Bitcoin Services Forced to Spy on Users?

The Electronic Freedom Frontier has put out a warning about the new draconian measures that the State of New York has proposed for Bitcoin dealers/payment providers.

EFF writes:

What if you picked up a cup of coffee on your way to work and paid $2.00 in cash, only to have the man behind the counter request your home address?

"My home address?" you might ask.

"Yes," he might reply. "And your full legal name. I'm keeping it in a file for the next 10 years, just in case the government wants it.

Sound ridiculous? Substitute bitcoins for cash, and that's might happen in the near future at businesses that accept digital currency in New York and elsewhere.

The State of New York has proposed BitLicense, a sprawling regulatory framework that would mandate licenses for a wide range of companies that interact with digital currencies. The proposal creates expensive and vague new obligations for startups and infringes on the privacy rights of both Bitcoin businesses and casual users. And we have only four days before public comments on the proposal close...

BitLicense extends well beyond the state of New York. The regulations impact any business "involving" New York or a resident of New York, which is pretty much any online service. And the proposal as written wouldn't just affect big digital currency exchanges; it would sweep up software developers and other entrepreneurs designing creative services for the digital currency environment. There are also no carve-outs for academics or security researchers.

What the proposal would do:

• BitLicense requires digital currency innovators to get a license. They would need to undergo a background check and submit their fingerprints to state and federal law enforcement.
• Even technology users just dabbling in Bitcoin could be affected. All the companies who obtain a BitLicense may be forced to collect personal data on consumers—including full name and physical address—and keep that data for 10 years, no matter how small the transaction.
• Think back to the coffee shop at the beginning of this article. If this coffee shop were using a Bitcoin payment provider to process transactions, that payment provider would need to obtain a BitLicense from New York. While the coffee shop and its customers would not need to get a license, every digital transaction processed by the payment provider would have to follow the BitLicense record-keeping requirements, including identity information about all parties to a transaction.

Virtual currencies like Bitcoin have the potential to be privacy-protective and censorship-resistant, but the proposal from New York could undermine all of that. Perhaps worst of all, it could stifle a fledgling privacy-enhancing industry before we even know what potential societal benefits may develop.

This should surprise no one that is a regular reader of EPJ. Bitcoin is a very trackable electronic "currency" and as I have warned regulators will crackdown.

It is absolutely dangerous to think of Bitcoin as some kind of libertarian answer to government control of the monetary system. It is a myth. The government will allow Bitcoin only if it is tarckable. Most retailers are not going to go into some dark world and defy the government when transacting business.

-RW