backtop


Print 31 comment(s) - last by lostdummy.. on Dec 2 at 10:18 AM

Senate grills Bitcoin and law enforcement experts as the currency hits a record high of $700 USD per Bitcoin

Given Bitcoin's pace of slow-and-steady gains in real world value, security/regulatory struggles of being a solely digital currency, and the inherent math of the seeding progress,  this digital cryptocurrency has behave very un-currency-like of late.  From a low of $8 USD in June 2011, the value of Bitcoins has increased nearly 87.5-times to reach $700 USD and has made some early adopters very wealthy.

I. Congress is Stumped by Bitcoins

The biggest damper on Bitcoin enthusiasm is not the volatility of the coins themselves; but rather the question of whether the U.S. and UK -- countries with the world's most powerful banking systems -- will allow a strong third party currency to be used as an alternative to a national currency.

Bitcoin experts were questioned by Congress on Monday in the first in a series of hearings designed to figure out what regulatory actions should be taken regarding Bitcoins.  The chairman of the Homeland Security and Governmental Affairs Committee, Sen. Tom Carper (D-Deleware), was candid in addressing the expert panel, stating:

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.

Senate hearing

One widely held misunderstanding that members of the Senate struggled with is exactly what Bitcoins meant in terms of anonymity and purchases.  There is a wide-held belief that Bitcoins can be used to purchase offline goods -- e.g. a package of drugs -- entirely autonomously via Bitcoin transactions.

This misunderstanding has actually worked to law enforcement's benefit at times as they were able to make discrete purchases on sites like Silk Road to identify distributers/dealers of illegal drugs.  Once identified, Bitcoin transactions offered no anonymity to the dealers' clients, as the second the dealer responded to an order by shipping a package, the feds could track that package to its destination.

In some regards Bitcoins formed a bit of a honeypot of sorts for ferreting out real world crime.

Senate bitcoins
Senator Carper admits to being befuddled by Bitcoins.

The thornier issue regards crimes that are primarily digital in nature, such as the exchange of child pornography.  As no physical goods are delivered and the address is often more obfuscated, it's somewhat difficult to not only figure out who the clients are, but more importantly who is distributing this illegal material.

Ernie Allen, CEO of The International Centre for Missing & Exploited Children, discussed this issue in one of two panels that testified before Congress.

In terms of Bitcoins impact on real world crime, Jennifer Shasky Calvery, the director of the Financial Crimes Enforcement Network (FINCEN); Mythili Raman, an attorney with the U.S. Department of Justice (DOJ); and Secret Service agent Edward W. Lowery III also were part of the first panel that discussed the impact of Bitcoins on law enforcement tactics.

Many of these officials offered refreshingly knowledgeable opinions when it came to Bitcoins and illegality.  Mr. Raman, for example, pointed out that Bitcoins weren't the best idea for buying offline illegal goods as in many ways they were much more traceable than standard currency.  He comments, "Cash is still probably the best medium for laundering money."

Ms. Calvery was supportive of Bitcoins to an extent, but argued that businesses who accept Bitcoins should register with FINCEN so they can pursue complaints if the currency is abused.

II. To Ban or Not to Ban

Other invited panelists testified in support of bitcoins.  Jeremy Allaire, CEO of digital currency startup Circle, spoke to the growing importance of virtual currencies to the real world economy.  Jerry Brito, a fellow with the Mercatus Center at George Mason University and contributor to the libertarian blog Reason, suggested that Bitcoin did weaken the government's grip on the market, but was a great asset to producing the free market.  He suggested that if the U.S. stifled the bitcoin, it would suffer enconomically as other freer markets would benefit from adoption instead.

Overall the Democratic senate seemed to be open to the idea of bitcoins, but also leaning towards upping efforts to regulate this and other cryptocurrencies.

One major unspoken message that loomed large at the hearing was the issue of currency manipulation.  Since the U.S. and China regularly exchange accusations of currency manipulation with each other, it seems likely that at least one of these countries is right -- that the other is manipulating the currency to either control wealth internally and/or stifle international free trade.

