Edward Lowery, special agent in charge of the US Secret Service's Criminal Investigative Division, speaks at yesterday's congressional Bitcoin hearing, via
Everyone loves Bitcoin, including the US government. From the Federal Reserve to the Department of Homeland Security, the consensus at yesterday's congressional hearing was clear: our governing bodies are cool with virtual currencies, as long as we play by the rules.
In part, this was about embracing innovation, with Senate Committee chair Tom Carper comparing the rise of digital money to the internet. It was also to ensure that the US didn’t get left behind on the world stage, with Satoshi’s viral creation booming in China, as my colleague Megan Neal suggested.
But the real reason is that the government simply doesn’t see Bitcoin as a threat.
Much has been said about the cryptocurrency’s potential use by criminals. Since Bitcoin is arguably anonymous, in that coins are tied to keys rather than people, the assumption was that it was perfect for money laundering. In fact, the opposite may be true. With the entire ecosystem transparent, authorities can track every transaction back to the source, providing an NSA-view of a person’s spending habits to the entire world. It wouldn't be a stretch of the imagination to believe such monitoring systems are already in place, if not currently in development.
And actual anonymity will also be hard to come by if you ever plan on trading those coins for dollars. Since the government still commands the gateways back into the real world, you’ll have to give up your identity every time you use a bank or an exchange. Unless a sizable black market already exists, legitimate avenues are the only way to trade large sums. Even if shady alternatives do become available, which may only be a matter of time, taking advantage of those options doesn’t become any more likely. After all, transactions with questionable characters will be recorded in the public ledger permanently.
With overwhelming government acceptance, Bitcoin also loses much of its punkish appeal as a symbol of freedom and hope for techno-libertarians like Dread Pirate Roberts, the founder of the Silk Road. In their mind, Bitcoin’s rise represents the decline of the state, a world where no one pays taxes and everyone plays Satoshi Dice.
Instead, Bitcoin’s inevitable assimilation into the system undermines its anarchist ideals. The average citizen can barely configure their wireless router, let alone properly evade the IRS. As adoption grows and regulations catch up, Bitcoin becomes boring, more Zuckerbergian evolution than Randian revolution.
Sure, it will be neat to easily split the check at dinner, but all that really amounts to is another nifty app on your smartphone, a far cry from Satoshi’s original, grand vision. The initial glee of circumventing traditional institutions will wear thin once you start storing your digital loot at the Bitcoin Bank. Services like PayPal and Western Union may go the way of Blockbuster, but the transition is tantamount to shopping at Amazon versus your local Barnes and Noble.
So it’s really no surprise that the proceedings in Washington were overwhelmingly convivial. The government doesn’t have all that much to worry about. Perhaps that could change. The long term implications of virtual currencies like Bitcoin are impossible to predict.
Of course, there’s certain to be a fair share of nastiness as the technology matures, such is human nature. Or maybe the bubble just pops, and Bitcoin turns out to be more MySpace than Facebook. Who knows what could come next? But for now, it all looks mostly harmless, at least in the eyes of the government officials.