Virtual currency: what every business leader should know about Bacons.

• Author: Brad, Jacobsen

Given the globalization of economies and the ease of transferring value via virtual currencies, Bitcoins (as well as other virtual currencies) are far from a passing fad and are only going to become more ingrained in our everyday lives. The simple fact that laws and regulations for Bitcoin are being enacted across the globe demonstrates the validity and impact of virtual currencies.

Below are a few FAQs that will help you understand some of the basics of Bitcoins and other virtual currencies.

What is a Bitcoin? The easiest way to view Bitcoins is to picture them as a commodity, such as gold. Bitcoins are intrinsically valued based on supply and demand. They are valued at the price someone will pay in order for someone else to sell.

A Bitcoin, however, is a virtual asset (not tangible), consisting of a numerical entry on a public ledger known as a Blockchain, and is owned by the possessor of a secret number, or "private key."

The private key has a mathematical relationship with the public number in the ledger entry.

The Bitcoin Network is a system that creates and tracks the transfer of ownership of each Bitcoin and acts as a distributed ledger combined with a timestamp server, creating a single unretractable public record of all transactions in chronological order, thus ensuring correct current ownership. The Bitcoin Network is not operated by any single organization, but rather is a decentralized system consisting of all the users of the Bitcoin software worldwide.

Are there other Virtual Currencies? As Bitcoins have gained in popularity, the number of other virtual currencies available has increased significantly. In fact, there are currently more virtual currencies then there are "real" currencies in the world. Time will tell how many of these virtual currencies will survive.

Are Bitcoins and other Virtual Currencies Regulated? This depends on a person's role in utilizing the Bitcoins. Ordinary users are not regulated as a money service business (MSB) through the Department of the Treasury Financial Crimes Enforcement Network (FinCEN).

However, FinCEN declared that a user of virtual currencies that is deemed to be an "administrator or exchanger is an MSB under FinCEN's regulations, specifically, a money transmitter" and will be required to comply with the reporting and recordkeeping regulations of the BSA pursuant to FinCEN's regulations. These rules essentially require a person who exchanges or transmits Bitcoins or other virtual...