Diehard bitcoin believers can rest easy (for now). According to new chair Janet Yellen, the Federal Reserve will not regulate bitcoin.

Diehard bitcoin believers can rest easy (for now). According to its new chair, Janet Yellen, the Federal Reserve will not regulate bitcoin. During her Senate Banking Committee hearing on Thursday, Yellen clarified the Fed's position on digital currencies for Sen. Joe Manchin. Manchin has asked federal regulators to ban the digital currency to "prohibit this dangerous currency from harming hard-working Americans." Yellen says the Fed can't do that.

"Bitcoin is a payment innovation that's taking place outside the banking industry," she explained. "To the best of my knowledge there's no intersection at all, in any way, between Bitcoin and banks that the Federal Reserve has the ability to supervise and regulate. So the fed doesn't have authority to supervise or regulate Bitcoin in anyway." This makes bitcoin users very happy.

In response to Yellen's statement, one bitcoin user posted on Reddit, "Well Manchin must feel like an idiot." According to users, Manchin doesn't get that the best thing about bitcoin is that it's unregulated. As another Reddit poster explained Thursday on the r/bitcoin forum:

These people [the government] built the ponzi scheme which IS the USD and they will not just allow something useful to others to go free. It must be tamed, trained and put back into the world as a weapon against liberty, like all other currencies. [Manchin] is a living joke.

This is not an extreme statement compared to most of what's on the r/bitcoin forum. Bitcoin users really do think the dollar is broken, and they insist that digital currency is the only way people can break free from a tainted system. If the government regulates bitcoin, it will ruin it. So Yellen's statements are a big "win" for bitcoin fans who think Manchin needs to stay out of their business.

But Yellen isn't exactly hailing bitcoin as the currency of the future. She pointed out that it has "the potential for money laundering." There's just nothing the Fed can do about it. Her final statement on the matter is this:

The Fed doesn't have authority with respect to Bitcoin. But certainly it would be appropriate for Congress to ask questions about what the right legal structure would be for digital currencies ... My understanding is Bitcoin doesn't touch [U.S.] banks.

So while bitcoin users can celebrate Yellen's "Xcellent zing!" against Manchin now, they shouldn't expect worries about the currency to go away. After news broke earlier this week that possibly $280 million was stolen from one of bitcoin's largest trading sites, Mt. Gox, the currency's problems have become too big to ignore.

Bitcoin may have had a bad week, but it will never lack for defenders.

Bitcoin may have had a bad week, but it will never lack for defenders.

On Monday, Mt. Gox, one of the largest trading sites of the digital currency, went offline after it was revealed that it was possibly the target of a $350 to $380 million theft, about six percent of all bitcoin in circulation. Mt. Gox is based in Tokyo, and authorities in both Japan and the U.S. are looking into the security breach, which went unnoticed by Mt. Gox for years. The trading site's CEO, Mark Karpeles, tells Reuters his company is "at a turning point."

As is Bitcoin itself. Sen. Joe Manchin has already called on federal regulators to ban bitcoin. He wrote Wednesday, "Before the U.S. gets too far behind the curve on this important topic, I urge the regulators to work together, act quickly, and prohibit this dangerous currency from harming hard-working Americans."

So early adopters and bitcoin executives are on the defensive, eager to prove that digital currency is still the next big thing — and that it does not need more regulation. One Reddit poster, who identifies himself as Coinapult founder Eric Vorhees, wrote Wednesday.

Vorhees wrote in Business Insider Tuesday that users must stand strong against the media. "We are building a new financial order, and those of us building it, investing in it, and growing it, will pay the price of bringing it to the world," he explains. Vorhees himself is paying quite the price — he lost 550 bitcoins, or $314,000 in the Mt. Gox theft. Still, in broad, dramatic terms, he urges other users to fight the good fight with him, life savings be damned.

When money becomes information, it can inform on you.

In 2014, Cass Sunstein—one-time “regulatory czar” for the Obama administration—wrote an op-ed advocating for a cashless society, on the grounds that it would reduce street crime. His reasoning? A new study had found an apparent causal relationship between the implementation of the Electronic Benefit Transfer system for welfare benefits, and a drop in crime.

Under the new EBT system, welfare recipients could now use debit cards, rather than being forced to cash checks in their entirety—meaning there was less cash circulating in poor neighborhoods. And the less cash there was on the streets, the study’s authors concluded, the less crime there was.

Perhaps burglaries, larcenies, and assaults had gone down because there was simply less to readily steal. Perhaps, also, the debit cards deterred people from spending money on drugs and other black market goods. While nothing was really stopping them from withdrawing cash and then spending it illegally, the famous Sunsteinian Nudge was in effect—the very slightest friction in the environment pushed people away from committing crime.

