Bitcoin Goes to Washington: The Case for and Against Digital Currency
The era of Bitcoin may well be at hand. Not only has its value climbed to all-time highs in recent weeks but, for better or worse, Bitcoin has caught the U.S. government’s attention.
The digital cryptocurrency has enjoyed a steady growth in popularity since it debuted in 2009, but recent events, such as the FBI’s closure of the online drug marketplace Silk Road, have thrust Bitcoin into the spotlight. After gathering testimony from various governmental agencies during the past three months, the U.S. Senate Committee on Homeland Security and Governmental Affairs will try to figure out how to handle Bitcoin during a hearing Monday titled “Beyond Silk Road: Potential Risks, Threats, and Promises of Virtual Currencies.”
Witness testimony the Homeland Security and Governmental Affairs committee released in advance of the hearing and letters submitted to the panel provide insight into an inherent catch-22 Bitcoin faces: The currency was created and nurtured by privacy advocates to be free from governmental oversight, but at least some some of those invested in the cause are hoping the U.S. government will recognize Bitcoin as a legitimate currency.
“Bitcoin can provide a safe store of wealth and a global transaction network that cannot be corrupted or abused by those who would seek to exploit or harm vulnerable populations,” reads testimony from Patrick Murck, general counsel for the Bitcoin Foundation. “It can help advance liberty and dignity for people worldwide, restore financial privacy for law-abiding people, and provide a stable money supply in countries where the currency may be mismanaged.”
The Senate hearing takes place on the same day that the exchange rate for Bitcoin surpassed $600 for the first time, as valued by Mt. Gox, a key Bitcoin trading exchange.
Though Murch agues that Bitcoin is not a “magic cloaking device that allows criminal actors free reign,” he recognized that Bitcoin has already presented challenges to law enforcement, the most prominent example being Silk Road. During its two-and-a-half year run, the online drug marketplace facilitated more than $1 billion in transactions, according to the FBI. Even though the FBI took down the site on Oct. 1, there is no shortage of competitors attempting to fill Silk Road’s void. Earlier this month, a new Silk Road launched that almost exactly resembles the original.
The chairman of the U.S. Senate Committee on Homeland Security and Governmental Affairs, Democrat Sen. Tom Carper of Delaware, released the following statement on Nov. 6, the day the new Silk Road launched.
“This new website — launched barely a month after Federal agents shut down the original Silk Road — underscores the inescapable reality that technology is dynamic and ever-evolving and that government policy needs to adapt accordingly. Rather than play ‘whack-a-mole’ with the latest website, currency, or other method criminals are using in an effort to evade the law, we need to develop thoughtful, nimble and sensible federal policies that protect the public without stifling innovation and economic growth. Our committee intends to have that conversation – among others – at our hearing this month on virtual currency.”
Digital currencies like Bitcoin enable illicit activities beyond drug dealing, though. On Monday, Forbes reported on a Bitcoin-powered crowdfunding site for political assassinations called Assassination Market that has emerged over the past several months.
The site’s users have submitted six assassination targets, including President Barack Obama, NSA director Keith Alexander and Federal Reserve Chairman Ben Bernanke, with bounties ranging from 10 bitcoins for Alexander to 121 bitcoins for Bernanke. Though no one has been killed because of the site, in the event it does happen, an assassin would have to go through a verification process to collect the Bitcoin reward.
Then, there is the Internet’s ongoing child pornography problem. Ernie Allen, president of the International Centre for Missing and Exploited Children, will sit as a witness on Monday’s panel to raise the case for how anonymizing digital currencies enable online pedophiles.
“The Department of Justice recognizes that many virtual currency systems offer legitimate financial services and have the potential to promote more efficient global commerce,” wrote Mythili Raman, assistant attorney general for the criminal division. “We have also seen, however, that certain aspects of virtual currencies appeal to criminals and present a host of new challenges to law enforcement.”
Representatives from the Department of Homeland Security, the Department of the Treasury and the Securities and Exchange Commission expressed similar reservations about Bitcoin in their letters to the Senate committee.
While the Bitcoin Foundation’s Murck wrote that it “does not pose a unique or unsolvable challenge to law enforcement,” an entire section of Raman’s letter is titled “Unique Challenges,” in which she outlines the challenges investigators face in cases involving digital currency.
Chief among these challenges, according to Raman, is the lack of a paper trail. Though Bitcoin transactions are recorded in a public ledger called the block chain, the players in the transaction use an anonymous Bitcoin address.
“Illicit users are typically attracted to systems with lax anti-money laundering and know-your-customer controls,” Ramen wrote.
Federal Reserve Chairman Ben Bernanke essentially punted in his letter to the Homeland Security and Governmental Affairs committee, declining to take a strong stance for or against Bitcoin.
“The Federal Reserve will continue to monitor developments as part of its broad interest in the safety and efficiency of the payment system,” Bernanke wrote. “We also stand ready to cooperate with other agencies in fulfilling their mandates, as appropriate.”
Bitcoin advocates and detractors will formally hash out their arguments in front of the Senate panel Monday afternoon.
Image: Flickr, Antana