Meet Roger Dickinson, The Man Behind California’s Bill to Legalize Bitcoin

Pete Rizzo (@pete_rizzo_) | Published on March 9, 2014 at 12:49 GMT | News, Regulation, US & Canada

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In the world of digital currency, misinformation spreads quickly, and there may be no greater recent example of this than California Assembly Bill 129, a piece of proposed legislation that has been heralded somewhat incorrectly as an already successful move by the state to “legalize cryptocurrencies“.
Though, the bill would recognize digital currencies as “lawful money”, it would also ensure the legal footing of additional forms of legal tender such as points and coupons, and is currently only halfway to becoming law.
Regardless, many in the digital currency community have high hopes that AB 129 and AB 786 (a bill passed in September that lowered capital requirements for money transmitters) signal that California will be among the more progressive US jurisdictions when it comes to digital currency.
With this in mind, CoinDesk set out to speak to California Assemblymember Roger Dickinson, the man who introduced both laws, to determine the extent to which the bills were crafted for the still-nascent industry.
However, if bitcoiners were hoping for a more progressive alternative to New York’s Benjamin Lawsky, Dickinson doesn’t exactly fit the mantle.
An advocate for a wide range of issues from job creation to climate change, Dickinson isn’t exactly a bitcoin expert, and he indicates that the laws were not made specifically for virtual currencies. Rather, he said they’re meant to address the sweeping changes that mobile and digital forms of payments are bringing in all their forms.
Dickinson explained:

“It wasn’t so much setting out to look at the issue of alternative currency, it was more evolutionary, leading into the breadth of the subject matter that suggested to us you couldn’t ignore alternative currencies.”

A neutral approach

Dickinson described his state’s approach to digital currency as “neutral”, stating that the bills don’t expressly advocate for the survival or demise of bitcoin.
Said Dickinson:

“We’re not trying to deter or advance the development of alternative currencies. We’re trying to say that to the extent that alternative currencies are developed and in use, we will consider that to be a legally acceptable activity in California.”

Most notable is another thing AB 129 doesn’t do, which is regulate alternative digital currencies. Dickinson indicated that any regulation would need to come from the California Department of Business Oversight and commissioner Jan Owen, who notably has worked for Apple and JPMorgan.
Dickinson did suggest that the issue may be further addressed by California, but stated that he believes digital currency regulation may need federal attention.

Personal exploration

A newcomer to the field, Dickinson said that he first learned of bitcoin when developing AB 786. At the time, the California Committee on Banking and Finance had begun looking broadly at digital payment systems, but he said that digital currencies stood out as “intriguing and unavoidable”.
The lawmaker revealed he was surprised by the research, stating:

“Even though there had been actually relatively recent regulation in 2009 establishing guidelines and requirements for money transmission, the practice of money transmission had evolved so rapidly over the course of three years that there was a need to revisit the subject.”

The result has been two bills attempting to bring guidelines up to speed. Yet, Dickinson doesn’t see his legislation as part of the larger digital currency movement, saying he hasn’t looked at how New York regulators are moving on the issue.
Further, he said he hasn’t spoken to any local bitcoin businesses, despite California being a hotbed for innovation in the field.

The future of AB 129

The assemblyman said that though digital currencies have become a lightning rod for controversy, events regarding the now-bankrupt Japan-based bitcoin exchange Mt. Gox, are unlikely to threaten the bill.
Though, Dickinson didn’t rule out that another event could potentially compound the situation and raise additional questions before the end of March or April, when it is expected to be heard in the Senate.

“I think in the end, people will see that what we’re doing is simply that alternative currencies are something we need to recognize out there in the world, and that we shouldn’t have some archaic prescription that applies.”

Even if bitcoin does collapse, Dickinson reasons, that’s not to say that other digital currencies won’t go on. For now, it seems, California is preparing for any and all conclusions.

Mt. Gox CEO Issues New Statement, Claims He’s Still in Japan

Nermin Hajdarbegovic | Published on Maret 09, 2014 at 12:20 GMT | Exchanges, Mt. Gox, News

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Mt. Gox has issued yet another brief statement and this time it is coming straight from CEO Mark Karpeles. The troubled exchange issued a very short statement late yesterday, saying that it decided to “close all transactions” for the time being in order to “protect the site” and its users.