Bitcoin smaller
Banks can't control Bitcoins -- which may put pressure on America's special-interests-funded politicians to ban them. [Image Source: Getty Images]

As Bitcoin is an international currency regulated not by government, but by rigid mathematical formulas, there's no real way of manipulating it.  And that has some financial institutions eyeing the Bitcoin warily.  Given the sway such institutions have on U.S. federal politicians, it's unclear whether politicians will stop at mere regulation.  Officials may look to merely make sure Bitcoin earnings are not used for criminal purposes and are taxed like standard earnings.  Or they may looked to outlaw the currency entirely.

Source: U.S. Senate



Comments     Threshold


This article is over a month old, voting and posting comments is disabled

A new one to add to the list-
By espaghetti on 11/20/2013 1:21:31 AM , Rating: 5
If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.
Now we have - If we don't understand it, outlaw it




RE: A new one to add to the list-
By purerice on 11/20/2013 1:48:56 AM , Rating: 2
A long time ago I saw the value of bitcoin as an investment. Only one thing kept me from making a purchase. Inevitably bitcoin will be targeted for elimination by politicians whose campaigns are paid for by those who feel threatened by bitcoin. Bitcoin could go to zero at any point with the stroke of a pen. It may be 100 years from now or 100 minutes from now but there will be a point when bitcoin will be illegal.


RE: A new one to add to the list-
By rsmech on 11/20/2013 2:08:30 AM , Rating: 3
Illegal doesn't always mean worthless.


RE: A new one to add to the list-
By Joz on 11/20/2013 3:43:31 AM , Rating: 2
Drugs, guns, and other things prove your point to anyone wishing to contest it.


RE: A new one to add to the list-
By Adonlude on 11/20/2013 1:54:26 PM , Rating: 1
Um, Guns aren't illegal in my country. They are a specifically enumerated god given right.


RE: A new one to add to the list-
By jRaskell on 11/20/2013 7:56:33 AM , Rating: 2
To anyone wanting to obey the law it does.


RE: A new one to add to the list-
By mmatis on 11/20/2013 8:11:44 AM , Rating: 2
To anyone groveling before their Masters it indeed does. Feel free to make that choice should you wish.


RE: A new one to add to the list-
By lostdummy on 12/2/2013 10:18:43 AM , Rating: 2
BTC has more advantage (and lower risks) over traditional methods (like credit cards) for doing transactions, than it had as investment option (for people buying/selling/keeping BTC).

Advantages to buyers (people who buy goods with BTC):
- anonymity: no easy way to track transaction, similar to cash, unlike credit card (CC) payments
- reliability: less chance not to work, compared to CC: no "expiration date", no "your country not allowed", no "bank IT issues"
- security: no risk for fraud from merchants. With CC, most merchants can keep buyer CC data and do fraud transactions later - buyer need to trust merchants, OR trust money-back features of CC bank/issuer

Advantages to sellers (merchants who sell goods):
- speed: merchant receive money immediately (or in hours if want to wait for multiple confirmations), while with CC money is usually available next day after bank process CC processor statement
- cost: no bank fees per transaction, no investment in payment infrastructure (for CC, merchant need POS, deal with bank,...), faster to setup
- security: no risk for frauds from byers - no fraud claims and refunds (with CC, buyer can receive goods and then falsely claim fraud at bank)
- low market risk: merchants do not have to keep BTC, they can sell BTC for USD as soon as they get it, and can keep price of goods in "BTC equivalent", since buyers are used that BTC price can change on day to day basis...something buyers would not accept when merchant set price in EUR for US made product (meaning merchant has more currency market risk if he sell US product in EUR than in BTC, since he is more vulnerable to EUR/USD devaluation)

Advantages for short-time investors (people who buy/sell Bitocins):
- high profit possibility (high USD/EUR value changes )

Advantages for long-time investors (people who keep Bitocins):
- bitcoin value expected to keep rising: limited total amount at 21mil BTC, cant re-print lost BTCs, inherently deflationary, number of users/transactions are currently low (so more likely to grow): so if amount is limited, and use will grow, it means price will grow

