WASHINGTON — Bitcoin backers are breathing a big sigh of relief, as the value of the upstart crypto-currency soars to record highs, following a U.S. Senate meeting that found the new technology to be a legitimate monetary instrument.
In a session entitled, “Beyond Silk Road: Potential Risks, Threats, and Promises of Virtual Currencies,” the Senate Committee on Homeland Security and Governmental Affairs examined the nature of digital crypto-currencies — including the successes that various agencies have enjoyed when cracking down on their use for illegitimate purposes.
The hearing was inspired by the government’s seizure of the enormous underground market exchange known as Silk Road, with Bitcoin being its main monetary mechanism.
Grabbing approximately 170,000 Bitcoins in the Silk Road raid, Uncle Sam took the issue to the Virtual Currencies Emerging Threats Working Group, which consists of a number of agencies, both foreign and domestic, working together to help ensure that this new generation of “money” is not used to conduct criminal activity.
It will be an uphill battle, as successors to Silk Road’s vacant throne have emerged — likewise enamored by the Bitcoin medium.
To date, however, crypto-currencies such as Bitcoin have only met with limited acceptance by operators within the legitimate online adult entertainment industry.
The hearing was presided over by Democratic Senator Tom Carper of Delaware, who notes “Virtual currencies, perhaps most notably Bitcoin, have captured the imagination of some, struck fear among others, and confused the heck out of many of us.”
Carper likens the state of digital currencies today to the Internet’s early days, and the uncertain future that the Internet held at that time.
“Whether or not virtual currencies prove to be a boom or a bust, I think it’s clear that some folks just want a chance to try and play by the rules,” Carper claimed. “That is difficult to do if the rules or proper authorities aren’t clear or if the future is uncertain.”
“It’s also difficult,” Carper added, “if a large number of bad apples are allowed to spoil the bunch.”
As may be expected, the children had to get involved, as the wormiest of all apples, illegal child pornography, took center stage; with Ernie Allen, CEO of The International Centre for Missing & Exploited Children, speaking about the role of virtual currencies in the spread of CP.
Patrick Murck, general counsel for the Bitcoin Foundation, told the committee that while digital currencies remain a high-risk environment for most consumers, there is much demand for digital currency, especially from consumers in countries with weak banking sectors.
Murck explained the resistance that banks are showing towards Bitcoin, and how the word represented the kiss of death to many business plans; but held out a promise of hope by noting that states such as California and Georgia are diligently working to mainstream Bitcoin transactions.
From the tone of the hearing, Washington is on board as well.
Calling the Senate hearing “a Bitcoin lovefest,” The Washington Post observed that comments from the Obama administration re: Bitcoin “have been remarkably positive.”
Indeed, of the government’s witnesses, none called for expanded regulation of the growing range of digital currencies, of which Bitcoin is the best known.
“We are attuned to the criminal use [but] there are many legitimate uses, [and] these virtual currencies are not in and of themselves illegal,” offered Mythili Raman of the Department of Justice, adding that “There is good reason for us to remain watchful, but we also intend to balance that against the need for legitimate use [of this] technology.”
Raman was also pragmatic, saying that “cash is still probably the best medium for laundering money.”
Director of the Treasury Department’s Financial Crimes Enforcement Network, Jennifer Shasky Calvery, compared the use of Bitcoin to the use of prepaid bank cards, and noted that an estimated $8 billion in Bitcoin transactions have already taken place.
“Innovation is a very important part of our economy. It’s something for us to be proud of,” Shasky Calvery stated. “We don’t care whether Bitcoin is a currency or commodity; we are charged with targeting money laundering.”
One noteworthy point coming from the hearing is that the government is aware that Bitcoin and its brethren are not the problem when it comes to unlawful money transfers.
“[Cyber criminals] have not by and large gravitated towards peer-to-peer crypto-currencies,” Edward Lowery of the U.S. Secret Service testified, explaining that they “have by and large gravitated toward centralized digital currencies that are based in a locale that may have less regulatory guidelines and less aggressive law enforcement.”
One reason for the difference in attitudes towards these two financial channels may be in the real-world vulnerability of crypto-currencies. Although proponents feel it is secure, any lock can be opened.
As George Mason professor Jerry Brito noted in the session, unlike Liberty Reserve, Bitcoin records all transactions, presenting an obstacle for would-be criminals who want to hide their tracks, while providing a top intelligence gathering tool for law enforcement.
Lowery says that while digital currencies can challenge the ability of law enforcement to carry out its mission, current laws should be adequate for stopping criminals who may misuse digital currencies.
While the value of Bitcoin spiked following the hearing, the highly volatile digital currency is currently trading on the Mt. Gox exchange for approximately $630, with the expectation of future increases as now less-wary investors enter the market.