Six years after its introduction to the masses, Bitcoin, the decentralized currency known as “cash for the Internet,” is growing in popularity. Yet it still remains largely shrouded in mystery.
From the identity of its mysterious inventor to the head-scratching complexities of how exactly it works, Bitcoin and virtual currencies like it were largely embraced by computer programmers. Now these currencies have since begun to edge into the mainstream. Businesses, both brick-and-mortar and online, have begun accepting it as a form of payment, and GOP presidential candidate Rand Paul has said he would accept campaign donations via Bitcoin. More than 400 Bitcoin ATMs have popped up across the world, and the idea has spawned others like it that have grown in popularity.
These rapidly evolving and volatile currencies haven’t gone unnoticed by the Minnesota Department of Commerce, whose leader this week told potential virtual currency investors to be careful — in part because it’s not controlled or backed by a central government or bank, and therefore is subject to little regulation. That’s not to say it lacks cash value.
As of Thursday, a single Bitcoin was worth more than $415, according to CoinDesk, which tracks its daily value. By Friday morning, the value rose to $445.
“It’s in its infancy in a way — the industry is developing and it’s got to prove itself,” Commerce Commissioner Mike Rothman said. “Some very legitimate companies are taking a look at it and developing it for legitimate purposes to buy and sell goods.”
Rothman, however, warns of “a dark side” because it remains “off the radar screen.”
Indeed, the anonymity afforded by virtual currencies has enabled some nefarious dealings, including drug activity and money laundering. Although the state commerce department has no reports of investors who may have been scammed, he continues to urge caution.
“I just know that we’re not an island in the world and I’m assuming there are Minnesotans who are savvy working in the Internet area and are potentially part of these transactions,” Rothman said.
Rothman said the commerce department has monitored Bitcoin for the past several years and tracked how it’s being treated by federal regulators. At this point, it’s considered by the Internal Revenue Service to be a form of property and must be reported on federal taxes.
Although backers of virtual currency laud its decentralization and lack of regulation, Rothman said those same attributes bring enormous risk. Aside from being susceptible to cyberattacks or other losses that can’t be recouped, it simply doesn’t come with recourse. Investing in Bitcoin, he said, is not like investing in silver and gold, which are backed by the federal government.
“If a consumer or investor is harmed, savings or other investments are backed by the FDIC of the good faith and credit of banks,” Rothman said. “Here, you’re dealing with a completely private marketplace.”
Questions about virtual currency? Call the Commerce Department at 1-800-657-3602