Disadvantages:
- buyers: cost of goods higher than in USD/EUR (need for both buyer and merchant to buy/sell BTC for each transaction, unless they are ready to 'keep' BTC and bear currency fluctuation risks)
- buyers: no refunds - if merchant does not deliver you goods, you can not get money back without merchants approval
- merchant: if USD/BTC value is too volatile, trading losses within day still possible
- merchant: need to be able to dynamically change price of goods in BTC (and customers to accept that)
- investors: risk that countries like US or EU will legaly forbid BTC (risk for long term invertors who keep BTCs)
- everyone: no financial regulatory protection. Yes, many people would call this "advantage", but if your bank get robbed and someone steal your deposit, regulators demand that bank bear loss, not you. If BTC exchange get "robbed", you will lose your BTC, and not exchange


RE: A new one to add to the list-
By mackx on 11/20/2013 6:42:23 AM , Rating: 2
how would that work? the US gov makes it illegal, use exchanges outside of the US


RE: A new one to add to the list-
By kslavik on 11/20/2013 11:12:59 AM , Rating: 2
Bitcoin is a protocol of data exchange. You cannot make a protocol illegal. It is like saying: let's make FTP, or HTTP illegal. You can try to make exchanges to register with government agencies, but it will only lead to exchanges moving to the outside of US (which is the case already). They can try to stop dollars from flowing in and out of the Bitcoins, but what are you going to do with people who take their salary in Bitcoins and spend those coins for goods and services directly without ever going to feat. Whatever US might try to do with Bitcoins, will not influence its existence as a world decentralized digital currency.


RE: A new one to add to the list-
By tamalero on 11/20/2013 4:00:31 AM , Rating: 3
funnily..that didnt stop the banks from doing the whole mess up of the "derivatives" of the housing risks...

lobbying does one hell of a job!


RE: A new one to add to the list-
By Nutzo on 11/20/2013 12:30:56 PM , Rating: 2
They only want to outlaw bitcoin because they can't figure out a way to tax them


RE: A new one to add to the list-
By nolisi on 11/20/2013 6:31:51 PM , Rating: 3
What makes you think that? Effectively, tax is just a percentage of a monetary value. They can apply the same principle to bitcoin transactions within our borders. Taxation isn't the real problem.

The problem is what happens to the existing economy (wealth, property) with a private entity controlling the currency. Do dollars convert over to bitcoins at little/no cost? Will that continue to be the case in the future? What prevents the founders of bitcoin from manipulating the algorithms that determine its value?

We've been working on a state based currency for a long time. I've worked quite a bit for the things in my life I've earned. I don't want a private entity coming along and destroying my wealth just because they want to play the role of a central bank in order to earn wealth for themselves.

Just because we don't like government or think it's inefficient that doesn't mean a private institution is going to be a better replacement. Private institutions fail and screw with people as much as government does. Any private institution that accumulates power over government will effectively become government.


By The Von Matrices on 11/20/2013 7:45:19 PM , Rating: 2
quote:
The problem is what happens to the existing economy (wealth, property) with a private entity controlling the currency. Do dollars convert over to bitcoins at little/no cost? Will that continue to be the case in the future? What prevents the founders of bitcoin from manipulating the algorithms that determine its value?


I think you need to read more about Bitcoin. There is no singular private entity or institution controlling the currency, much less the founder (Satochi). All changes to the protocol occur only when the majority of miners adopt the changes. In this case it is vulnerable to a 51% attack, but as of now there is no single person or group that controls 51% of the miners. The only people who come even close to that (Slush and BTCGuild) have shown time and time again that they are committed to preserving the currency. Slush has in the past taken a huge loss during a fork of the clients in the interest of keeping the currency from fracturing, and BTCGuild continuously raises its fees to discourage new clients so that it never gains a majority share of the mining.

