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Mt. Gox, the best-known Bitcoin exchange, is making an effort to go respectable. On Thursday the Tokyo-based exchange announced the introduction of user verification
for currency deposits and withdrawals—that excludes deposits and
withdrawals of Bitcoin itself, but it does mean those spending dollars
or euros or whatever to buy Bitcoin or sell it may now be logged.
Is this a bad thing? Some Bitcoin fans would argue it is—much of the attraction of the crypto-currency is its anonymity of use.
That hasn’t disappeared in the case of Mt. Gox (the nature of the
Bitcoin system precludes such a possibility, anyway), but the anonymity
of ownership has now been diminished for many, if not most, users buying
into the system or cashing out from this point on.
For those planning to build a legitimate, profitable ecosystem around Bitcoin, this is a completely necessary development.
Look at it from Mt. Gox’s perspective. This last week saw the Liberty Reserve shut down
because it was a money-laundering hub. Of course, that operation was
allegedly set up for that very purpose and was definitely used as such
by criminals,
while nobody has leveled such accusations at Mt. Gox (as far as I’m
aware), but it would certainly have given the Mt. Gox proprietors pause
for thought.
And then there was Homeland Security’s seizure
of some Mt. Gox funds earlier this month. This wasn’t an anti-Bitcoin
move, as it had to do with Mt. Gox owner Mark Karpeles’s alleged
misrepresentation when opening a bank account (he apparently promised he
wasn’t going to engage in a currency business), but again the
reasonable reaction would be to stress how legit the operation is trying
to be.
As the U.S. financial crimes authority Fincen has recently clarified,
it’s the exchanges that need regulation, not digital currencies
themselves. That stands to reason: Bitcoin transactions simply can’t be
monitored due to the inherent anonymity in the system, but the exchanges
are businesses that will benefit from not getting raided—it’s
ultimately in their interests to play by the rules.
Bitcoin enthusiasts may view these developments with suspicion—many
approach Bitcoin with a libertarian zeal that involves massive mistrust
of official currency control—but really, they should welcome it. Anyone
who thought Bitcoin’s use could remain entirely free of regulation
either was kidding themselves or would rather have seen the currency
stay small and out of the limelight.
In any case, as security expert Brian Krebs points out, money
launderers and other criminals looking for a stealthy transaction system
have plenty of other digital currencies to use—ones that aren’t trying
to go legit and also don’t fluctuate wildly in value.
Here’s a salient quote from a “member of an exclusive crime forum” that Krebs says he saw:
“Say I pay you $1k today for a project, and it’s late, and you decide to withdraw tomorrow. You wake up and the $1k I just sent you in Bitcoins is now worth just $600. It’s not yet stable to be used in such a way.”
If I were a criminal looking to use a virtual currency, I think I’d opt for one that might not lead to my legs getting broken.
People will always be able to do dodgy things with Bitcoin, much as
they can always do dodgy things with fiat currency. But if the Bitcoin
ecosystem is to grow, it will need to play by at least some of the rules
that apply to dollars and euros. That’s nothing to fear, and if anyone
in the community thinks it is, perhaps they should apply their minds to
creating an innovative self-regulatory system around the currency.
Sometimes it’s useful to pull back a little, and this is one of those
cases. Bitcoin and its exchanges should be viewed in the wider context
of interesting new financial service operations that can take the friction and unnecessary cost out of payments, particularly international money transfers.
It’s still possible to stick it to the man (well, the banks at least)
without inviting criminal use. Disruptive potential can coexist with
legitimacy.
P.S.—Want to see an interesting alternative use for the Bitcoin system? Check out this post
from Errata Security’s Robert Graham, who notes that the Bitcoin block
chain mechanism—usually used to negate the possibility of
double-spending—could also be employed as a public ledger for other
information. Clever stuff.