As regulators tighten the screws, businesses built on digital currencies are trying to satisfy new monitoring requirements without letting public enthusiasm for the technology-based concept slip away.
"I think the whole ecosystem is maturing very quickly, and we have young companies that are just beginning to understand how to navigate the regulatory issues," said David A. Johnston, co-founder and executive director of BitAngels, which this week announced it had raised $6.7 million to fund start-ups connected to Bitcoin.
Digital currency is electronic money that can be passed between individuals without the use of the traditional banking or money transfer system.
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Digital currencies are structured in different ways. Some, like Liberty Reserve's "LR," use units of value that are tied to a hard currency, such as the dollar. By contrast, the value of Bitcoin, the best known virtual currency, fluctuates according to supply and demand.
Bitcoin, which has been embraced by a number of venture capitalists in Silicon Valley, exists through an open-source software program that any user with enough skill and computing power can access. It is not managed by a single company or government. Users can buy bitcoins through exchanges that convert real money into the virtual currency.
Prosecutors said that Liberty Reserve, which was closed last week, had created a platform that enabled criminal gangs to launder more than $6 billion.
Bitcoin's supporters cite a host of legitimate reasons for using a digital currency: It can be transferred using less infrastructure and with fewer service fees. A virtual currency could also be safer than using a regular credit card for online purchases, because it is not attached directly to a bank account.
But law enforcement officials see Bitcoin as another vehicle for criminals to anonymously transfer money.
FinCEN's statement in March set off a rush inside the community to learn about anti-money- laundering rules and determine compliance procedures. At the 2013 Bitcoin Conference in San Jose, Calif., two weeks ago, discussion focused heavily on regulatory compliance—its intricacies and its costs.