2014 Ohio State Entrepreneurial Business Law Journal
Symposium - February 21, 2014
Pillsbury Winthrop Shaw Pittman LLP
Leader – Social Media & Games Team
Leader – Open Source Team
3. What is Bitcoin?
Decentralized, virtual currency protocol
Not legal tender in US (but not necessarily illegal)
2 | Bitcoin | Regulatory Considerations
4. How Does Bitcoin Work?
Purchase via exchange
Accept for goods/services
Public ledger of transactions
3 | Bitcoin | Regulatory Considerations
5. Categories of Entities
Users - a person that obtains virtual currency to purchase
goods or services (on their own behalf)
Exchangers - a person engaged as a business in the exchange
of virtual currency for real currency, funds, or other virtual
Administrators - a person engaged as a business in issuing
(putting into circulation) a virtual currency, and who has the
authority to redeem (to withdraw from circulation) such virtual
Banks/Financial Institutions/Payment Processors?
4 | Bitcoin | Regulatory Considerations
7. Does Bitcoin Need Regulation?
Guns don’t kill people…people do!
Bitcoins don’t buy drugs … people do!
Regulation not so much about use…. but
6 | Bitcoin | Regulatory Considerations
8. Existing Regulatory Framework
• Federal Anti-money Laundering/Bank Secrecy Act
• record keeping/transaction reporting
• Securities Laws
7 | Bitcoin | Regulatory Considerations
9. Federal Regulatory Activity
November 2013 Congressional Hearings
"there are many legitimate uses. These virtual currencies are not in
and of themselves illegal"
"Innovation is a very important part of our economy," …premature
regulation could stifle Bitcoin innovation
Law enforcement has tools to get the bad guys
8 | Bitcoin | Regulatory Considerations
11. NY Hearings
Jan 28-29, 2014 - Public hearings held to consider whether to
regulate virtual currency (including Bitcoin)
The question is what type of licensing, examination, and collateral requirements for the
virtual currency industry will provide appropriate guardrails to protect consumers and
our national security without stifling beneficial innovation.
Strong Set of Consumer Disclosures Rules
10 | Bitcoin | Regulatory Considerations
12. California Pending Bill
SECTION 1. Section 107 of the Corporations Code is
amended to read:
A person shall not issue or put in circulation, as money, anything
but the lawful money of the United States. Nothing in this section
shall prohibit the issuance and use of alternative currency that is
redeemable for lawful money of the United States or that has
value based on the value of lawful money of the United States but
a person shall not be required to accept alternative currency.
11 | Bitcoin | Regulatory Considerations
Germany - Bitcoin should be considered as “private money”
EU – warning re fraud, tax evasion, crimes
UK – not treated as money …but subject to VAT
Belgium – no regs
France – no action
Finland – issued regulatory guide and capital gains tax
Sweden – bitcoin a means of payment; registration for exchanges
Slovenia – pro bitcoin; not currency or financial instrument; taxable
China – prohibitions on financial institutions/payment processors
Singapore - pro bitcoin; taxable
12 | Bitcoin | Regulatory Considerations
14. Russia on Virtual Currency
The Central Bank of Russia released a notice clarifying the treatment of
virtual currency, including Bitcoin, within the financial industry
Declared that Article 27 of the Law on Central Bank of Russia prohibits
production of alternative monetary products.
Warned the public and financial industry that virtual currency is not regulated,
and due to its anonymous nature, may be used to launder money and finance
terrorism. Virtual currency also carries a high risk of loss of value.
The notice advised that any legal institution that or professional who
provides services to exchange virtual currency to national or foreign
currency, including to goods or services, will be treated as if they are
potentially involved in suspicious activities, money laundering, or
13 | Bitcoin | Regulatory Considerations
15. Other Regulatory Issues
March 18, 2013 Guidance
to the extent a user creates or “mines” a convertible virtual currency solely for
a user’s own purposes, the user is not a money transmitter under the BSA.
a company purchasing and selling convertible virtual currency as an
investment exclusively for the company’s benefit is not a money transmitter
producing and distributing software that facilitates the sale of virtual currency ,
in and of itself, does not trigger MSB under BSA
Investor alert on fraudulent investment schemes
Investment funds – Winkelvoss Bitcoin Trust registration statement
IRS – May 2013 GAO request for guidance
14 | Bitcoin | Regulatory Considerations