Bitcoin Makes Inroads on Capitol Hill (Finally)
When the House Committee on Small Business held its hearing last week about the benefits and risks of bitcoin to entrepreneurs, it seemed like a lot of the representatives were jumping into a rowdy conversation on the digital currency a bit late.
They were, after all, even behind the Internal Revenue Service, which a few days earlier had issued rules saying that bitcoin would be treated like property, not currency, and was therefore subject to property taxes. But the representatives gave it their best shot, and some were even treated to a demonstration of a bitcoin ATM, installed for the day at the Capitol by startup Robocoin.
"Despite not being backed by a government, or holding any intrinsic value of their own, bitcoins are growing as an alternative payment method," Representative Scott Tipton, a Republican from Colorado, said in prepared remarks at the start of the hearing.
Bitcoin, known as a cryptocurrency because it must be "mined" using blocks of code that keep the identities of users secret in transactions, is one of dozens of digital currencies created by small businesses and other innovators to exchange value, primarily on the Internet.
Certainly it has been a busy six months for bitcoin and bitcoin entrepreneurs. SilkRoad, the online bazaar, was shut down in October when it came to light that bitcoins were being used to fund illicit activities such as illegal drug purchases. Then in February, one of the biggest bitcoin exchanges, Mt GOX, filed for bankruptcy and shut down following a hack attack and the loss of $400 million in bitcoins.
New York financial regulators also weighed in on bitcoin in January, with as much erudition as Congress but probably no more clarity about how to regulate the digital currency going forward. Regulators in the Big Apple have even proposed a bitcoin license for small businesses transacting in the currency as a starting point.
On Capitol Hill, however, concerns were a bit more general. The committee's ranking member, Democrat Nydia Velazquez of New York, voiced concern that small businesses could get burned by wild price fluctuations of bitcoin, which saw its trading value soar to more than $1,000 this past summer, up from as low as a few dollars several years ago.
"With swings like this, one has to wonder whether small businesses will find it difficult to continually price and reprice their products to ensure fair compensation from customers," Velazquez said.
Others, like Congressman David Schweikert, a Republican from Arizona, wondered if bitcoin could ever threaten our reserve currency, the U.S. dollar.
Mark T. Williams, a banking specialist and commodities and risk management expert at Boston University, who presented testimony during morning proceedings, tried to provide some clarity on that point.
"[Bitcoin] is a payment system, so you have competition within the payment system," Williams said. "And we'll see more asset classes that can be pushed through this payment system."