No change

The latest statement won’t do much to reassure customers, either. Here is what Karpeles had to say:

February 26th 2014
Dear MtGox Customers,
As there is a lot of speculation regarding Mt. Gox and its future, I would like to use this opportunity to reassure everyone that I am still in Japan, and working very hard with the support of different parties to find a solution to our recent issues.
Furthermore I would like to kindly ask that people refrain from asking questions to our staff: they have been instructed not to give any response or information. Please visit this page for further announcements and updates.
Sincerely,
Mark Karpeles

It should be noted that Karpeles is still nowhere to be found. Mt. Gox moved to new offices and Karpeles isn’t talking to the media (apart from a short statement made to Reuters). This appears to be his only formal statement since the exchange was closed a few days ago.

Serious questions persist

The fact that Karpeles and the rest of the Mt. Gox team have been so secretive ever since the exchange suspended bitcoin withdrawals is just adding insult to injury. A leaked document indicates that the exchange is insolvent, quite spectacularly so.
An online chat conversation published by Fox Business last night reportedly shows Karpeles telling a consultant that he is not giving up on Mt. Gox. In the chat, Karpeles says the leaked document was not produced by Mt. Gox, but he admits that there is some truth to it.
Even before Mt. Gox closed its doors and abandoned its offices, it was in a world of trouble. It suspended bitcoin withdrawals citing technical issues, namely transaction malleability.
Shortly thereafter, members of the bitcoin community started organising protests in front of the Mt. Gox headquarters in Tokyo. For days the offices were picketed by customers demanding their cash or bitcoins back, but eventually the company simply vanished.
Two days ago Karpeles resigned from the Bitcoin Foundation’s Board of Directors. The foundation announced that Karpeles submitted his resignation and that it was effective immediately.
Now we know that Karpeles is still in Japan and that something is happening behind the scenes. The question is – what?

Mt. Gox Hackers Claim to Release Transaction Details, CEO’s Personal Data

Jon Southurst (@southtopia) | Published on March 9, 2014 at 23:08 GMT | Companies, Exchanges, Mt. Gox

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Hackers (or disgruntled insiders) claim to have released a 700+MB file of Mt. Gox operational information and transaction data, including one sheet claiming the exchange could still have a balance of over 951,116 BTC.
One of the hackers managed to post the data on Gox CEO Mark Karpeles’ own blog, then announced the feat on Reddit. Karpeles’ site has since gone completely offline and Reddit moderators deleted the original post. At press time the mods were engaged in a cat and mouse game with other community members who re-posted the original quote and several links claiming to be mirrors of the stolen data.

Revenge

In a profane rant, the original announcement said:

“It’s time that MTGOX got the bitcoin communities wrath instead of Bitcoin Community getting Goxed. This release would have been sooner, but in spirit of responsible disclosure and making sure all of ducks were in a row, it took a few days longer than would have liked to verify the data.”
“Included in this download you will find relevant database dumps, csv exports, specialized tools, and some highlighted summaries compiled from data. Keeping in line with fucking Gox alone, no user database dumps have been included.”

“Repost and share this info before it’s gone. Lots of people, including us, lost money and coins.”
Of primary interest to others was a file called ‘trades_summary’, which purported to show Mt. Gox’s balances in all available currencies. This showed a balance of 951,116.21905382 bitcoins, with an accusation that Karpeles was lying about his company having no bitcoins to return to customers.



Many have pointed out that, even if the data is genuine, it could only represent the amount Mt. Gox believed it had in its reserves before shutting down, rather than an actual amount, and is not evidence of actual reserves.
Also included in the dump were a collection of .csv files detailing transactions and trades, Mark Karpeles’ own CV and a document containing two separate ‘home addresses’ of his in Tokyo.
The directories contained several executable files that readers would be well advised not to open on internet connected computers, no matter how many online commenters claimed their authenticity. Supposedly they are Mt. Gox’s own proprietary back office tools, though CoinDesk has not verified this and original files could have been altered before being posted on mirror sites.

