Commentary on the economic , geopolitical and simply fascinating things going on. Served occasionally with a side of snark.
Tuesday, January 28, 2014
Bitcoin updates - January 29 -30 , 2014 --Even as the shocking arrest of Charlie Shrem still reverberates , life and bitcoin go on.... Everything You Need to Know About the New York Hearings on Bitcoin ...... From 'Ripples' To 'RonPaulCoin'; There Are Now 83 Cryptocurrencies In The World
In Japan it began on 1st January, but now all eyes are turning to China, which begins the new year as influential and unpredictable as ever. Will tomorrow’s date have any influence on bitcoin’s value? If so, why?
In clamping down on bitcoin exchanges last December, the People’s Bank of China set the first day of Chinese New Year (officially 31st January) as the deadline for bitcoin exchanges to completely sever ties with third-party payment processors.
Payment companies were given a verbal warning during a meeting with People’s Bank officials in the week of 16th December. Deposit access was shut off almost immediately, with PayPal and Chinese competitors Alipay and TenPay confirming they would comply.
Companies were given until the end of January, however, to clear out any outstanding funds they held for customers to withdraw bitcoins and convert them back into local currency.
It has been reported that all payment processor balances were cleared as of Monday 27th January, giving traders and exchanges plenty of time to adjust before the deadline. Exchanges now use various other methods to move money in and out of their systems, ranging from the use of corporate and personal bank accounts for transfers, to an indirect electronic ‘voucher’ system.
If the Chinese New Year sees any additional government moves enforcing restrictions on bitcoin, the world could possibly see a value plunge. People involved in the local industry, however, seem unconcerned.
Exchanges, analysts not worried
Leon Li, CEO of official market leader Huobi, said the company could do something to deal with a new regulatory environment, adding that “there is a lot of misunderstanding of Chinese government policy about bitcoin.”
Bobby Lee, CEO of BTC China, said the exchange would be able to continue processing withdrawals even after the deadline via its banking relationships. He said:
“It’s going to be a smooth transition. Account balances have been cleared to zero as of last weekend and it won’t won’t affect prices that much.”
Jack Wang, a Chinese cryptocurrency developer and entrepreneur, has previously analyzed the People’s Bank statements for CoinDesk and tweeted that he does not predict any major price surprise.
Not expecting a post CNY Bitcoin dump. News already priced in, and every exchange I've talked to plans to continue operating.
Zennon Kapron, of Shanghai-based consultancy Kapronasia, said the exchanges had shown themselves to be adaptable and that any price movement would likely come from those unfamiliar with China.
“Yes, the payment processors will be out, but they were pretty much out right after the announcement in December anyway, and they (the exchanges) pretty quickly found alternative methods of funding,” he said.
“I don’t think it will really have any affect on the prices in China from my understanding – although if people are worried that it will be completely cut off or don’t understand the current situation, I suppose there might be a dip.”
Meanwhile, in Hong Kong
By contrast, on the laissez-faire streets of Hong Kong, government action did not even register on the radar, as local exchange AsiaNexgen (ANXBTX) celebrated the new year with a bitcoin giveaway.
Lucky residents received HK$500,000 (roughly $65,000) in bitcoin vouchers in what the exchange claimed was the biggest giveaway of the currency to date.
Miniskirted girls handed out bitcoin paper wallets to passersby, in the form of traditional red envelopes of cash given as new year gifts to family and colleagues.
In locations across the region, the company handed out 50,000 coupons inside the envelopes (known in Mandarin as ‘hongbao’) which were embossed with the Chinese character for ‘luck’ in gold.
“We’re trying hard to promote bitcoins to the wider Hong Kong community, most of whom do not have bitcoin wallets. This was the easiest way to provide instant access to bitcoins without any complications and minimum confusion,” a company representative stated on reddit.
The US Financial Crimes Enforcement Network (FinCEN) published two new rulings on 30th January that aim to bring clarity as to which players in the virtual currency space will fall under the Bank Secrecy Act’s (BSA) definition of a money transmitter.
FinCEN said that miners who mine virtual currency for their own use, as well as companies that purchase and sell convertible virtual currency solely as an investment aren’t subject to this law.
“The first ruling states that, to the extent a user creates or “mines” a convertible virtual currency solely for a user’s own purposes, the user is not a money transmitter under the BSA. The second states that a company purchasing and selling convertible virtual currency as an investment exclusively for the company’s benefit is not a money transmitter,” the release states.
