* Digital currency is not backed by any central bank, govt
* Regulators say it could be used by organised crime
* Israel's hi-tech startups seek to tap bitcoin potential
By Steven Scheer
JERUSALEM, Feb 19 Israel said on Wednesday it
was considering regulation of bitcoin and warned citizens that
using such decentralised virtual currencies was risky.
As a crypto-currency, bitcoin is passed between two parties
digitally and can be traded on exchanges for real-world
currencies. Its value fluctuates according to user demand but it
is not backed by any government or central bank.
Supporters of bitcoin are drawn to its decentralised
platform and say it is here to stay. Detractors call it a bubble
and expect it to be forgotten in a year or two.
However, it has proved increasingly popular and governments
and regulators around the world have been searching for the best
way to respond.
Israel, home to pioneering firms in hi-tech fields such as
cryptography, has emerged as a bitcoin hotspot, prompting
central bank governor Karnit Flug to convene a meeting this week
with other regulators, including those for capital markets,
taxes, securities and money laundering and terror financing.
"It was agreed to continue to examine various perspectives
related to the use of, and trade in, virtual currencies," the
authorities said in a joint statement on Wednesday.
"These perspectives include possible macro effects, their
legal standing, their regulation, money laundering and terror
financing risks, taxation and consumer protection."
They said the Israeli public should be aware that bitcoin is
unsupervised, is not legal tender and presents fertile ground
for fraudulent activities. At the same time, such transactions
are anonymous and often hard to trace, they added.
"This anonymity is liable to be exploited for criminal
activity, including money laundering, financing illegal
activities and financing terrorism," the statement said.
"Law enforcement authorities are therefore likely to close
trading platforms in virtual currencies which are used for
illegitimate activities, by preventing access or use of
customers' capital, which would likely be held by those
platforms," the statement added.
Other governments have also issued warnings on the use of
bitcoin and New York's financial regulator revealed plans this
month to govern virtual currency firms in the state in order to
protect consumers and combat money laundering.
At least two dozen Israeli startups have popped up in the
past year with a view to creating tools that will allow bitcoin
to be used in almost any kind of transaction - from buying shoes
to issuing company stock.
In recent weeks, bitcoin was hit by attacks from unknown
computer hackers that led to problems at two exchanges. They had
to temporarily halt withdrawals by customers who stored bitcoins
in digital wallets provided by the exchanges.
This week, a bitcoin is worth about $635, down from around
the $1,000 mark in late 2013. However, it was worth only about
$150 as recently as last September.
Graph on bitcoin price volatility: here
(Editing by Gareth Jones)