Reddit users claim to have verified the data by examining spreadsheet material and looking up their own account balances.
Forbes reported that another post on the bitcointalk forums (also since deleted) claimed to have 20GB of stolen Gox data on a hard drive that they were willing to sell to cover their bitcoin losses. This supposedly included all user information, including photo ID scans from customer applications.
CoinDesk is monitoring this developing story and will post any new and relevant information if it becomes available.

London’s First Bitcoin ATM Launches in Trendy Shoreditch Bar

Dan Palmer | Published on March 4, 2014 at 18:12 GMT | Bitcoin ATM, News

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In just a few weeks, the options have doubled for people in London who want to buy their bitcoin instantly with cash, rather than via an online transaction and all the proof of ID/bank payment rigmarole that entails.
If you hadn’t guessed, those options have gone from just one to two, but the speed at which they have appeared is a sign that bitcoin is increasingly being seen as a viable business option in the UK.
First to provide a walk-in service for bitcoin purchases was Azteco, London’s very first BTC voucher shop, which opened on 17th February in the east of the capital.
And now, less than a mile away, London’s very first bitcoin ATM machine has begun pinging digital currency to customers’ wallets at the trendy Old Shoreditch Station cafe.

Arts and coins

The cafe – as well as exhibitions, events and a shop – is operated by Jaguar Shoes, an arts collective that has been accepting bitcoin payments for its products since July last year.
The ATM takes their bitcoin operations to a new level, and is owned and run by Future Coins, a London-based startup. Joel Raziel, entrepreneur and director of Future Coins told CoinDesk:

“I was intrigued when I first saw a bitcoin ATM on display at a conference and was shocked to find that none had appeared in London. I contacted the manufacture, Lammasu, who told me that they had not received any orders from the UK. It was at this point that I started to cost up the project and move forwards.”

Setting up shop

The decision by the UK tax authority, HMRC, to classify bitcoins as VAT exempt was announced on the day Future Coins installed the ATM.
“This couldn’t have come at a better time, said Raziel. “We could have faced major difficulties otherwise, so I suppose we took quite a risk in this sense.”
There is a limit of £1,000 for transactions at the ATM and no ID is required, unlike some ATMs in other countries.

Future Coins does not use an exchange partner at present, but the ATM manufacturer will be rolling out this option soon, Raziel said. “For the time being we are having to preload the machine with coins, which puts us at risk of currency fluctuations.”
Because of this, he adds, it will cost you an 8% commission to use the ATM currently.

“We will lower this once we have linked the ATM to an exchange, but in the mean time we have to protect ourselves from fluctuations.”

So novel is the bitcoin ATM in the UK, that its second customer travelled over 200 miles to use it. “We were so honoured to have him with us,” Raziel said, “we treated him to lunch (paid for with bitcoin).”

Rivals’ arrival

Future Coins may have won the title of ‘first bitcoin ATM in London’, but it will probably not have the playing field to itself for long.
Other companies have plans for similar ATMs in the capital including Global Bitcoin ATM Ltd and Satoshipoint Ltd.
Both companies have machines on order and had hoped to be the first to set up their trading business on London turf.
First or not, the city is a very big place and there is plenty of room for more ATM outlets to provide visitors and locals alike easy access to the advantages that bitcoin brings.

UK Eliminates Tax on Bitcoin Trading, Publishes Official Guidance

Pete Rizzo (@pete_rizzo_) | Published on March 6, 2014 at 21:21 GMT | Europe, Regulation

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UPDATE (3rd February, 17:19 GMT): HMRC has now published an official brief, outlining its position on the tax treatment of income derived from bitcoin-related activities.
_____________________________
The UK’s tax agency has reversed an earlier ruling that classified virtual currencies as gift vouchers, exempting digital currency trading from a 20% value added tax (VAT).
HM Revenue and Customs (HMRC), the UK’s customs and tax department, has classified virtual currencies as assets or private money, not as vouchers that required a tax on the value of the coins.
Tom Robinson, co-founder of London-based digital currency storage specialist Elliptic and a director of the soon-to-launch industry group U.K. Digital Currency Association, lauded the decision by the tax agency, telling CoinDesk:

“I think this is the most progressive treatment of cryptocurrencies in the world. This is the most forward thinking and comprehensive advice in regards to taxation.”

