New York could become the first state to effectively “legitimize” virtual currencies like Bitcoin. At the moment, authorities are struggling to come to grips with most cryptocurrencies, as there are no rules or regulations governing how businesses must deal with them. To simplify things, the state is now mulling over the creation of a special “BitLicense” for businesses that primarily operate in virtual currencies.

The “BitLicense” would be subject to certain regulations aimed at preventing Bitcoin and other virtual currencies from being used for illegal operations such as money laundering, Reuters reports. That’s a big concern as Bitcoin’s reputation has been harmed in the wake of the closure of the online blackmarket, Silk Road, and yesterday’s arrest of BitInstant CEO Charlie Shrem on money laundering charges. According to Benjamin Lawsky, New York State’s superintendent of financial services, any regulations would be designed to tackle these problems without impacting the technology in its infancy. “Serious people — in the technological and investment community — are taking virtual currencies seriously,” said Lawsky in two-day hearing process on the future of virtual currencies in New York.

Lawsky wasn’t too specific on what a “BitLicense” might entail, but he did say that any regulations should make the investment and deposit process more transparent. He also acknowledged that there were certain dangers involved with a “Wild West” virtual currency like Bitcoin in its present, unregulated state, but added that it offered plenty of benefits too:

“Indeed, virtual currency could ultimately have a number of benefits for our financial system. It could force the traditional payments community to ‘up its game’ in terms of the speed, affordability, and reliability of financial transactions.”

The second day of the hearing is expected to showcase the views of other prominent Bitcoin entrepreneurs, such as the Wiklevoss twins, Fred Wilson and Jeremy Allaire and other regulators. According to the Wall Street Journal, the expected outcome of these talks is that some kind of regulation is almost inevitable, as companies involved with Bitcoin can only thrive when people feel secure about using it.

Lawsky added that he hopes to hash out a “proposed regulatory framework” later this year for New York-based Bitcoin businesses.

This can only be a good thing for virtual currencies and those who use them, and New York’s initiative could soon be followed by other states. There’s already a similar process underway in California, which is home to numerous Silicon Valley companies that are also betting big on Bitcoin.

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