Sign up for regular news, views and insights from the forex industry

Name
Email
Company
Job title
Industry

Close

The forex industry's number one resource

Texas to regulate cryptocurrencies as lessons are learned from MtGox

In the wake of the MtGox collapse, Texas banking commissioner issues guidelines for cryptocurrency trades in the state
Texan authorities are to regulate Bitcoins and other virtual currencies in an attempt to avoid any events similar to those earlier this year, when MtGox announced it had lost 850,000 Bitcoins due to a 'transaction malleability bug'

In the wake of the MtGox collapse, Texas banking commissioner issues guidelines for cryptocurrency trades in the state

Texan authorities have decided to keep Bitcoins and other virtual currencies under regulation in the state and have established licensing and security guidelines for their exchange. The new guidelines come in the wake of the collapse of MtGox, the cryptocurrency network that collapsed in February, losing $620m in Bitcoins. It was granted Chapter 15 bankruptcy by a Dallas court soon after.

In a supervisory memorandum, Banking Commissioner Charles Cooper suggested that cryptocurrencies lacked intrinsic value because of their decentralised nature. “At this point a cryptocurrency like Bitcoin is best viewed like a speculative investment, not as money,” he wrote. “However, as this innovative technology develops, the [Texas Department of Banking] will continue to evaluate whether the nature of cryptocurrencies and the potential harm to the public warrant additional action.”

In this regard, virtual currencies do not trigger any regulatory or licensing requirements under Texan legislation. “However, some common business activities relating to cryptocurrency that involve the receipt of government-issued currency can trigger the licensing requirements of the act,” he added, “especially when there is an exchange for real currency through a third-party intermediary, such as MtGox.”

[It has been] suggested that the actual number of fraudulent transactions to hit MtGox was closer to 386 Bitcoins, nowhere near the millions of dollars reported missing

Earlier this year MtGox announced it had lost close to 850,000 Bitcoins belonging to their clients, which, valued at the time, were worth around $827 each, or $620m in total. At the time, MtGox issued a statement suggesting it had been the target of hackers, who had stolen the Bitcoins. The exchange claimed at the time that the fraud was a consequence of a ‘transaction malleability bug‘, which would have allowed malicious users to carry out unauthorised Bitcoin transactions.

However, it has since been suggested by the Swiss Federal Institute of Technology in Zurich, that this might not have been the case. Christian Decker and Roger Wettenhofer have been monitoring cryptocurrencies since January and have suggested that the actual number of fraudulent transactions to hit MtGox was closer to 386 Bitcoins, nowhere near the millions of dollars reported missing.

“Only 1,811 bitcoins were in attacks before MtGox stopped users from withdrawing bitcoins,” Decker and Wattenhofer told MIT Technology Review.

They also speculate that up to 75 percent of these attacks were ineffective. “As such, barely 386 bitcoins could have been stolen using malleability attacks from MtGox or from other businesses.

In 2013, MtGox handled close to 70 percent of all Bitcoin transactions. It has since suspended trading, and is being sued for consumer fraud by two of its depositors. However, it is unclear if US Federal judges actually have any jurisdiction over MtGox or CEO Mark Kapeles.

The new regulatory framework being rolled out in Texas, is an attempt to mitigate further losses such as the ones experienced when MtGox collapsed. “Because the new technological paradigm created by cryptocurrencies has brought with it new risks for the consumer, it is incumbent on a license applicant to demonstrate that all virtual currency is secure while controlled by the applicant,” he wrote.

 

Videos

FBS Middle East update // Video

Anastasia Diakova from FBS Markets advises on investment opportunities in the volatile region

Anastasia Diakova from FBS Markets advises on investment opportunities in the volatile region

>> Watch now

The yuan to beat // Video

Yuan overtakes AUD and NZD in currencies in circulation; what does it mean for the greenback?

Yuan overtakes AUD and NZD in currencies in circulation; what does it mean for the greenback?

>> Watch now