HMRC had previously indicated it would consider rethinking its treatment of digital currency in December.
Reports say other taxes would still apply to businesses that buy, sell or exchange bitcoin. However, notably, bitcoin businesses will not be charged a tax on margins.
The news follows reports that the UK’s Payments Council, the organisation that sets strategy for payments, is assessing digital currencies, and amid increasing innovation from the local community that has seen the opening of bitcoin ATM alternatives and release of physical bitcoin price tags.

HMRC outlines new position in brief

In its formal Revenue & Customs Brief, published on Monday, the HMRC pointed out that for VAT purposes bitcoin and other digital currencies will be treated as follows.

1. Income received from bitcoin mining activities will generally be outside the scope of VAT. This is due to the fact that mining does not constitute an economic activity for VAT purposes, as there is an insufficient link between any services provided and any consideration received.
2. Income received by miners for other activities, such as for the provision of services in connection with the verification of specific transactions for which specific charges are made, will be exempt from VAT under Article 135(1)(d) of the EU VAT Directive as falling within the definition of ‘transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments.’
3. When bitcoin is exchanged for Sterling or for foreign currencies, such as Euros or Dollars, no VAT will be due on the value of the bitcoins themselves.
4. Charges (in whatever form) made over and above the value of the Bitcoin for arranging or carrying out any transactions in Bitcoin will be exempt from VAT under Article 135(1)(d) as outlined at 2 above.

With VAT out of the way, the HMRC turned to Corporation Tax, Income Tax and Capital gains Tax. It is important to note that there is no clear rule that applies to all activities and organisations. The brief explains:

“Each case will be considered on the basis of its own individual facts and circumstances. The relevant legislation and case law will be applied to determine the correct tax treatment. Therefore, depending on the facts, a transaction may be so highly speculative that it is not taxable or any losses relievable.”

Businesses which accept payment in bitcoins will see no change in the way revenue is recognised and how taxable profits are calculated:

• Corporation Tax: The profits or losses on exchange movements between currencies are taxable. For the tax treatment of virtual currencies, the general rules on foreign exchange and loan relationships apply. We have not at this stage identified any need to consider bespoke rules.
• For companies, exchange movements are determined between the company’s functional currency (usually the currency in which the accounts are prepared) and the other currency in question. If there is an exchange rate between Bitcoin and the functional currency then this analysis applies. Therefore no special tax rules for Bitcoin transactions are required. The profits and losses of a company entering into transactions involving Bitcoin would be reflected in accounts and taxable under normal Corporation Tax rules.
• Income Tax: The profits and losses of a non-incorporated business on Bitcoin transactions must be reflected in their accounts and will be taxable on normal income tax rules.
• Chargeable gains – Corporation Tax and Capital Gains Tax: If a profit or loss on a currency contract is not within trading profits or otherwise within the loan relationship rules, it would normally be taxable as a chargeable gain or allowable as a loss for Corporation Tax or Capital Gains Tax purposes. Gains and losses incurred on Bitcoin or other cryptocurrencies are chargeable or allowable for Capital Gains Tax if they accrue to an individual or, for Corporation Tax on chargeable gains if they accrue to a company.

An open dialogue

Elliptic and other UK-based bitcoin businesses had earlier contacted the HMRC in an attempt to inspire UK lawmakers to rethink their classification of bitcoin, suggesting that the VAT would discourage UK consumers from investing in the ecosystem and make it harder for domestic companies to compete globally.
The result, however, was that HMRC opened up discussions with the community.
Robinson indicates that in early meetings, UK lawmakers asked questions about various digital currency activities, such as mining, though the larger focus was the overall taxation of the new currencies.

Impact

The news spread quickly across the bitcoin community, with many lauding it as a validation of bitcoin at a time when the industry is in need of good news.
Further, though undeniably positive, others in the community suggested that still more work needs to be done to ensure the growth of digital currencies in the UK.

