BitCoin is an innovative technology that offers several benefits, such as fast transaction speeds, low costs, and the elimination of the need for a third-party intermediary to process transactions. Unfortunately, BitCoin has faced resistance from regulators because the technology has been used for nefarious purposes, including online drug purchases and Ponzi schemes. This note provides a basic
explanation of how BitCoin works and is currently regulated on federal and state levels. This note argues that BitCoin should not be forced into old regulatory frameworks that do not adequately balance security concerns with the benefits of BitCoin. BitCoin should not be regulated at the federal level. Instead, state regulations should focus on BitCoin providers that can unilaterally transfer or block transfers
of BitCoin on behalf of users. State regulators should require such
providers to register with their given states, maintain adequate books
and records, implement advanced cyber security standards, conduct
audits of their operations, and submit reports to state regulators. In crafting these regulations, regulators should keep in mind that vague or poorly drafted regulations will chill innovation.