Bit­coin vir­tual cash raises real is­sues

Se­na­tors ex­plore prob­lems, ben­e­fits as its use in­creases

The Washington Times Daily - - Business - BY TIM DE­VANEY

Capi­tol Hill law­mak­ers are turn­ing their at­ten­tion to Bit­coin and other vir­tual cur­rency web­sites this week, as they con­sider how to reg­u­late a new tech­nol­ogy that is rev­o­lu­tion­iz­ing fi­nan­cial mar­kets around the world.

Bit­coin, a form of “dig­i­tal cash” com­pa­ra­ble to gov­ern­ment-backed cur­ren­cies such as the dol­lar, euro or pound, was de­signed for use in the vir­tual world but in­creas­ingly is be­ing used to buy goods and ser­vices in the real world.

The “cryp­tocur­rency,” which op­er­ates in­de­pen­dently of any cen­tral au­thor­ity, was the fo­cus of two Se­nate hear­ings this week, and has raised con­cerns for U.S. of­fi­cials con­cerned that Bit­coins could be­come an online tool for ter­ror­ists, drug traf­fick­ers and child pornog­ra­phers.

Law­mak­ers, though, are hes­i­tant to crack­down on Bit­coin, seen by some as a tech­no­log­i­cal in­no­va­tion with enor­mous ben­e­fits.

Sen. Mark Warner, Vir­ginia Demo­crat, who chaired a Se­nate Bank­ing Com­mit­tee hear­ing on Bit­coin on Tues­day, chal­lenged law­mak­ers and reg­u­la­tors to “come in with open minds.”

“We have to strike the right bal­ance,” Mr. Warner cau­tioned. “If we lay too much of a reg­u­la­tory bur­den (on Bit­coin), we could chase th­ese ex­changes off­shore and still leave Amer­i­cans un­pro­tected.”

The bank­ing com­mit­tee was joined by the Home­land Se­cu­rity Com­mit­tee this week as they brought to­gether law en­force­ment of­fi­cials from a num­ber of gov­ern­ment agen­cies — in­clud­ing the Trea­sury Depart­ment, Jus­tice Depart­ment and Se­cret Ser­vice — to dis­cuss the po­ten­tial ben­e­fits and dan­gers of vir­tual cur­rency.

Bit­coins are nearly un­trace­able for users who want to re­main anony­mous, law en­force­ment spe­cial­ists say, be­cause the vir­tual cur­rency is not con­nected to any gov­ern­ment.

This presents prob­lems for law en­force­ment agen­cies, be­cause crim­i­nals will use Bit­coins to laun­der money for ter­ror­ist ac­tiv­i­ties, drug traf­fick­ing, weapons sales, mur­der-for-hire ser­vices, tax eva­sion, iden­tity theft and child pornog­ra­phy.

Law en­force­ment agen­cies typ­i­cally “fol­low the money” to bring down big crime syn­di­cates, but in the case of Bit­coin, of­ten times there is no money to fol­low.

Mythili Ra­man, act­ing as­sis­tant at­tor­ney gen­eral at the Jus­tice Depart­ment, tes­ti­fied that Bit­coin is “not in­her­ently il­le­gal. Many of th­ese fea­tures, how­ever, make vir­tual cur­ren­cies ap­peal­ing to crim­i­nals.”

But many law­mak­ers seem hes­i­tant to get in the way of what they see as a po­ten­tially bright fu­ture at Bit­coin.

Mr. Warner said many mod­ern day tech­nolo­gies were at one point con­sid­ered long shots.

In the 1980s, he in­vested in a first­gen­er­a­tion cell­phone com­pany, when at the time many ex­pected the ex­per­i­ment to fail.

“Luck­ily for me, the ex­perts were wrong,” Mr. Warner said at the hear­ing.

Sen. Thomas R. Carper, Del­ware Demo­crat, shared the same sen­ti­ment about the in­ven­tion of email.

“This isn’t the first time that ad­vances in tech­nol­ogy have posed chal­leng­ing ques­tions for pol­i­cy­mak­ers and so­ci­ety as a whole,” Mr. Carper said at the hear­ing. “As we all know, tech­nol­ogy is dy­namic and changes quickly. Con­cepts like email and even the In­ter­net it­self were once alien and dif­fi­cult to un­der­stand and nav­i­gate. Now, most of us can read and re­spond to email on a de­vice we keep in a purse or coat pocket.”

Bit­coin pro­po­nents say it can also be used to pro­vide low trans­ac­tion fees that are typ­i­cally cheaper than credit or debit cards would of­fer in­stant in­ter­na­tional money trans­fers. Bit­coins also pro­mote fi­nan­cial sta­bil­ity in coun­tries that have an un­trust­wor­thy or un­sta­ble bank­ing sys­tem.

The Se­nate’s sym­pa­thetic ear was wel­come news to many in­vestors who had wor­ried in re­cent months that the U.S. gov­ern­ment would try to step in and shut down Bit­coin ex­changes.

The price of one bit­coin surged as high as $900 this week fol­low­ing the hear­ings, be­fore set­tling in around $700 Tues­day evening on the Mt. Gox trad­ing in­dex, as it be­came ap­par­ent that the Se­nate and fed­eral agen­cies plan to take a cau­tiously op­ti­mistic ap­proach with Bit­coin.

Bit­coin has ex­pe­ri­enced tremen­dous growth as of late. The price of a sin­gle bit­coin has jumped 50 per­cent since Sun­day, be­fore the hear­ings be­gan, and has more than tripled since the be­gin­ning of the month.

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