The news is notable as most recent regulatory statements in the wake of operational issues at the now-bankrupt Japan-based exchange Mt. Gox had been trending negative. Vietnam became the latest to speak out against bitcoin this week, citing Mt. Gox specifically, though over the last month, a slew of countries – from Hungary to Cyprus to Kazakhstan – have all issued warnings.
Image credit: Value added tax visualization via Shutterstock

Top Alabama Regulator Says Mt. Gox Was a ‘Disaster About to Happen’

Pete Rizzo (@pete_rizzo_) | Published on March 1, 2014 at 13:18 GMT | Analysis, Mt. Gox, News, Regulation, US & Canada

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New York, California, Texas – home to high-tech incubators and venture capital firms, these are states you expect to issue statements regarding a disruptive technology like digital currency. Alabama? Perhaps not.
But, if you were surprised by the Alabama Securities Commission’s recent warning about Mt. Gox and the dangers of digital currency investments, its director Joe Borg suggests you shouldn’t be.
The motorcycle-driving, mustachioed regulator boasts about bringing more securities violators to trial, executing more foreign extraditions and obtaining more prison time for financial criminals “than most of the other states combined”. In case that didn’t paint the picture, he headed the investigation to take down Jordan Belfort, the real-life inspiration for The Wolf of Wall Street.
That’s why when issues at troubled Japan-based bitcoin exchange Mt. Gox began to build, Borg decided to take action to inform the public.
In an exclusive interview with CoinDesk, Borg recounts the run-up to the warning and why he felt he needed to act:

“To be honest with you, the Mt. Gox thing was obviously a disaster about to happen. When a broker-dealer suspends payments, that to me indicates that they’re about to go out of business.
Now, I didn’t say that in the [release], but that was my feeling.”

Most notable about the warning was Borg’s call for securities regulators to act as “cop on the beat” in the digital currency space in order to protect and promote consumer welfare.
But, that’s not to paint Borg as a Joe Manchin-style regulator calling for the demise of bitcoin. To Borg, the major issue with bitcoin is not its technology, it’s the lack of consumer awareness about the risks involved.

Bitcoin in Alabama

To fully understand the issue of consumer protection regarding bitcoin, Borg explains you need to first understand Alabama, a place where God and football come before all else. Here, like much of the rest of America, consumers aren’t exactly savvy investors, he says.
As evidence, he cites the turning point for bitcoin in Alabama. Borg said that it wasn’t its explosive run-up in value or even growing awareness about the groundbreaking technology it uses. Rather, it took a college football fan who earned $20,000 for waving a sign for locals to pay attention.

“When that happened, we got calls about ‘How do we get into this bitcoin thing?’ They had no idea what they were talking about [...] They assume there’s some company that issues it. Obviously you have no business being in the bitcoin market if that’s how you think it operates.”

Retail investors, Borg argues, simply aren’t paying attention, not just to bitcoin, but to any investments, whether it’s “Apple stock or FlyByNight.com”, and that because of this, they could be severely harmed, especially in light of “questionable actions” by exchanges.

More education needed

Such stories, Borg said, negate one of the most often cited claims of bitcoin defenders, that retail investors know bitcoin is a high-risk investment. In his letter, Borg railed against the bitcoin world for not taking such concerns seriously, and for operating without regard for traditional financial safeguards.
Read the letter:

“I’m not understanding about how great this can be if the basics, like getting your money back in a timely and orderly fashion, aren’t in place.”

In the interview, Borg reiterated his past statements, citing his observations as proof investors aren’t as well-informed as the bitcoin community claims:

“If that’s the case, then why are all these protestors out here saying ‘Where’s my money?’ Why are all these ‘folks who know’ they could lose their money overnight filing complaints. I guess they weren’t expecting to lose all their money.”

But, Borg isn’t ready to throw the baby out with the bathwater. Though he admits his personal understanding of bitcoin isn’t nuanced, he cautions that he’s “not against the technology.”
“I think the technology has outrun its ability to educate and put some controls on this thing,” he said.
Borg suggested that because the stock market offers protections for these consumers, many assume the same protections apply to this new market.
If a retail investor from Alabama were to have a broker-dealer disappear, he said, they would have recourse from organizations like the US Federal Deposit Insurance Corporation (FDIC), which is dedicated to strengthening the US banking system.
“There’s nothing like that in this market,” Borg said.