The announcement sought to bring clarity to the organization’s March 2013 announcement that money services businesses were responsible for complying with anti-money laundering, recordkeeping and reporting requirements under FinCEN regulation.
Reddit commentators greeted the news positively, with some going so far as to call the announcement “a huge victory” for the virtual currency community, removing a potentially large burdens from the mining and investment communities.
Members of the mining business community also greeted the news with favor:
“We’re happy that FinCEN has clarified what we believe was their intention all along and that Bitcoin miners can now continue mining confidently,” Jeff Ownby, vice president of marketing at Butterfly Labs, told CoinDesk.
However, while some were optimistic, others implied that this is just the latest development in legal grounds that are likely to shift as more government bodies seek to clarity on the matter, and await guidance from higher authorities.
Bitcoin developer Jeff Garzik also suggested that more clarity is needed given the current conditions in which bitcoin mining is conducted:
“I hope to see future additional clarity from FinCEN and IRS vis-a-vis mining pools vs. miners. Most ‘miners’ today do not have any power to select or validate bitcoin transactions. Miners today provide a computing service to the mining pools, in exchange for a difficulty-based revenue stream.”
While FinCEN’s declaration will be welcomed by bitcoiners, it may be of little importance to individual miners who never viewed themselves as money transmitters in the first place.
Bitcoin mining is becoming an increasingly institutionalized pursuit that takes places in Hong Kong shipping containers and geothermal-powered Icelandiccaves, driven by multimillion-dollar mining businesses. Such operations are definitely not mining for their own personal use.
CoinDesk is continuing to monitor this developing story.
Cameron and Tyler Winklevoss are likely to submit a revised plan for their proposed bitcoin exchange-traded fund (ETF) to the US Securities and Exchange Commission (SEC) within the next two weeks, the brothers’ lawyer Kathleen H. Moriarty told Bloomberg on 30th January.
The first proposal for Winklevoss Bitcoin Trust was filed last July. Since then Moriarty says she’s been “in dialogue” with regulators about altering the plan.
The ETF has been styled as a way for the Winklevoss to convince more mainstream investors to enter the bitcoin market, without directly exposing their money to the sometimes volatile currency.
“The Shares are designed for investors seeking a cost-effective and convenient means to gain exposure to Bitcoins with minimal credit risk,” the original S-1 filing states.
However, Moriarty isn’t optimistic about the proposal, even with the as-yet unannounced revisions. She told Bloomberg that she believes it is unlikely to pass in 2014.
Notably, the comments run counter to an earlier January report by Seeking Alphathat suggested that the SEC had “been receptive” to the ETF and that its prospects “looked good”.
Winklevoss Bitcoin Trust
Despite the legal challenges the Winklevoss face, SecondMarket has already succeeded at launching a bitcoin ETF known as the Bitcoin Investment Trust. One notable difference between the two funds, is that SecondMarket’s offering is only open to high-income, institutional investors.
The original proposal for the Winklevoss ETF called for it to be traded publicly and open to general investors. Subsequent reports suggested that SecondMarket was able to bypass many regulatory hurdles by pursuing this demographic, and that even ETFs that deal in established commodities can face difficulties making it to a wider market.
Further, SecondMarket, in public comments, seemed to back this belief:
“From a risk-profile vantage point bitcoin is very risky and we think it’s not appropriate for retail investors,” Mark Murphy, a spokesman for SecondMarket, told Quartz in September.
Winklevosses wary of regulation
“The culture of investors is not to be paying millions into startups to make sure they're compliant. Investors don't want to pay for lawyers.”
Visa CEO Charlie Scharf offered his opinion of bitcoin and other emerging virtual currencies on 30th January in a conference call discussing Visa’s first-quarter fiscal earnings.
“There are certainly some interesting things about bitcoin and other things like it, but there are also a great deal of complexities,” Scharf said
The 48-year-old payment company head went on to state that more traditional payments systems are safer for consumers as they have “established network rules” and an “understanding of how things operate”.
Perhaps most notably, Scharf suggested that Visa is not actively monitoring the bitcoin space.
“We feel quite comfortable with the business we have here,” Scarf said.
Scarf further said Visa and more traditional payments companies better understand who the participants in transactions are, and are in a better position to serve the market as they work with financial institutions on “either side of the transaction”.