The year after Sunstein’s op-ed was published, in a seemingly unrelated incident, a student at Columbia University was arrested and charged with five drug-related offenses, including possession with the intent to sell. Supposedly, his fellow students and customers had paid him through the Paypal-owned smartphone app Venmo.

Venmo makes every transaction public by default. The app features a social-network-like feed where you can see your friends sending each other varying sums of money, often accompanied with cute descriptions and emoji. The alleged dealer asked his customers to write a funny description for every transaction, and in doing so, turned his feed (and others’) into an open record of drug trafficking.

Nothing was really stopping the students from going to an ATM and withdrawing cash to use in the old-fashioned way. But that takes time and energy and meanwhile Venmo is sitting right in your pocket. The Ivy League’s best and brightest were Nudged into narcing on themselves.

In a cashless society, the cash has been converted into numbers, into signals, into electronic currents. In short: Information replaces cash.

Information is lightning-quick. It crosses cities, states, and national borders in the twinkle of an eye. It passes through many kinds of devices, flowing from phone to phone, and computer to computer, rather than being sealed away in those silent marble temples we used to call banks. Information never jangles uncomfortably in your pocket.

But wherever information gathers and flows, two predators follow closely behind it: censorship and surveillance. The case of digital money is no exception. Where money becomes a series of signals, it can be censored; where money becomes information, it will inform on you.

It's been a rough week for Bitcoin, but Jon Stewart is here to demystify what's going on with what he calls "the world's youngest money."

It's been a rough week for Bitcoin. You may have heard something about the largest exchange for the digital currency losing an estimated $350 million after more than 700,000 Bitcoins were stolen. Well, Jon Stewart is here to demystify what's going on with what he calls "the world's youngest money."

First, let's start with a basic description. Bitcoin exists exclusively on the internet – it is "the Tamagotchi of currency," in the words of Stewart. It has a strong foundation of ardent supporters, many of which believe Bitcoin is the "gold of the future," (Are Bitcoin grills the future of rap?, Stewart wondered) and it is slowly gaining more traction in the mainstream.

"I don't see what could go wrong. Nothing's more reliable and secure than the internet," Stewart said. Which means, of course, that something has indeed gone very wrong.

And that brings us to the Mt. Gox bust earlier this week. As we mentioned, the Bitcoin exchange based in Tokyo lost roughly $350 million, either because it was hacked and hundreds of thousands of Bitcoins were stolen, or it was committing some serious fraud.

Stewart had a suggestion for the internet currency: why not simply try restarting? Did Mt. Gox check its trash bin? What about pressing "control + alt + money?" That didn't work? Too bad.

How did something like this happen? "It's not like money that doesn't really exist can just disappear," Stewart said. Some experts suspect fraud on behalf of Mt. Gox. Which would be pretty bold, to do it all at once like this. "Listen, [Mt. Gox]. You got a lot to learn about being a financial player: You just don't commit brazen fraud in one fell swoop. You institutionalize and normalize systemic fraud," Stewart said. You know, just as the real financial institutions, like Credit Suisse and Goldman Sachs do it. 

But we're forgetting the best part of this whole fiasco. What does Mt. Gox, the name of the Bitcoin exchange holding millions of dollars worth of digital currency, actually mean? That would be "Magic The Gathering Online Exchange." As in, the trading card game. Because Mt. Gox originally started as "a place for people to trade Magic cards." And now it's in the middle of a $350 million Bitcoin heist.

That right there is the beauty of the internet.

Flexcoin, a relatively small Bitcoin bank, announced early Tuesday morning that it's shutting its doors in light of being completely robbed of its currency.

Flexcoin, a relatively small Bitcoin bank, announced early Tuesday morning that it's shutting its doors in light of being completely robbed of its currency. All of it. Just days after a massive theft at another major Bitcoin depository, Flexcoin was completely cleaned out by hackers, leaving the site no choice but to shut down.

According to Flexcoin's terms of service, Flexcoin users aren't owed anything: "We have taken every precaution to defend your bitcoins from hackers and/or intruders.," the terms clearly state. "However, Flexcoin Inc is not responsible for insuring any bitcoins stored in the Flexcoin system. You are entering into this agreement with Flexcoin Inc. You agree to not hold Flexcoin Inc, or Flexcoin Inc's stakeholders, or Flexcoin Inc's shareholders liable for any lost bitcoins." The total amount lost is 896 bitcoins, which converts to about $618,000.

Bitcoin users have responded similarly to how they responded to the Mt. Gox collapse — blame the individual site, not concept of Bitcoin itself. One reddit user writes Tuesday morning,

The Mt. Gox collapse, which was much larger in scale, did not turn users away from the digital currency. Bitcoin investors are diehard believers in the idea of an unregulated, worldwide currency.

Sadly, it appears that Flexcoin did not see the theft coming at all — the company assured users after Mt. Gox that the same thing would not happen to them.