Bitcoin business heads South

For these reasons, Borg said his organization has looked at more than 100 applications for bitcoin exchanges that are seeking to do business in Alabama. But in two years, he hasn’t approved one to operate in the state.
The problem, he said, lies in the fact that many don’t do the due diligence to follow traditional regulation.
Said Borg:

“We sit down and we go, ‘OK have you talked to FinCEN? Tell me how your security works.’ We talk about, what happens if we do this, and they look at me like. ‘Oh, well we hadn’t thought about it.’”

Though, he noted the applications are improving, and that he’s not opposed to applications that take the right precautions.
Borg said he was particularly impressed with one from a certain outfit out of New York. Though notably, this was put on hold due to the ongoing Mt. Gox scandal.

Bitcoin Foundation to Senator: US Shouldn’t Turn Away from Innovation

Pete Rizzo (@pete_rizzo_) | Published on Maret  06, 2014 at 17:24 GMT | Analysis, Bitcoin Foundation, News, Regulation, US & Canada

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The outcry over US Senator Joe Manchin’s 26th February letter calling for an outright federal ban on bitcoin came vicious and swift, with the bitcoin community taking to message boards and blogs en masse to deride the West Virginia democrat as out of touch and biased in his motives.

On 27th February, they got some additional support.
The Bitcoin Foundation has formally issued a response to Manchin’s letter that aims to inform him of the benefits digital currency could provide to the financial system and to consumers around the world, provided the technology is allowed to grow and develop.

Penned by general counsel Patrick Murck, the message took an understanding approach to Manchin’s concern for recent events, but cautioned him that the risks are “not as dire” as suggested.

Murck moved to mitigate growing concern that Mt. Gox’s issues were indicative of business practices across the industry, saying:

“We believe that the failure of one foreign-based exchange should not darken the prospects for Bitcoin businesses.”

Furthermore, he discussed the work the Bitcoin Foundation has done to speak with top regulators as part of an effort to ease their concerns, detailed the as-yet-untapped proof of ownership benefits of the protocol and cited the demise of Silk Road as a positive step for the community.

The letter also addressed the economic impact of a potential bitcoin ban:

“We do not believe that this is the right time in U.S. economic history to turn away from innovations that offer improvements in the jobs picture and the economy.”

The full response stopped short of pointing out inaccuracies in the letter, though other responses from the community were eager to provide this analysis.

To view Murck’s complete response, read the full text below:

Dear Senator Manchin:

We read with interest your recent letter to federal regulators regarding Bitcoin. Your interest in protecting Americans is genuine, of course, and laudable. We believe the consensus in Washington, D.C., is the right one for protecting consumers and growing the American economy: the U.S. should foster the benefits of Bitcoin while mitigating the risks.

To that end, we offer the following information to help improve your and others’ consideration of the Bitcoin protocol, its many potential benefits, and the risks. We hope to be a valuable resource to you and your office, as we have been to many others in Congress and in relevant U.S. federal agencies.
The Bitcoin Foundation is a member-driven non-profit organization dedicated to serving the business, technology, government relations, and public affairs needs of the Bitcoin community. The foundation works to protect and standardize the Bitcoin protocol and software, to broaden the use of Bitcoin through public education and by fostering a safe and sane legal and regulatory environment, and to support local Bitcoin efforts by connecting a network of Bitcoin communities worldwide.
In the past several months, we have been invited to testify and present in a variety of settings, formal and informal, helping to educate congressional staff and government agencies about Bitcoin. Most notably, we participated in the first congressional hearing on Bitcoin hosted by Senator Carper, Chairman of the Senate Committee on Homeland Security and Governmental Affairs, on November 18, 2013. I testified about Bitcoin’s potential for increasing global financial inclusion, expanding human liberty, strengthening privacy protections for the law-abiding, and providing a stable money supply for those in countries where the local currency is poorly managed. As you know, the Senate Committee on Banking, Housing and Urban Affairs, also held a hearing on virtual currencies on November 19, 2013.