Bitcoin’s potential for payments
Operating in more than 200 countries, Visa boasts a network of “tens of millions” of merchant outlets and roughly 2 million ATMs as of 30th December 2013, making it one of the largest global payment providers.
Like bitcoin, the 50-year-old company facilitates that transfer of value and information to consumers. As such, major investors have suggested that Visa is the kind of company that is threatened by the emergence of bitcoin.
Chris Dixon, a partner at Menlo Park, Calif.-based venture capital firm Andreessen Horowitz, wrote a blog post on 31st December where he expressed his dismay at the high fees charged by the traditional payments industry, as well as the “huge headaches” they caused startups, and explained why he feels bitcoin is the solution.
“At some point, I had an ‘aha!’ moment and realized that Bitcoin was best understood as a new software protocol through which you could rebuild the payments industry in ways that are better and cheaper,” Dixon wrote.
Computer science professor at Princeton University Ed Felten expressed a similar sentiment at the New York Department of Financial Services (NYDFS) bitcoin hearings in New York, stating that there is a need for currencies that are “born digital” to modernize payments.
The comments notably come just one day after members of the bitcoin business community such as Jeremy Allaire, founder and CEO of Circle, and Fred Ehrsam, co-founder of Coinbase, called for regulators to help them seek out more traditional financial partners while noting that such partnerships may be challenging to forge.
“That core innovation that allows for transfer of ownership without the need for a trusted third party, that cuts out middlemen,” Ehrsam said.
Scharf’s statements also position Visa as disinterested in bitcoin at a time when other players are looking to educate themselves on the marketplace.
On 28th January, San Francisco-based banking and financial services company Wells Fargo held a summit in New York on virtual currencies. The development led Allaire to state that relations between banks and bitcoin businesses are currently experiencing a “thawing” process between the two camps.
However, with the comments, Visa, it seems, will not be open to holding a similar event.
Bitcoin Hearings Day 2: Bitcoin Businesses Court Regulation in NY
If day one of the New York Department of Financial Services (NYDFS) hearings on virtual currencies was characterized by a circus-like atmosphere and initial tension from both parties, day two saw the emergence of a loose consensus of regulatory goals that could benefit the bitcoin community as well as help regulators bring stability and safety to the market.
Members of the bitcoin business community continued to express a desire for reasonable regulations, and named wallets and exchanges as the best places for initial oversight. Further, academics and regulators began to see the space increasingly as one that could benefit from increased structure and greater involvement from traditional banks.
Most notable from the day’s conversation was that New York regulators seemed more open to the idea of a regulated New York-based bitcoin exchange, the jobs and opportunity such bitcoin businesses could bring to the state and the benefits these developments could provide the nascent bitcoin ecosystem.
Benjamin M. Lawsky, superintendent of financial services for the State of New York, called the prospect of a New York-based exchange a “double whammy” that could encourage onshore transactions while helping eliminate the bad actors and lax oversight that have so far plagued virtual currency businesses and law enforcement.
Jeremy Allaire, founder and CEO of Circle demonstrated his support for the idea saying that such a such a development would “provide a more mature platform” for the community and lead to the industry away from a reliance on businesses in countries with less oversight.
"Rather than the market leader for liquidity being a 14-person company in Slovenia, why not have a leading exchange in NYC?" - J Allaire
‘A hybrid system’
Despite bitcoin’s potential as a system that could replace the traditional finance industry, the investment community – represented by Allaire and Fred Ehrsam, co-founder of Coinbase – offered up a more moderate short-term future for the technology. This vision was perhaps more akin to today’s omnichannel commerce environment, in which like physical and online retailers, bitcoin and fiat-based financial systems coexist as competing or even complementary offerings.
“We are a long way away from a world where things stay in bitcoin all time,” Ehrsam said.
Ehrsam continued, saying that in the years to come, there will “need to be a lot of coordination with the traditional financial system”.
Allaire echoed these sentiments, calling the reluctance of big banks to participate in the growing economy “unfortunate”. Allaire, who spoke at yesterday’s Wells Fargo hearing, says the interest of major banks is evidence that a thawing between the two camps is occurring, but that the fear factor of high-profile arrests and money laundering has set back such relationships.
Speaking to CoinDesk, Allaire voiced the opinion of his fellow investors that bitcoin is moving away from fringe ideas.
“If you’re not interested in mainstream adoption, and you’re really focused on anonymous, completely self-governed currencies, theres 20 or 50 or 100 altcoins to go do that with.”
