“Mitigate the risks, while minimizing the burden.”
That was a memorable line about the responsibilities of any financial provider from Jennifer Shasky Calvery, the Director of the Financial Crimes Enforcement Network (FinCEN), part of the United States Department of the Treasury.
She uttered this phrase during a US Senate Committee hearing yesterday (18th November), titled ‘Beyond Silk Road: potential risks, threats, and promises of virtual currencies’, which brought together government representatives, leaders from within the bitcoin economy and advocates for virtual currency enforcement.
For bitcoin and other decentralized virtual money enthusiasts, the session made for intriguing television on the Cable-Satellite Public Affairs Network (C-Span).
This hearing made clear what the major problems are to those who have to deal with the emerging concept that is digital currency. Let’s examine what was said.
On a positive note, law enforcement made clear that bitcoin and its brethren should not be considered unlawful.
“Virtual currencies in and of themselves are not illegal,” said Mythili Raman, acting assistant attorney general of the Criminal Division of the US Department of Justice, in her concluding remarks.
However, the fact that bitcoin and other cryptocurrencies are being used as a means to conduct criminality brings it into the spectre of the authorities.
There is major concern about virtual currencies being used on black marketplaces similar to the now-defunct Silk Road. These online resources for obtaining illegal goods and services are now pretty common and there are a number of sites that specialize in digital crimes. An example cited in the hearing was a network on which users can buy and sell financial information from Eastern Europe.
These sites (there’s actually more than one) supply stolen credit cards and other banking information to identity thieves, according to Edward Lowery, of the Secret Service, who also provided testimony.
It’s fair to say these marketplaces do not rely on virtual currencies alone, but also the use of anonymizers and other tools of online illegal trade.
Privacy vs anonymity
Another issue raised in the hearing was that people can, and will, leverage the anonymity afforded by bitcoin to hide what they are doing in the digital realm. Everyone should have the right to some degree of privacy, and most would agree with that assessment, but that privacy should not extend to masking egregious illegality, such as the production, trade and transfer of child pornography.
Ernie Allen, the president and CEO of the International Centre for Missing & Exploited Children, spoke at the hearing, pleading that particular case. Given the subject matter, his argument was very convincing.
“While much of the evidence is still anecdotal, there is consensus that commercial child pornography, sexual exploitation, sex trafficking and other criminal enterprises are increasingly moving to a new unregulated, unbanked digital economy,” he said in his statement.
The “unbanked” also had an advocate at this hearing. Speaking as a representative for bitcoin as a tool to help the unbanked was Jeremy Allaire, CEO of Circle Internet Financial, Inc.
“In many cases, our financial systems have excluded enormous bases of consumers who remain unbanked or under-banked,” he said.
It’s clear Allaire believes that, compared to the digital revolution that has sprouted up around bitcoin, banking remains woefully behind and many customers of huge financial institutions would likely agree.
“Specifically, our payments systems are cumbersome and inefficient, and very much built upon systems and processes that are decades old. The result is that consumers and businesses all around the world are paying an implicit tax in the form of higher costs, lower margins and less efficient economic interaction,” said Allaire.
Illegal activities, nefarious behavior and antiquated financial systems have all contributed to bitcoin adoption, and, thus, generated interest from the US government. However, there are also many good things that are coming from the rise of distributed digital currency.
Consider the effort to raise money for recent typhoon victims, which has filled the coffer of a digital wallet with goodwill. Or the newfound financial resources early adopters have experienced because of their very early intuitions about bitcoin’s promise. Also, merchants all over the world are conducting business with lower overheads by accepting bitcoin as a form of electronic payment.
Yet at the same time, illegal black marketplaces with bitcoin being used as a payment method continue to flourish. Anonymity and virtual currency continues to allow people to do things they would not want their neighbors to know about.
Whether for this reason, or another, the banking industry condemns any sort of virtual currency customer while financial titans like Bank of America publish blog posts anointing its benefits in an effort to pander.
It’s crucial to allow for new means of payments and remittance so, as a result, it’s absolutely essential for there to be a continuing dialog about decentralized virtual currencies.
There has to be a balance that develops so the good can, in the end, overcome a lot of the bad that people associate with the concept of virtualized money.
This is all part of a process, and maturation, of the enlightening theory that built bitcoin to the point that it is at now from wherever and whomever it came from.