Congress’s first effort to deal with the burgeoning phenomena known
as “virtual currencies” began with a dark scenario.
Sen. Tom Carper, D-Del., chaired a Nov. 18 hearing into the world
of what he described as “digital cash” linking the new forms of money
to cash laundering, drugs, weapons, child pornography and
“Virtual currencies, perhaps most notably Bitcoin, have captured
the imagination of some, struck fear among others and confused the
heck out of the rest of us — including me,” he said as he opened the
Senate Homeland Security Committee meeting.
Echoing the ominous tone of Carper’s remarks, a panel of federal
regulators agreed that some very bad actors have been using this new
form of money.
But they also agreed the new forms of currency has a place as a
legitimate form of exchange and that current banking laws appear to be
adequate to regulate it.
“The Department of Justice recognizes that many virtual currency
systems offer legitimate financial services and have the potential to
promote more efficient global commerce,” said Acting Assistant
Attorney General Mythili Raman.
That pronouncement was, the New York Times said, “a big step
toward the mainstream” for the new money. The value of Bitcoin units
soared on the news.
Just what is the new form of exchange?
“Virtual currency is a medium of exchange ... not backed by a
government ... circulated over a network, typically the Internet,”
said Raman, citing an FBI definition.
She and the other government witnesses from the Secret Service and
Treasury Department readily conceded that “cyber criminals were among
the first illicit groups to take widespread advantage of virtual currency.”
Despite all the stories of crimes by users of these exchanges, the
witnesses assured Carper that they believed current banking laws,
especially anti-money laundering statutes, were sufficient.
In her prepared testimony Raman also predicted that the virtual
currency systems “will continue to evolve and grow in popularity.”
And, she added: “That growth inevitably will be accompanied by an
increase in illicit transactions.”
Even with the Obama administration’s blessing of digital
currencies, the government witnesses at the hearing all recounted the
exploits of federal prosecutors chasing criminals who used the Bitcoin
and other forms of digital money for their activities.
The two-and-a-half-hour-long hearing also heard from avid backers
of the new forms of exchange, including Patrick Murck, lawyer for the
Washington-based Bitcoin Foundation.
“There is no Bitcoin company,” he told Carper. “There is no
middleman between sender/buyer and the receiver/seller, as there is
with, for example, PayPal, traditional payment cards, bank wires or
other payment system.”
Any computer running Bitcoin software will work and can join the
Bitcoin network, he said. The system is encrypted with “private keys”
and each computer in the system needs a Bitcoin address to handle transactions.
The system “holds out a number of powerfully beneficial social and
economic outcomes, including global financial inclusion, enhanced
personal liberty and dignity, improved financial privacy and a stable
money supply for people in countries where monetary instability may
threaten prosperity and even peace,” Murck said in his prepared remarks.
But under questioning, he also conceded the system remains
“Consumers should be aware it is a high-risk environment,” he said.
The Bitcoin system was praised by a senior research fellow from
George Mason University as “a remarkable technical achievement.”
“Bitcoin is the world’s first completely decentralized digital
currency and it’s the decentralized part that makes it unique,” said
Jerry Brito, the George Mason researcher.
He pleaded with the committee not to press for special regulations
that would make it more difficult for a virtual currency to be based
in the United States. America “could lose its head start” if it
hampers development of Bitcoin technology, he argued.
Jeremy Allaire, founder of Circle Internet Financial, a group that
supports virtual currencies, called global digital currencies “one of
the most important technical and economic innovations of our time.”
He called for consumer protections saying financial transactions
require a high level of security.
What prompted those calls for security were several criminal cases
federal prosecutors have filed against individuals whose enterprises
were underwritten by virtual currencies.
One was the Costa Rico-based Liberty Reserve case, in which one
co-founder has pleaded guilty to money laundering in an alleged $6
billion operation that involved credit card fraud, identity theft,
investment fraud, computer hacking, narcotics trafficking and child
pornography, according to the head of Treasury’s financial crimes section.
Another case is against the Silk Road, which supported the largest
narcotic and contraband marketplace on the Internet. Treasury’s
Jennifer Shasky Calvery said this operation “required” payment in
Bitcoins, which enabled sellers to avoid detection and launder
millions of dollars.
Raman said the Silk Road site was “a venue for over 100,000” drug
buyers and that the Justice Department has seized more than 170,000
Bitcoins valued at more than $70 million.
Still, she and the other witnesses told Carper that the funds
being moved by the new digital currencies are far less than the
trillions of dollars that continue to be moved by conventional wire
transfers and checks.
And criminals still tend to prefer the conventional forms of
exchange for funneling their moneys, the witnesses said.
What happens next in Congress is not clear.
Carper was the only senator who bothered to attend the hearing he
initiated. Most senators remained on their weekend trips to their home
states, the Delaware senator explained.
That lack of enthusiasm and the fact that no one sought new
regulations or laws may indicate Congress has little interest in the
virtual currency issue.
It’s like some people feel about Einstein’s Theory of Relativity,
Carper explained at the end of the hearing.
“I understand the words, but not the sentences,” he said. ■