‘The dark side of virtual currency’
The day’s first panel – featuring Cyrus R. Vance, Jr, District Attorney of New York County and Richard B. Zabel, Deputy U.S. Attorney for the Southern District of New York – focused on the negatives of bitcoin, or what regulators called the “significant law enforcement challenges posed by virtual currency”.
The conversation was dominated by references to identity theft, child pornography, cybercrime and litany of the evils that stemmed from the high-profile cases so far prosecuted by New York, including Liberty Reserve and Silk Road.
In contrast to yesterday’s investor panel, which appealed to the state for a “safe harbor” period that would not stifle innovators with increased compliance, Vance Jr. advocated that digital currency exchangers should be required to “maintain transaction records”, “obtain identifying information from customers”, “implement procedures to ensure the accuracy of information” and “file periodic applications in order to do business”.
Zabel and Vance Jr. also downplayed assertions by the first day’s witnesses that current laws are enough.
“I don’t think that because we’ve made significant arrests in this area mean it’s all under control,” Vance Jr. said.
A call for national and international coordiation
While bitcoin does pose a regulatory challenge for the State of New York, as evidenced by the day’s first panel, Ehrsam and Allaire broadened the outlook of regulators to the implications bitcoin will have given its borderless and frictionless capabilities.
Calling it “one of the first major Internet, technology-driven issues that really will require collaboration on a worldwide basis”, Allaire suggested the industry would benefit most from “unilateral action” that sets forth a clearly defined model for startups between states and perhaps even internationally.
Zabel’s comments suggest that such an approach would also be beneficial to investigations. He noted that Liberty Reserve’s operators relocated to Costa Rica to specifically go beyond the jurisdiction of authorities, and that a lack of cross-border restrictions to bitcoin transfers has enabled criminals and set back prosecutors.
Notably, Allaire and Ehrsam seemed more willing than their counterparts in the VC community to indicate that anti-money laundering (AML) and know your customer (KYC) rules were a necessary aspect of running a money service business, even those dealing in bitcoin. Ehrsam noted that Coinbase has spent a “disproportionate” amount of its funding on ensuring it abides by these rules, but demonstrated a willingness go above and beyond if it meant operating with less uncertainty.
“Regulation could be a positive in this regard, if there is a framework where companies are required to perform due diligence or enhanced due diligence, we really filter that bottleneck,” Ehrsam said.
Executive vice president of Overstock.com Jonathan Johnson stated that online retailers would also help ensure identity tracking.
"For our customers, no one is completely anonymous - they always provide us an address to ship to." - J Johnson http://coinde.sk/1aF0rbR
A mainstream commerce phase
Ehrsam and Allaire agreed with statements from yesterday’s panel that indicated bitcoin is still in a speculative phase. As evidenced, Johnson was onhand to attest to how bitcoin can be a ‘managable opportunity’ for mainstream retailers, even if he jokingly suggested that he doesn’t exactly welcome more entrants to the space.
Johnson made the business case through a story of an interaction with his local hairdresser, who lamented the restrictions of large credit card companies.
“Both large and small businesses have a real incentive to add 2% to 4% to their bottom line,” Johnson said.
But, if cost savings was a uniting discussion point, regulators and law enforcement officials continued to express that certain aspects of the industry, such as mining, if left without supervision, could lead to currency manipulation and consumer fraud.
Princeton professor Ed W. Felten stated there could be a need for regulation in this area, saying “We don’t know for sure that would happen if someone were try to monopolize bitcoin’s mining system”.
Law enforcement officials were firm in their assertion that virtual currencies are “quantitatively different” about virtual currencies, saying that comparisons to burner cell phones or encrypted computers were not applicable to the challenges posed by bitcoin.
“We have seen digital currencies becoming part of the mainstream market, and financial transactions market, and that means that if people misuse this medium for criminal purposes… it is opening a big door into financial transactions around the world,” Vance Jr. said.
Vance Jr. also moved to attack the belief that the public blockchains of some virtual currencies would benefit law enforcement agents.
“Having an IP address and knowing who’s behind the IP address are two entirely different things,” Vance Jr. said.
Further, regulators also inquired about the possibility of whether a coin could be programmed to follow regulations implemented by the state.
Bitcoin, an academic view
If most of the day was focused on regulation for bitcoin, the gathered professors gave more attention to the hypotheticals that could disrupt bitcoin and its status as the major player in the market. Regulators inquired as to problems in the system and whether it could truly develop into a lower-cost financial services system for consumers given competition and investor demands for returns.
