Bitcoin Goes to Washington: Monday’s Hearing Is Just the Beginning

A Senate panel looks at the risks and benefits of the cryptocurrency

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TIME Magazine Cover, November 11, 2013
Illustration by Justin Metz for TIME

The first congressional hearing on how to regulate virtual currencies will take place on Monday afternoon before the Senate Homeland Security and Governmental Affairs Committee. Called “Beyond Silk Road: Potential Risks, Threats and Promises of Virtual Currencies,” the hearing comes six weeks after federal authorities took down the Silk Road, known as the “Amazon for drugs,” and arrested its alleged founder, 29-year-old Ross Ulbricht. (It also comes less than a month after TIME’s cover story, “The Secret Web,” which explored these issues.) Though the session promises to look at all virtual currencies, it will primarily focus on bitcoin, the cryptocurrency used by the Silk Web, according to advance testimony given to TIME.

Pages and pages of explanations and definitions mark the testimony. What are bitcoins? How are they made? How do they differ from centralized virtual currencies? It is clear Washington has a ways to go in understanding, let alone regulating, cryptocurrencies. The hearing is a first step in what will likely be a long process toward any kind of lawmaking. “Honestly, the environment seems to be a game of hot potato where no politician wants to be caught being pro or anti bitcoin,” says Charles Hoskinson, director of the Bitcoin Education Project. “Once the market cap gets to around $10 billion or so [it’s currently just over $2 billion], then expect real hearings and a lot of lobbying.”

(MORE: 3 Reasons Why the Price of Bitcoin is Surging)

Over the summer committee chairman Tom Carper, a Delaware Democrat, and ranking member Tom Coburn, an Oklahoma Republican, sent letters to nine U.S. agencies asking for guidance on what is already being done to deal with cryptocurrencies. Ahead of the hearing, the panel released five of the responses. The Securities and Exchange Commission reviewed whether bitcoin should be treated as a security, and the Department of Homeland Security has adopted an “aggressive posture” to address the “emerging threat and criminal exploitation of virtual currency systems.” The Treasury’s Financial Crimes Enforcement Network has gone the furthest, producing two rules that define how exchanges should handle bitcoin and other virtual currencies. The Bitcoin Foundation protests these rules as too onerous as they force bitcoin exchangers to register state by state as wire services.

If anything, the letters and other testimony highlight Washington’s challenge in dealing with bitcoin. While the Treasury refuses to define bitcoin as a currency, a federal judge hearing a case about a Ponzi scheme recently ruled bitcoin was indeed currency. And noticeably absent from the agency responses were those from the Internal Revenue Service, which has been looking into virtual-currency tax shelters, and the Commodity Futures Trading Commission, which has said it is looking into regulating bitcoin as a commodity. The question of jurisdiction will remain up in the air until Washington can settle on a definition for bitcoin. Is it a security? A currency? A commodity?

The first panel, which includes testimony from the Justice Department, the Secret Service and the Treasury, while all noting the potential benefits of online cash, spent much of its time warning of the dangers the currency embodies: money laundering, tax shelters, virtually anonymous markets for illicit items such as drugs, kiddie porn, stolen credit-card information and hacking software. “The department anticipates that virtual currency will continue to evolve and grow in popularity,” Mythili Raman, acting assistant attorney general for the Justice Department’s Criminal Division, says in her prepared testimony given to TIME. “That growth inevitably will be accompanied by an increase in illicit transactions, which makes it critical that virtual currency services understand their legal obligations and requirements.”

The second panel includes a mix of critics and advocates. Ernie Allen, president and chief executive of the International Centre for Missing and Exploited Children, says the main way law enforcement takes down illicit sites — infiltration — is “expensive, time-consuming and often ineffective.” He notes that the Silk Road is already back up and running. Allen goes so far as to say an anonymous Internet is too dangerous. “You can help us address the core challenge, Internet anonymity,” he tells the panel in his prepared remarks. “For all of its importance, we simply cannot create an environment in which child exploiters, traffickers and other organized criminals can operate on the Internet with a complete veil of anonymity and no risk of being identified unless they make a mistake.”