As far as dollars converting to Bitcoin, you need to approach Bitcoin as any international currency. There are conversion fees, and the exchange rates vary. If Bitcoin ever becomes a major world currency then you will need to exchange your local currency for Bitcoin just as you would convert your local currency if you were traveling to another country. If Bitcoin becomes the world's dominant currency, then it would be reasonable that your dollars would become worthless. This is not like the Euro where a central government consolidated local currencies at a fixed exchange rate.


By ARLibertarian on 11/23/2013 4:14:40 PM , Rating: 2
quote:
if the American dollar is slowly loosing value, then what is wrong with people wanting to use a more stable currency


No problem for the people, big problem for the government, banks and corporations.

If people were to start abandoning the dollar(as may soon happen world wide) then the US can no longer print money hand over fist and export their debt.

Note how the fed stepped in and shorted gold to the tune of half a year's production to knock the price down, drive people out of the gold market, and back into the stock market. (Shorting is when you sell something you don't have, hoping the price drops and you can cover your sales by buying the product cheaper than you sold it for. Market manipulation, but apparently legal for the federal reserve.)

The attraction of gold, like bitcoin, is that it can't be created from thin air, as can fiat currencies. Governments love printing money for what they need today, unconcerned with the new currencies affect on the economy long term. They'll just print more later. You're an old person who's seen your retirement wiped out by inflation? That's okay. Government will print more money to take care of you.


Just Wrong
By Flunk on 11/20/2013 9:52:43 AM , Rating: 2
quote:
As Bitcoin is an international currency regulated not by government, but by rigid mathematical formulas, there's no real way of manipulating it


This sentence is just plain wrong, there are plenty of ways to manipulate Bitcoin. Short selling, overvaluing and flooding the market all work and have happened in the recent past. No government has the kind of direct control they have over their own currencies, but it is vulnerable to a lot of different manipulation strategies.

Also, the distributed architecture is vulnerable to 51% attacks and a few other types of manipulation.




RE: Just Wrong
By kslavik on 11/20/2013 11:18:35 AM , Rating: 2
The short selling it fine by itself - because to short sell Bitcoins, you need to find somebody who will lend you those Bitcoins first. It is not like naked short selling where players are able to sell securities which they do not have. To flood the market, you have to buy those bitcoins first - it is easy to flood the market with dollars because there is almost unlimited number of those. Bitcoins are limited to 21 million - that is it.


RE: Just Wrong
By drycrust3 on 11/20/2013 3:53:14 PM , Rating: 2
quote:
Bitcoins are limited to 21 million - that is it.

If that is correct, then surely that adds to the value of Bitcoins, not devalues them.
The changing tone of the US Government towards Bitcoins shows it could well have a credible future.
Surely, if the American dollar is slowly loosing value, then what is wrong with people wanting to use a more stable currency? The real problem here is the supply is too limited for everyday use, but it could well be that simply means Bitcoin will end up being used for high value trades, e.g. trades done in millions or billions of dollars, and that other virtual currencies will arise, other ones with a limited supply (and that is the key here) of say 21 billion would used for trading at the more normal level.
Not being an American, I can't see how people in America can be stopped if they want to do trade inside America using Bitcoins. What you trade with, US Dollars, gold, cigarettes, illegal drugs, Bitcoins, Euros, whatever, doesn't remove Americans obligation to pay taxes, nor does it remove that obligation to pay in US Dollars. If virtual currencies were able to become a credible form of currency then everyone in America would be waiting until towards the end of the financial year before they bought their US Dollars, when they could get the most US Dollars per bit coin, then rush into their local IRS office to pay their taxes.


RE: Just Wrong
By Duwelon on 11/20/2013 4:02:43 PM , Rating: 2
Currently a botcoin is divisible to 8 decimal places but with a software change it could be infinite if needed.


LOL! Congress is a joke!
By Rob94hawk on 11/20/2013 8:17:49 AM , Rating: 2
The government can't even get a national healthcare website up and running. What makes them think they can ban bitcoin?! Idiots.