Athey and Felten focused on highlighting the potential of the technology and defended the value of bitcoin as well as its ability to serve as a payments system despite issues with hoarding and liquidity.
Mark T. Williams, professor at Boston University School of Management, took an opposing view, citing the currency’s 9,000% growth in 2013:
“Bitcoin prices have been artificially inflated through a cartel ownership structure, hoarding, market hype and greater opportunities for market manipulation,” Williams said.
While the conversation did discuss the outstanding uncertainties with bitcoin, it also added a more universal perspective on the underlying possibilities of bitcoin technology and their possible applications to better alternatives. However, academics suggested limiting the ability for such experimentation would likely be detrimental long-term.
French Regulator Requires Bitcoin Exchanges to Register
The French Prudential Supervisory Authority (ACPR), which regulates the nation’s banks, has issued a statement clarifying the status of bitcoin and bitcoin exchanges in the country.
In addition to the standard list of concerns and warnings, the regulator points out that anyone operating a bitcoin exchange in France must have a license.
The ACPR has now adopted the position that intermediation in the sale or purchase of bitcoins, or receiving funds to transfer bitcoins, requires the seller to be treated like any other payment service. This means any exchange will have to be approved by the ACPR as a provider of payment services.
The authority also reminded the public that the European Banking Authority (EBA) has already issued public warnings about digital currencies. The concerns include the lack of regulatory authority and protection in case an exchange or other bitcoin-related service defaults, the risks involved with storing bitcoins on a computer, lack of a protective legal framework, high volatility, risk of abuse by criminals, and possible tax implications.
The regulator stresses that exchange platforms that acquire or sell bitcoins for legal tender must make transactions through a registered provider, such as a credit institution, payment institution or an electronic money institution.
This public statement does not change much for bitcoin users in France, who will not be affected. However, those planning to open an exchange in France will have to register first.
The ACPR pointed out that it was prompted to make the statement in light of recent criminal events, mainly in the US, and the risk of fraud, money laundering and terrorist financing associated with anonymous financial instruments like digital currencies.
Everything You Need to Know About the New York Hearings on Bitcoin
Fear, uncertainty and doubt (FUD) is a term often used in bitcoin circles to describe feelings about the prospect of regulation concerning virtual currencies, and there may be no better phrase to convey the mood at the start of the New York Department of Financial Services’ (NYDFS) first day of public hearings on virtual currencies.
Following a prolonged and palpable excitement in the boardroom, an uneasy quiet took hold following the arrival of Cameron and Tyler Winklevoss, principals ofWinklevoss Capital Management and major investors in BitInstant – the company whose CEO was arrested not 24 hours before for his association with Silk Road, the biggest online bazaar of illegal goods and services devised to date and a veritable worst nightmare for regulators.
But if fear and uncertainty were high at the onset on both sides of the aisle, what gave way after four hours of questions, answers and debates was a feeling that the immense energy and intellectual capital driving the space will persevere at the expense of virtual currency’s more fringe ideological elements.
Mark T. Williams, a professor at Boston University School of Management and upcoming panel speaker, described the comments by Barry Silbert, founder and CEO of SecondMarket; Jeremy Liew, partner at Lightspeed Venture Partners;Fred Wilson, partner at Union Square Ventures; and the Winklevoss brothers as being undeniably pro-regulation.
“The vice chairman of the Bitcoin Foundation made them realize that they’ve lost leverage, and if they want to regain that, they better be more accommodative, instead of being more adversarial. At this point the strategy of bitcoiners has been anti-establishment, anti-regulation, but for that to be effective, they have to push it through the financial system.”
Regulation in 2014
If the assembled investors were more willing to bring controls to the ecosystem, regulators also seemed to open up to the new financial technologies, as well as the possibility of a future of banking where the speed of money transfers no longer lags behind the speed of information.
Creator of Litecoin, Charlie Lee, indicated that he was excited at how both parties were able to find this common ground over the course of the day’s panels:
“I feel they’re coming in with a very open mind and they seem pretty receptive of our ideas, so I feel pretty positive about the outcome.”
Of course, while regulators as well as industry investors seem united in this common goal of continuing bitcoin’s great economic experiment, discussion later turned to the admittedly massive challenge of adapting 50 to 100 year-old statutes to the needs of entrepreneurs who need to compete in a fast-moving market.
