NY may start formal application process for bitcoin exchanges

In a step toward eventual state regulation of bitcoin exchanges, New York's financial services regulator on Tuesday said he wanted companies that want to operate virtual currency exchanges in the state to submit formal applications.

In a statement, New York Superintendent of Financial Services Benjamin Lawsky said a formal application process would be a precursor to regulations it intends to propose by the end of the second quarter.

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The Bitcoin Center of New York City is seen on February 25, 2014 in New York City. The center operates as a physical place for people to come and trade digital currencies; there are over 100 digital currencies.

Virtual currencies are dominated by bitcoin, now well-known after the failure of Mt.Gox, a Tokyo-based exchange that filed for bankruptcy in Japan and the United States after losing an estimated 850,000 in customer bitcoins, or about $560 million.

Bitcoin is a digital currency that, unlike conventional money, is bought and sold on a peer-to-peer network independent of central control. Its value has soared in the last year, and the total worth of bit coins minted is now about $7 billion.

"The recent problems at Mt.Gox and other firms further demonstrate the urgent need for stronger oversight of virtual currency exchanges, including robust standards for consumer protection, cyber security and anti-money laundering compliance,'' Lawsky said in a statement.

In January, the New York regulator held two days of hearings with industry participants, including the investor twins Cameron and Tyler Winklevoss, and said he planned to issue "BitLicenses'' to virtual currency firms.

In a Reddit exchange last month, Lawsky commented: "The Mt.Gox issue underscored for us that it would be far easier if we had some exchanges locally that we could interact with, allowing us to better understand these issues so as to protect those engaging in trades with the exchanges. We're hopeful that clear regulations, if done in a smart, modern way, may incentivize some of these exchanges to come ashore (hopefully here in New York).''