New York state proposes 'BitLicense'

New York will propose regulating virtual currency firms that operate in the state this year and may require them to obtain a "BitLicense," state banking regulator Benjamin Lawsky said overnight.

The regulations would be aimed at preventing misconduct such as money laundering without derailing a fledgling technology, said Mr Lawsky, the state's superintendent of financial services.

Mr Lawsky was speaking at the start of two days of hearings on online currencies organized by his agency, the New York Department of Financial Services.

Separately on Tuesday, the Bitcoin Foundation, an advocacy group which promotes adoption of the bitcoin digital currency, said one of its executives, Charlie Shrem, had resigned a day after US prosecutors charged him with conspiring to commit money laundering.

The bitcoin, while gaining wider acceptance by businesses such as the Sacramento Kings basketball team and ecommerce site Overstock.com, has been coming under increased scrutiny by regulators. The bitcoin is not backed by a government or central bank; its value fluctuates according to user demand.

Mr Lawsky said Shrem's arrest has cast a cloud over the industry, but said that a virtual currency could have a number of benefits for the financial system.

"It could force the traditional payments community to 'up its game' in terms of the speed, affordability and reliability of financial transactions," Lawsky said.

He said that his intention is not to inhibit growth of the bitcoin, saying that the growing popularity of the digital currency could encourage banks to improve their services. He said that many consumers, himself included, are perplexed that it can often take several days to transfer money to a friend's bank account.

Mr Lawsky said that while he wanted to set up clear rules, he also wanted to preserve flexibility, given the constantly evolving nature of the technology.

“That is, in part, why we're evaluating whether our agency should issue a so-called 'BitLicense' specifically tailored to virtual currencies," he said.

The Bitcoin Foundation said in a statement that Shrem submitted his resignation Tuesday morning, effective immediately.

The foundation said it needed to remain focused on its mission to standardize, protect and promote the bitcoin, saying a "prolonged legal dispute would inevitably detract from advancing that core mission."

According to prosecutors, Shrem conspired to sell more than $US1 million in bitcoins to users of Silk Road, an illicit online drugs bazaar that authorities shuttered last year. Shrem was CEO of BitInstant, a bitcoin exchange company that closed last summer.

Cameron and Tyler Winklevoss, who were investors in the BitInstant, urged Mr Lawsky to find the appropriate balance, adding in a statement read by Cameron Winklevoss that "over regulation could cripple its development."

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