However, the NYDFS seems optimistic events like this will lead toward finding a solution, and soon:
“Ultimately, it’s our expectation that the information we’ve gathered in this fact-finding effort will allow us to put forward, during the course of 2014, a proposed regulatory framework for virtual currency firms operating in New York,” Benjamin M. Lawsky, superintendent of financial services for the State of New York, said.
A thawing of the ice
While Lawsky began the conversation by noting that the event was “not a congressional hearing”, an early drawing of the lines was evidenced by the hearing’s first question, which directly addressed the “cloud hanging over the industry” following the arrestof BitInstant’s Charlie Shrem. But Liew and the other witnesses moved quickly to distance themselves from Shrem and illustrate how the case could be seen positively.
“This speaks to the satisfactory nature of existing regulatory framework,” Liew said.
Cameron Winklevoss went further, suggesting bitcoin investors would even be welcoming to clear regulation that could prevent similar setbacks to the community.
“The Wild West attracts cowboys. A sheriff would be good thing.”
Models of regulation emerge
Regulators spent much of both discussions focusing on how the witnesses believed bitcoin could be best regulated. Wilson took the lead on this question, noting that New York should be cognizant of how its actions could stifle innovation and push young companies to distance themselves from making themselves known to regulators.
“Many of these new companies, are two, three, four-person companies. It will be very difficult for them to do what JP Morgan Chase does,” he said.
Wilson went on to suggest that New York implement a permissive environment that allows entrepreneurs to test their ideas before bearing the heavy cost of compliance. This “safe harbor” period would allow entrepreneurs time to move through the licensing processes, but without the fear they could be shut down.
However, Daniel Alter, Lawsky’s General Counsel, expressed reservations about such a permissive climate, noting that when a service involves “sending money to terrorists,” more serious considerations needed to be made.
“If the choice is permit money laundering on one hand, but permit innovation on the other, we’re always going to choose squelching the money laundering. It’s not worth it to society to allow money laundering to exist to allow 1,000 flowers to bloom from innovation,” Lawsky said.
Speaking in the second panel on virtual currencies and regulation, Judie Rinearson, partner at Bryan Cave, suggested she too supported a safe harbor plan, drawing a comparison between bitcoin and the prepaid card industry, which in its early stages had issues limiting fraud.
“I think that’s a fabulous idea, that it’s worth thinking about, as long as it’s not owned by fraudsters,” Rinearson said.
Exchanges, wallets most likely targets
Panelists differed on where regulation should be enacted, but certain consensuses did emerge. For example, Lee and Rinearson both indicated that miners should not be constricted.
The best option available to regulators, the witnesses indicated, was to put a special emphasis on businesses that facilitated the transfer of virtual currency to fiat.
“I know that I mentioned that I kind of look at virtual, digital cryptocurrencies as something that are under the water. I don’t see that as the regulated part. The risk comes when you’re getting out of the water, then it’s time. Because as soon as you can take these currencies and exchange them for a fiat currency, the risk changes considerably,” Rinearson said.
"Any regulation should help to secure cryptocurrencies and the wallets used to hold them." - Charles Lee at the New York bitcoin hearings
Investor protection was another big point of emphasis for regulators, who sought guidance on how to protect consumers from the risk of the notoriously volatile financial instruments, and whether insurance pools should be used to protect consumers from loss.
“There are other things that these exchanges need to be investing in, and setting up this insurance pool for consumers who are investing in a volatile product, I guess I don’t see that as a use of this fund,” Rinearson continued.
A united business front
Despite the bitcoin world’s anti-centralization stance, what emerged at the hearing was a clear commonality in how bitcoin’s primary investors are looking to move the technology forward, and indications are this will mean embracing regulation at the cost of the early ideology that propelled the market to where it is today.
“The market of radical libertarians is not very big, the market for criminals is not very big,” Liew said.
Liew also talked about what he called “a change in character of the people being involved in bitcoin”, noting that bitcoin is “moving in the direction of greater legitimacy” and today’s bitcoin businesses, like the Bitcoin Foundation, are attracting very different types of users.
Perhaps most vocal was Wilson, who laid out his five stages of bitcoin adoption. The first phase being defined by an “open source, geek, nerdy, crypto-libertarian kind of thing”; second being the vice phase; and the third and current phase defined by price speculation.
The promise of bitcoin
The coming stages, of bitcoin mass adoption, were also given ample play, as the gathered investors attempted to get regulators to see the larger benefits that could come from a financial system built on top of bitcoin’s infrastructure.
