Tuesday, May 28, 2013

WaPo: Will Bitcoin Be Shut Down Next?

WaPo writers do not go off on wild speculations, they are connected and comment with a D.C. informed perspective.

Thus, Bitcoin holders need to consider this comment from WaPo blogger Timothy Lee, carefully:

In the view of federal prosecutors, [the just shutdown] Liberty Reserve was deliberately designed for illegal activities. “Liberty Reserve has become a financial hub of the cyber-crime world, facilitating a broad range of online criminal activity,” the indictment states. “Unlike traditional banks or legitimate online payment processors, Liberty Reserve does not require users to validate their identity information, such as by providing official identification documents or a credit card. Accounts can therefore be opened easily using fictitious or anonymous identities.”
Of course, that description could just as easily describe Bitcoin. Anyone can create a new Web address for accepting bitcoins and then transmit funds to other Bitcoin addresses without furnishing identifying information. This feature has raised concerns that the currency might be used for activities such as drug dealing or illegal gambling.
The U.S. government faults Liberty Reserve for requiring users to fund their accounts through intermediaries called “exchangers.” In the prosecutors’ view, these intermediaries helped the core Liberty Reserve network avoid collecting identifying information about their users. The Bitcoin economy has a similar structure. Users buy bitcoins with conventional currencies via online exchanges. Some of these intermediaries do collect information about their users, but once users have purchased their bitcoins they can conduct unregulated, and practically untraceable, transactions with other Bitcoin users.
On the other hand, Lee notes:
 But there’s also at least one important difference between Bitcoin and Liberty Reserve: If the authorities concluded that Bitcoin were a money laundering scheme, it’s not clear whom they’d prosecute. There’s no Budovsky for Bitcoin. Rather, the online currency was created by “Satoshi Nakamoto,” widely regarded as a pseudonym. Bitcoin transactions are processed in a distributed fashion by thousands of “miners” around the world. It would be difficult for the United States to indict all of them, and doing so would likely drive Bitcoin mining underground — which could make it even more attractive to criminals.
That sprawling, decentralized network would create a dilemma for federal regulators if former Liberty Reserve users switched to Bitcoin. The crypto currency doesn’t fit well into existing money-laundering laws, and there’s no one who can be required to reform the network to bring it into compliance. Trying to shut down Bitcoin could prove futile — the feds can make life hard for individual Bitcoin users but likely could not destroy the network altogether.

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