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Five things you need to know about Bitcoin

International Compliance Association

Big Compliance Conversation , Bitcoin , Cryptocurrency

One of the wonderful aspects of working for International Compliance Association is learning, and keeping up-to-date, with new developments. One of the subjects that has sparked many conversations in the office is the virtual currency Bitcoin. A relatively unknown subject when I first started International Compliance Association, its growth and renown means that 2017 will perhaps be remembered as the year of Bitcoin.

 

  1. Its value is incredibly volatile

In 2016 I wrote that Bitcoin was valued at $600 per Bitcoin, up from $100 in 2013. During that period we saw it fluctuate between $100 and $1000 many times. In 2017 the numbers got much bigger, but the fluctuations continued. We watched the volatile currency grow in value dramatically, reaching a height of nearly $20,000 before Christmas, before crashing back down recently to almost half that value. I don’t think we have seen the end of the volatility.

And who can forget the story of the origins of Bitcoin Pizza Day? A developer purchased two pizzas for 10,000 bitcoins back in 2010, which could buy an awful amount of pizzas today. The benefits of hindsight…

 

  1. It’s predominately used for speculative investing

This rapid increase in value has led to even more people to buy Bitcoin in the hope of making themselves a fortune.

Bitcoin is a type of virtual currency (or cryptocurrency). It isn’t a fiat currency: it’s not recognised as ‘real money’ by any government. Many people are debating whether Bitcoin should be classified as money, or if it is an asset. This debate has been brought into many courts of law, and not always with consistent outcomes.

But in reality, it’s actually pretty hard to spend your bitcoins as there are only a limited amount of places that will accept it as a payment method. For people that have made money from the sale of bitcoins, there have been reports that they have found it hard to evidence the source of funds of their cash due to the pseudo-anonymous nature of bitcoins.

 

  1. Bitcoins software is really exciting 

The software underpinning Bitcoin, Blockchain, is a type of distributed ledger technology. It’s absolutely fascinating and could really shake up the way many of us do business.

International Compliance Training previously wrote about the subject, but essentially, instead of relying on one trusted source (such as a bank) for records, everyone in a network has a copy of the ledger, and each entry into the ledger is built upon the previous entry, making falsification difficult. 

Many banks are now looking into how this technology can be utilised outside of the realm of cryptocurrencies. 

 

  1. It’s hard to shake a bad image

There is no denying that Bitcoin has been utilised by criminals, however, you can also say the same thing about cash.

The early days of Bitcoin were plagued by stories of illicit use; Liberty Reserve was closed down by the US government in May 2013 after it developed into a financial centre for cybercriminals worldwide. Its founder, Arthur Budovsky, was jailed for 20 years and ordered to pay a $500,000 fine in May 2016 after he admitted a charge of conspiring to commit money laundering. Silk Road, the darknet marketplace for drugs fuelled by Bitcoin was another infamous case. Although it was shut down in 2013, the illicit connections still remain at the forefront of some people’s mind when discussing Bitcoin.  

International Compliance Association previously looked at whether bitcoins were shell companies in disguise, what remains clear is that criminals will take advantage of any perceived vulnerabilities.

On another note, a topic that has been interesting me is the sheer amount of resources used to ‘mine’ bitcoins. Regardless of whether it shakes its image of criminal connections, there is no denying the amount of energy that is used to in the mining process. There have been calls for it to be taken seriously as a climate threat.

 

  1. Regulators are very interested

Most notably the South Korean government has called for virtual currency exchanges to be shut down, perhaps contributing to the most recent drop in value.

Regulators around the world are still trying to grapple with the level of regulation that is needed for virtual currencies. This isn’t new: the Financial Action Task Force (FATF) produced a report into the potential AML/CFT risks, and subsequent guidance focused on ‘the points of intersection that provide gateways to the regulated financial system, in particular convertible virtual currency exchangers’.

New York was one of the front runners with their ‘BitLicence’, and the European Commission has proposed that virtual currency exchangers should be included in the definition of ‘obliged entities’.

Regulatory interest and scrutiny into Bitcoin will no doubt continue throughout 2018.

I hope you have found my short list to be informative, it is by no means exhaustive, if you have any comments on Bitcoin, let’s keep the conversation going. Please share them with us on Twitter @intcompassoc #BigCompConvo 

 

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This article forms part of the #BigCompConvo - Join us as we explore and debate the latest challenges and issues facing you and regulatory and financial crime compliance professionals all over the world. If you’d like to contribute an article as part of the Big Compliance Conversation get in touch with us at contributions@int-comp.org

 


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