In comments, witnesses were keen to put the emphasis on the unknown advances that may be waiting around the corner, while stoking fears that too much action could inhibit job growth and push innovation overseas at a time when the US is still fighting high unemployment.
"We're trying to create a world where transactions can move globally for free. We need to put the compliance into the code." - @fredwilson
He also hinted at what the benefits of this change would bring to New York, saying that the next stock exchange and the next Ticketmaster will be built on top of bitcoin, and that a large bitcoin exchange could even find its home in New York given the right actions from regulators.
Charlie Shrem Resigns from Bitcoin Foundation Following Silk Road Arrest
BitInstant CEO Charlie Shrem has resigned from the Bitcoin Foundation’s board of directors following his arrest over money laundering allegations.
The US government has accused Shrem of working with Robert M Faiella, also known as ‘BTCKing’, to launder money from drug sales on Silk Road through his bitcoin exchange startup BitInstant.
A statement from the Bitcoin Foundation reveals Shrem, who was its vice chairman, submitted his resignation this morning.
Jon Matonis, executive director of the Bitcoin Foundation, said:
“As a foundation, we need to remain focused on our core mission to standardize, protect, and promote the Bitcoin core protocol.
While Charlie has contributed a great deal of personal effort and resources to enhance the adoption of Bitcoin worldwide, a prolonged legal dispute would inevitably detract from advancing that core mission.
Therefore, in order to focus on his pending trial, it has been mutually decided that Charlie Shrem resign from the Board of Directors, effective immediately. The Board accepted that resignation today.”
The foundation’s statement goes on to stress it doesn’t condone illegal activities and “values transparency, accountability and a high level of responsibility” towards its members and the overall bitcoin community.
However, the statement also emphasises that the indictment is against Shrem and Faiella, not bitcoin or the community at large.
The complaint states: “Bitcoins are not inherently illegal and have known legitimate uses.”
News of Shrem’s arrest sent shockwaves through the bitcoin community yesterday. Cameron and Tyler Winklevoss, who invested $1.5m in BitInstant two years ago, issued the following statement:
“When we invested in BitInstant in the fall of 2012, its management made a commitment to us that they would abide by all applicable laws – including money laundering laws – and we expected nothing less. Although BitInstant is not named in today’s indictment of Charlie Shrem, we are obviously deeply concerned about his arrest.
We were passive investors in BitInstant and will do everything we can to help law enforcement officials. We fully support any and all governmental efforts to ensure that money laundering requirements are enforced, and look forward to clearer regulation being implemented on the purchase and sale of bitcoins.”
Tom Robinson, co-founder of bitcoin storage insurance firm Elliptic, said bitcoin, like any other currency, can be misused if it falls into the wrong hands.
“And just like with any other currency, these people can be tracked down and brought to justice. In fact, if anything, it’s easier to track illicit activity if bitcoin is used, thanks to the public block chain,” he added.
Robinson went on to say he hopes yesterday’s developments will have a positive impact, making digital currency businesses even more diligent about their anti-money laundering practices.
Brayton Williams, co-founder of Boost VC, a startup incubator heavily focused on bitcoin, said he is disappointed to see this kind of news surface again. However, he termed it a “mild setback” in the short term and thinks it will have no overall effect in the long term.
“I just hope people do not get side-tracked from what is important, the good use-cases of bitcoin, instead of thinking about the negative possibilities,” he added.
Like the foundation, Williams stressed that bitcoin is not the evil in instances of money laundering, the people involved are.
Burden of proof
Nic Cary, CEO of bitcoin website and wallet Blockchain.info, said: “The burden of proof is on the government. It’s important to remember that these are simply accusations. Charlie is innocent until proven guilty. As far as the impact this had on bitcoin… bitcoin is resilient.”
Members of the bitcoin community had plenty to say about the Shrem arrest on Twitter.
Alan Silbert, founder of luxury goods marketplace BitPremier, said:
While Bitcoin (and Litecoin) garner the most attention in the cryptocurrency world, there are now 83 (and counting) virtual currencies to store your wealth in. Bitcoin's market cap (at over $10 billion) is by far the highest but we wonder whether the miasma of mimiccers - from Unobtainium to the ironically-named StableCoin and from 'Philospher Stones' toHoboNickels - serves to reduce the confidence in Bitcoin as a new method payments, or bolsters it as the clear market winner.