RE: LOL! Congress is a joke!
By tanjali on 11/20/2013 8:58:02 AM , Rating: 2
Those that are against Bitcoins are the same ones who devalued US $ Dollar to toilet paper.


waht is the real value though?
By moremilk on 11/20/13, Rating: -1
RE: waht is the real value though?
By wired00 on 11/20/2013 5:47:00 PM , Rating: 2
I recently used cjs CD keys a online games steam CD key seller to buy a CD key using btc (legitimate site). They simply accept a btc payment which converts to store credit which is accepted at checkout. A pub nearby is now accepting bit coin (see old Fitzroy hotel). There are retailers online which accept bitcoin either for credit allowing purchase of electronics, consumer stuff or to buy Amazon, apple etc gift cards.

Regarding value, the price changes dynamically based on current value of btc against USD. If the store sells a $50 Amazon card then they simply use a dynamics currency conversion to calculate the value in fractions of bitcoins. The value isn't obviously locked to some past static btc value heh.

It's only a matter of time till Google and Amazon start accepting bit coin directly or accept bitpay etc


By The Von Matrices on 11/20/2013 7:50:55 PM , Rating: 2
Eventually I wouldn't expect to see goods have variable BTC prices based on the exchange rate of the dollar of some other currency; this is a temporary solution until the majority of BTC transactions are for purchases rather than investment and the price stabilizes. At that point it will become just like other world currencies where the price fluctuates a very small amount and changes in prices of end products only occur over a long term basis (years).


hy
By emilinedbp157 on 11/20/13, Rating: -1
People can choose what currency they prefer
By EricMartello on 11/20/13, Rating: -1
RE: People can choose what currency they prefer
By Duwelon on 11/20/2013 3:48:53 PM , Rating: 2
That's a lot opinion without demonstrating any actual understanding. What's with the silly lolcoin name, you think it adds weight to your diatribe?

I don't own any bit coins but I have to admit the appeal is there. Its really only because its the only currency scheme that most resembles a gold standard.


RE: People can choose what currency they prefer
By EricMartello on 11/20/2013 8:19:48 PM , Rating: 2
quote:
That's a lot opinion without demonstrating any actual understanding. What's with the silly lolcoin name, you think it adds weight to your diatribe?


It's easy to make a generalized statement without actually explaining why you disagree with anything I said.

quote:
I don't own any bit coins but I have to admit the appeal is there. Its really only because its the only currency scheme that most resembles a gold standard.


There is appeal if you are a retard. LOLcoins have NOTHING in common with the gold standard. You have to be a special kind of ignorant to make a statement like that.

Nobody issued LOLcoins so nobody backs them, and none of the people involved with them actually want to transition from USD to LOLcoins - they just want to get LOLcoins and sell them for USD, thinking they'll get rich if they can.


By half_duplex on 11/21/2013 2:06:08 PM , Rating: 2
quote:
There is appeal if you are a retard. LOLcoins have NOTHING in common with the gold standard. You have to be a special kind of ignorant to make a statement like that.

Nobody issued LOLcoins so nobody backs them, and none of the people involved with them actually want to transition from USD to LOLcoins - they just want to get LOLcoins and sell them for USD, thinking they'll get rich if they can.


You appear to have very little understanding of BTC.

Here is the BTC wiki, you will find it useful.
https://en.bitcoin.it/wiki/Main_Page


RE: People can choose what currency they prefer
By JediJeb on 11/21/2013 5:01:23 PM , Rating: 2
But...

People have already mined bitcoins and sold them for real dollars. Whether the value of those bitcoins falls or not, those people have made actual money, which they can later reinvest it anything they wish, be it gold, cash, or more bitcoins. Anyone who has purchased physical or digital objects(cars, software, ect) with bitcoins have already made use of those and you can not then say they are worthless. In the future maybe they will be completely worthless, but for now they do have a tangible value to them for certain uses.

quote:
You could also simply write a contract on paper that says you'll pay someone back in the future for whatever price was agreed upon. If the other party accepts this, congratulations, you just bought something with a piece of paper. Either way, if you are dumping real money into bitcoins thinking you are 'investing', you are a moron...but you are free to do so if you please regardless of what the government says.


