LAS VEGAS (10/28/14)--Currency followed a set of specific rules for most of mankind's history, but new virtual currencies are changing some of those rules. Todd Erickson, senior vice president and chief operating officer of First Flight FCU, Cary, N.C., with $170 million in assets, spoke on virtual currencies at the Credit Union National Association's Bank Secrecy Act (BSA) Conference Monday.
|Todd Erickson of the Bitcoin Foundation, shows Lydia Green, a risk analyst with the Credit Union of Colorado, the particulars of a bitcoin transfer using mobile devices. Erickson transferred Green $5 worth of bitcoins using a bitcoin wallet app for a mobile device. (CUNA Photo)|
Brian Knight, general counsel for the National Association of State Credit Union Supervisors, advised that all in attendance, as well as the credit union system as a whole, learn everything they can about virtual currencies.
"If you are a financial services professional in this day and age, you need to know what these things are," he said. "Your credit union might not be dealing with them, your credit union might never be dealing with them, but I think the experts who have looked at this can agree that it represents a change that cannot be undone. Something related to virtual currencies is going to change payments systems, it's going to change our industry."
Erickson, who is also a member of the Bitcoin Foundation's regulatory affairs committee, said the advent of virtual currencies such as bitcoin allows for "a publicly verifiable transfer of the ownership of an asset without requiring a trusted third party," such as a financial institution.
There is a difference between Bitcoin capitalized, which represents the decentralized, peer-to-peer system, and lowercase bit coins, which are the currency itself. Bitcoin transfers do not require any personal information for a transfer.
The Financial Crimes Enforcement Network (FinCEN) issued two administrative rulings Monday dealing with virtual currencies.
In the first, FinCEN said that companies that make virtual currency-based payments to customers are classified as money transmitters, because the company is accepting standard currency as payment, then converting it for payment to vendors.
The second makes a similar ruling, calling companies that use trading platforms to connect virtual currency buyers and sellers are also classified as money transmitters.
Bitcoins are already becoming a widely used payment method, Erickson said. According to Coinometrics, a website that measures the use of virtual currencies, bitcoin transactions add up to approximately $289 million per day, just below that of Discover ($299 million) and more than Western Union ($219 million).
However, bitcoins are not recognized as legal tender by any country. They are recognized by the Internal Revenue Service as an asset, similar to real estate or other property. Germany ruled last year that bitcoins are a "unit of account," meaning they can be used in private transactions.
Erickson gave several demonstrations about how bitcoins can be used, including at the online retailer overstock.com, and by using a mobile app to transfer $5 worth of bitcoins to two members of the audience.
The BSA Conference, offered jointly by CUNA and the National Association of State Credit Union Supervisors, continues today through Wednesday.