Ballard Spahr partner Mercedes Kelley Tunstall, who leads the firm’s Privacy and Data Security Group, will testify tomorrow on virtual currencies before two subcommittees of the U.S. Senate Committee on Banking, Housing and Urban Affairs. The committee has expressed concern about the lack of regulatory oversight and anonymous nature of virtual currency transactions. Tomorrow’s hearing will examine the current and future uses and explore regulatory options.
Virtual currencies, or digital cash, are a popular new way for people to buy and sell goods and services online. They allow people to make financial transactions without revealing their identities and without relying on third-party intermediaries such as banks or card networks, which often charge fees. Because they are not issued or regulated by a central bank or government, they can be used to trade contraband and U.S. authorities have increased enforcement in the virtual currency space in recent months.
The most popular virtual currency is Bitcoin, which uses an open-source software program and whose supply is controlled by computer algorithm. Bitcoin garnered attention this summer when the FBI shut down Silk Road, an online black market that used the virtual currency to buy and sell illegal drugs. There were about 40,000 daily Bitcoin transactions in 2013, with transaction values ranging from $20 million to $40 million.
Ms. Tunstall advises banking clients nationwide on payments and cybersecurity issues, including those involving virtual currencies. At tomorrow’s hearing, she will address the commercial viability of digital currencies, regulatory options, and how to respond to other emerging virtual currencies.
“Because virtual currency has only been around since 2009, regulators and financial institutions are still trying to determine its effects and how best to deal with it,” said Ms. Tunstall, who is also a member of the firm’s Consumer Financial Services Group. “The lack of personally identifiable information during a Bitcoin transaction makes it prone to illegal use, which we have seen in Silk Road. But as more digital currency emerges, we have the opportunity to structure the system so that banks and governments can appropriately monitor transactions while the exchanges between peers remain anonymous.”
Ballard Spahr’s Privacy and Data Security Group advises on online privacy and digital data security matters, including state, federal, and international compliance and responses to hacking and other online security breaches. It also counsels clients on data mining, online marketing, and mobile privacy issues.
“Unfortunately, the current lack of regulation of digital currency makes it risky for the average consumer,” said Ms. Tunstall. “There is no protection for people whose digital currency is stolen and the volatility of the Bitcoin market lends itself to boom and bust cycles.”