealed that they hold nearly 11 million dollars worth of Bitcoins. Venture capitalists have also begun to invest in Bitcoin-related companies, such as OpenCoin, and at least one hedge fund, Exante, has purchased 10 million dollars worth of Bitcoins.

One of the earliest concerns of Bitcoins was their legality, as they are not managed by a central authority. For now, it appears as though the use of Bitcoins as currency is legal within the United States. FinCEN, a bureau of the United States Treasury Department that is responsible for monitoring money laundering, has recently released a letter stating that exchanges of virtual currency will be subject to the same regulations as traditional money-order providers. Users of Bitcoins are not classified as money service businesses subject to FinCEN rules, but exchanges are.

Proponents of Bitcoin would like to see it used in a manner similar to cash. To some extent, this is already happening. Reddit allows users to pay for upgrades with Bitcoins, Wordpress accepts Bitcoins as a valid form of payment, and it is even possible to pay for a pizza with Bitcoins. However, the FBI has also reported that Bitcoins are popular with cybercriminals. Because they are anonymous, Bitcoins may be used for money laundering, purchases on the black market or buying illicit drugs. Bitcoins have even been used by Iranians to gain access to American dollars that can be moved outside their country.

Bitcoins may be used in the future to provide residents of distressed countries a safe haven from governments that confiscate their savings to keep the banks afloat. Although the value of Bitcoins is unstable, it is free from any government or political manipulation. If the coins continue to increase in popularity, it is likely that further government regulation will follow. As an open source program, Bitcoin continues to evolve. Increased regulations and a growing number of businesses using the coins in various applications may stabilize prices and lead to wider acceptance of Bitcoins as a legitimate currency.

Here is a recent article regarding Bitcoin, along with an interview. (We have identified that the following link is no longer active, and it has been removed).

What is a Bitcoin really worth?

This is an emerging topic where laws governing the Bitcoin are yet to be established. If you have any legal questions regarding the Bitcoin please contact Attorney John Mashni by phone at 517.371.8257 or by email at jmashni@fosterswift.com.

Categories: E-Commerce

Posted by: Michael C. Zarht (Summer Associate)

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