Dive Brief:

• In hearings this week led by New York’s Superintendent of Financial Services Benjamin M. Lawsky, United States prosecutor Richard B. Zabel, and Manhattan District Attorney Cyrus Vance testified that without limitations, bitcoin is all too easily laundered and otherwise used for illicit activities.

• Lawsky, for his part, has conducted the hearings in order to hear from bitcoin advocates and investors, as well as law enforcement officials, in order to come up with some sort of regulatory framework sometime this year.

• Bitcoin advocates have argued that virtual currencies are no more likely to be used in criminal activity than credit cards, cash, or money transfers, and that, indeed, bitcoin is easily traced.

• But law enforcement officials have been confounded because software-money users have numerous ways to cover their tracks not possible in the traditional monetary system.

Dive Insight:

It’s too soon to tell whether bitcoin is going to lodge itself into everyday currency use, but it’s rather fun to watch the process unfold before our eyes. A bitcoin exchange chief and a bitcoin exchanger were arrested earlier this week for their alleged roles in the underground website Silk Road, which is believed to have facilitated the narcotics trade, murder-for-hire, and other black market dealings. It’s all very pirate-y, but of course the arrest lends credence to both sides — that bitcoin is involved in illicit activity and that it can be tracked. In any case, the real threat of regulation from New York certainly feels like a potential stop sign for bitcoin, at least for now. How that affects the cryptocurrency's usefulness to retailers and their customers remains to be seen.