A paper dollar is the exact same thing. Maybe it is backed up by the US Government, but what if the US Government does not exist next year, those dollars are now worth nothing also. People invest in stock and bonds every day also, and it is also "investing" as you say it since tomorrow that piece of paper they own (the stock certificate) could be worth no more than the paper it is written on.(how much is a share of DeLorian Motors worth these days?)

In describing bitcoin, you just described every financial system in the world today. Any currency including gold is only worth what someone else will give for it at any given moment.


By EricMartello on 11/23/2013 3:25:06 PM , Rating: 2
quote:
People have already mined bitcoins and sold them for real dollars. Whether the value of those bitcoins falls or not, those people have made actual money, which they can later reinvest it anything they wish, be it gold, cash, or more bitcoins.


You can buy and sell anything, be it virtual or tangible, if both parties agree to the transaction. This in itself does not confirm LOLcoins as a form of currency.

In order for a real-world currency to exist, it needs to be backed by a credible, solvent and structured entity - otherwise it is not a currency and its value is restricted to the parties involved in a particular transaction.

quote:
A paper dollar is the exact same thing. Maybe it is backed up by the US Government, but what if the US Government does not exist next year, those dollars are now worth nothing also.


No, dollar is not the same as a LOLcoin.

1) When you buy something with a currency, you are accepting debt. The currency is an IOU. If you buy something for $100 you are taking on $100 in debt to the whomever you bought from, with the currency acting as the "contract".

2) Because the USD is backed by the country, our government, the seller who accepted your $100 debt does not need to rely on you specifically to rectify said debt. He can take the $100 of currency you gave him and exchange it for goods or services of equal value.

3) The USD is backed by our government, which guarantees the currency giving it liquidity.

4) In the same situation above, if you used what both parties agreed were $100 worth of LOLcoins - the seller would not have a guarantee that he can redeem the LOLcoins at any store, supplier or service provider for $100 of value because LOLcoins are entirely without backing.

quote:
People invest in stock and bonds every day also, and it is also "investing" as you say it since tomorrow that piece of paper they own (the stock certificate) could be worth no more than the paper it is written on.(how much is a share of DeLorian Motors worth these days?)


Stocks represent fractional ownership in a company. The value of the stocks can be inflated or deflated, based on the fundamentals of the underlying company. You can look at the financial statements of Google (GOOG) before deciding whether you believe $1,020 per share is reasonable - and while there is no assurance that your investment will result in a profit rather than a loss, you do have tools to manage your risk and limit your exposure.

Bonds are debt instruments, which means you are buying debt from the bond issuer with the expectation that you'll receive payment at maturity - in other words, you are lending money. Again, you have the option to examine the bond issuer's financial statements before electing to buy their bonds.

quote:
In describing bitcoin, you just described every financial system in the world today. Any currency including gold is only worth what someone else will give for it at any given moment.


That's the misguided internet forum explanation of what differentiates a legitimate currency from valueless "play money" like LOLcoins.

Point one - a currency represents a structured entity - and a random mob of people do not constitute an "entity". This is why a currency allows for commerce to function within said entity and beyond.

There is no entity whose financial statements you can examine before "investing" in LOLcoins, and as such you are not investing. You are gambling.

There is nothing in the way of risk management, meaning that you cannot control your maximum exposure to loss because LOLcoins are entirely unregulated and subject to the whims of the crowd.

Look, I'll be the first to denounce big government and support reforms to limit their power and scope of influence - but LOLcoins are simply not the answer any more than anarchy (extreme right-wing) is a desirable substitute for a dictatorship (extreme left-wing).

The optimal position on the political spectrum for a government is between center and right, and that government would include some type of currency regulation and guarantee.


"Well, we didn't have anyone in line that got shot waiting for our system." -- Nintendo of America Vice President Perrin Kaplan














botimage
Copyright 2014 DailyTech LLC. - RSS Feed | Advertise | About Us | Ethics | FAQ | Terms, Conditions & Privacy Information | Kristopher Kubicki