by Robert Mcmillan | shared from Wired.com |
The U.S. government believes that some scary people are using bitcoin. But here’s another scary prospect: If the government goes overboard with a hard-line approach on bitcoin and other emerging digital currencies, it may merely push them overseas, where they will surely flourish outside of its control.
On Monday, in a hearing held by the Senate’s Committee on Homeland Security and Governmental Affairs, various federal regulators and law enforcement agencies said that digital currencies and internet anonymity presented serious challenges, but no one is interested in regulating them to the point where they wither here in the U.S.
That’s good news not only for bitcoin, but for the future health of the U.S. economy. Bitcoin is thriving across the internet, particularly overseas, and it could become as important to everyday life as the internet itself.
When the Senate Committee’s chairman, Tom Carper (D-Del.), compared digital currencies to the internet in its earliest days, Jennifer Shasky Calvery, the director of the Treasury Department’s Financial Crimes Enforcement Network, or FINCEN, said the analogy was an apt one. “So often, when there is a new type of financial service or a new player in the financial industry, the first reaction by those of us who are concerned about money laundering or terrorist finance is to think about the gaps and the vulnerabilities that it creates in the financial system,” she said. “But it’s also important that we step back and recognize that innovation is a very important part of our economy.”
The feds have been worried about digital money for years — at least since they shut down E-Gold, an early digital currency provider that operated until 2007 — and recently, the scrutiny has intensified. Last year, the FBI created an inter-agency task force to tackle criminal use of digital currencies, called the Virtual Currency Emerging Threats Working Group. But regulators realize that virtual currency is more than just a means of facilitating illegal activity.
“These virtual currency services are not in and of themselves illegal so long as they comply with our applicable money laundering laws and our money transmission laws and regulations,” said Mythili Raman, acting assistant attorney general with the Department of Justice. “It is our duty as law enforcement to stay vigilant about the criminal misuse.”
The government is also careful to distinguish between the various types of digital currency. Bitcoins were the default currency of the Silk Road — the online drug-and-mayhem marketplace that federal agents shut down last month — and this is partly what sparked today’s hearings. But bitcoin itself has not been the preferred currency of cyber criminals, according to law enforcement’s top digital currency investigator, the Secret Service’s Edward W. Lowery III.
“The high-level international cyber criminals that we’re talking about, have not — by and large — gravitated to the peer-to-peer crypto currency such as bitcoin,” he said.
Instead, they have preferred to use a centralized digital currencies such as Liberty Reserve — the digital money site that was shut down earlier this year. This is a very different animal from bitcoin. Created by an anonymous programmer — or group of programmers — bitcoin is controlled by thousands of machines spread across the internet, not by a central bank.
That said, the feds are looking to regulate bitcoin as well, and this has certainly affected the progress of the popular digital currency here in the U.S. In May, the U.S. Department of Homeland Security began seizing US bank accounts belonging to Mt. Gox, a Japan-based bitcoin exchange. The DHS says Mt. Gox had not properly registered itself as a money transmission business, but the seizure has had a chilling effect on U.S. businesses working in the bitcoin space.
Since then, a number of bitcoin startups have had their bank accounts suddenly closed by U.S. banks, presumably to avoid regulatory problems. “It looks like most of the leading bitcoin companies will be outside of the USA due to the USA’s unreasonable financial licensing requirements,” said Roger Ver, an early bitcoin investor who lives in Japan. He spent part of Monday night at a bitcoin meetup in Shanghai.
“Nearly 100 people showed up, and there is a huge amount of interest from the Chinese people,” he said. “China may be the country with the most early adopters.”
Last month, the world’s first Bitcoin ATM opened up for business. Although the machine, called Robocoin, was designed in Nevada, it got its debut in Vancouver, Canada, where regulators have taken a softer approach toward bitcoin.
Meanwhile, the value of bitcoins have surged, topping $750 on Monday. But exchanges such as Mt. Gox and Bitstamp, which, although located overseas, have traditionally be driven by US traders, have taken a back seat to the Chinese exchange BTC-China, which has now become the world’s most popular bitcoin exchange. “It’s quite clear to me that Bitcoin prices worldwide is now being led by the China market,” said BTC-China CEO Bobby Lee in an e-mail interview.
For regulators here in the U.S., the trick is to control Stateside use of this wildly popular digital currency without choking it all together. Otherwise, the bitcoin world will continue to evolve at expense of our domestic economy. Regulators still have a long way to go in this regard. But at least they understand what’s what.