Senator Chuck Schumer speaks at Long Beach City Hall. (Oct....

Senator Chuck Schumer speaks at Long Beach City Hall. (Oct. 26, 2013) Credit: Barry Sloan

Senator Chuck Schumer, a Democrat from New York, called on Bitcoin companies to figure out ways to stop criminals from using the virtual currency.

“In order for the legitimate uses of Bitcoin to flourish, there must be a way to separate the wheat from the chaff,” Schumer said at a Senate hearing yesterday.

Schumer and other senators interviewed a number of witnesses who appeared at “The Present and Future Impact of Virtual Currency” hearing at the National Security and International Trade and Finance subcommittee yesterday. The meeting was the second in two days involving government agencies and private companies to discuss Bitcoin, following a price surge of the virtual currency to record levels.

In yesterday’s hearing, Schumer and others raised questions about the risks of Bitcoin, including a lack of consumer protections and regulations and the currency’s use by criminals. The price of Bitcoin declined 18 percent from Nov. 18 to about $543 yesterday, on exchange Bitstamp.

“We can’t assume Bitcoin will become the next great thing in the financial system,” Jennifer Shasky Calvery, director of Financial Crimes Enforcement Network, who also testified on Nov. 18, said at yesterday’s meeting.
The comments contrasted with the Nov. 18 hearing, where the U.S. Department of Justice described the digital currency as a “legal means of exchange,” bolstering the prospect of wider acceptance of Bitcoin as an alternative payment system.

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Introduced in 2008 by a programmer or group of programmers going under the name of Satoshi Nakamoto, Bitcoin is being used to pay for everything from Gummi bears to smartphones on the Internet. There are 12 million Bitcoins in circulation, according to Bitcoincharts, a website that tracks activity across various exchanges. Bitcoins can potentially reduce banking-transaction fees, making it an attractive tender for those seeking to trade via the Web or in stores.

Several of those who appeared at yesterday’s hearing suggested ways to beef up Bitcoin protections. Mercedes Kelley Tunstall, a partner at law firm Ballard Spahr LLP, recommended getting rid of features that make Bitcoin transactions anonymous.

Bitcoin exchanges and merchants should provide guarantees of redemption and information on a dispute resolution process, Sarah Jane Hughes, a university scholar and fellow in commercial law at the University of Indiana, said at the hearing.

Senator Heidi Heitkamp, a Democrat from North Dakota, said many tax issues, such as how to collect sales taxes on Bitcoin transactions, are yet to be clarified.

“This is going to be a big challenge,” Heitkamp said. “This is going to become an increasing problem.”

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