These hearings included witnesses from the Financial Crimes Enforcement Network in the Department of the Treasury, from the Department of Justice, the Department of Homeland Security, and the Secret Service. The hearings also included representatives of U.S.-based Bitcoin businesses, academics, a state banking regulator, and other interested parties. The federal regulators testifying at these hearings have examined Bitcoin carefully, and they produced careful, thoughtful testimonies. They seem relatively sanguine about the risks Bitcoin creates and open to capturing its benefits for Americans, including the jobs and economic growth that will come from U.S.-led financial services innovation.

The benefits of Bitcoin go beyond its role as an alternative currency. The Bitcoin protocol, essentially a universal public ledger, may help establish property ownership in third-world countries, allow people to create computer-automated contracts, aid in the management of public resources like the Internet, and much more. The Bitcoin protocol is a revolutionary invention whose potential is only beginning to be discovered.
There are risks, but we are confident that they are not as dire as your letter suggests. Because Bitcoin is a public ledger, records of transaction are published and available online for all time. This is a far more transparent system than conventional financial services and payments, in which the vast majority of transactions are concealed. Indeed, a challenge for Bitcoin adoption is making sure that law-abiding people’s transactions do not expose their private financial information. We believe the law enforcement challenge with respect to Bitcoin is different but not harder. As you probably know, at the Homeland Security and Governmental Affairs Committee hearing on Bitcoin, FinCEN Director Jennifer Shasky Calvery said, “Cash is probably still the best medium for laundering money.”

The demise of Silk Road illustrates well that Bitcoin is not a magic cloak for crime. Though breathless press reports portrayed Bitcoin as a tool of criminality early on, law enforcement has caught up. The Silk Road collapsed, and successor sites have collapsed. We anticipate studying more carefully privacy, anonymity, pseudonymity, and the needs of law enforcement with respect to Bitcoin.

Some countries’ central banks have warned consumers about the risks around Bitcoin. I have done the same. Consumers should not invest any money they aren’t prepared to lose, and the volatility of Bitcoin’s price against the dollar is high, though it will fall over time. Many countries around the world are embracing Bitcoin, though, as a digital currency that offers their people improved financial services and greater economic freedom. Germany, Finland, Singapore, and Canada, for example, are among the U.S. allies that have sent favorable signals by issuing tax guidance on Bitcoin. Ireland, Israel, and Slovenia appear to have plans to do so. News reports about bans on Bitcoin in China, Thailand, and South Korea may be a product of misunderstanding local conditions.
The Bitcoin ecosystem is still very much in its infancy, and the first wave of Bitcoin businesses is now beginning to give way to a second, more sophisticated group of investors and businesspeople. We believe that the failure of one foreign-based exchange should not darken the prospects for Bitcoin businesses in New York, California, Washington state, and all over the country, including a restaurant in West Virginia that announced late last year that it is accepting payments in Bitcoin.
Small businesses all over the country like Artisan Pizza & Pasta in Charleston are signing up to accept Bitcoin payments. With credit card payments costing two to three percent, the narrow profit-margins of retail businesses get even smaller. The competition that Bitcoin may bring to the $50-billion per year credit card payment business may push lower fees and better service for small businesses and consumers alike. Meanwhile, Bitcoin-based financial innovation may help control data breaches, of which we have seen massive examples in the recent past. Payment services designed for the Internet need not put Americans’ personal information at risk.
We do not believe that this is the right time in U.S. economic history to turn away from innovations that offer improvements in the jobs picture and the economy. If Bitcoin does not flourish in the United States, it will flourish elsewhere, and the United States will cede leadership to the countries with the more foresighted approach to innovation and economic progress.
There is a lot to learn about Bitcoin, how it works, and what its effects on U.S. society will be. There is no need to fear Bitcoin or overreact to the challenges that accompany its huge potential benefits. We would be happy to meet with you and your staff at your convenience, as we have done with dozens of others congressional offices and government agencies. I can be reached at patrick@bitcoinfoundation.org.

Respectfully,

Patrick Murck

General Counsel

Image credit: Quill and paper via Shutterstock