(MORE: The Real Significance of the Bitcoin Boom (and Bust))

Advocates of bitcoin will testify to the potential power the currency has in helping the world’s poor by giving them the ability to bank and transfer money across the globe with relatively little fees. “Whether it brings people into existing financial-services systems, or if it secures people’s wealth better outside of formal systems, we believe bitcoin has tremendous potential to improve the capacity of people around the world to build and store wealth,” Patrick Murck, general counsel for the Bitcoin Foundation, says in his prepared testimony. “If these efforts and the underlying genius of the bitcoin protocol improve the financial situation and wherewithal of millions, hundreds of millions, or perhaps billions of people by even a small fraction, the total quantum of good done by bitcoin will be quite large.”

Jeremy Allaire, CEO of Circle Internet Financial, a group that launched in October seeking to make bitcoin payments more broadly accepted online, went so far as to ask the government to be much more explicit in regulating bitcoin, because it is only with market certainty that the currency will truly be able to flourish. “Criminals and terrorists will seek to employ digital currency if it remains unregulated, leaving bitcoin operators to operate without stringent controls and effective systems to verify identities, monitor transactions and report suspicious activity,” he says in his prepared remarks, adding that uncertainty and abuse in the market will only drive innovation overseas.

Allaire’s and Murck’s presence on the panel show how the bitcoin industry has upped its lobbying in Washington. According to Politico, Allaire recently hired Consumer Financial Protection Bureau deputy director Raj Date, and in October the Bitcoin Foundation hired Jinyoung Lee Englund, a former aide to Republican Representative Cathy McMorris Rodgers, as well as law firm Perkins Coie. Perkins Coie has already earned its keep: the Federal Election Commission last week released a draft decision allowing candidates to accept, but not spend, bitcoin.

40 comments
NullVote
NullVote

Didn't we create "Free market", and "Deregulate Banking"... For the purpose of global expansion... Wow, a bank-system that cost little to operate, could save on tax-burden, and is already widely accepted around the world. (Based on trust, I might add. Just like a dollar.)


Here is a concept... Since YOU control the GOVT, YOU tell them they don't have that ability anymore. Since they obviously abused it, and the National-debt is the proof. Case closed. They want to keep getting paid, they better start accepting BTC as payment. Because the money they take from you is not worth anything to them anyways.

tribune420
tribune420

Her voice is very creepy.  Her guttural sounds, remind me of fingers on a chock board. 

jefnvk
jefnvk

"The Bitcoin Foundation protests these rules as too onerous as they force bitcoin exchangers to register state by state as wire services."

Aww, that's cute, they actually thought that once they got big enough they government wouldn't find a way to regulate them...

Concerned100
Concerned100

Before the EU adopted the Euro, I warned everyone that the adoption of a unilateral currency would lead to a polarization of wealth in the strongest nation within the group.

I was proved correct, with weaker countries in Europe like Spain, Portugal and Greece losing jobs and wealth to Germany.

Now we have Bitcoin. An unregulated international currency, with no controls and no regulations operating outside all jurisdictions. Ripe to be controlled by criminals.

Following the European example, criminals will eventually own everything and the world's elected leaders will have no option but to bow to criminal domination.

JoseGonzales
JoseGonzales

Given that candidate Obama said the war on drugs is an "utter failure,"  legalizing drugs would solve the government's major objections and life would go on.


steven2358
steven2358

The video does a pretty bad job explaining Bitcoin. My personal favorite nonfact from the video: "The private key is never shared, making the transaction virtually anonymous."

deconstructiva
deconstructiva

Thanks, Jay ...and welcome back. Thanks for your related cover story also on dark web sites. I hope YOU had fun accessing dark web sites with Tor and maybe even mined some bitcoins for yourself too. I hope a lot of info comes out of the Senate hearing, if only for the politicians' benefit (as you wisely hinted at), and for everyone else too who are unfamiliar with bitcoins. One huge issue to figure out is what backs it up. Extreme righties, libertarians, and doomsday preppers may complain about the US Dollar being a Ponzi scheme, NOT backed up by gold as Ayn Rand wanted (and as it once was), etc., but what backs up bitcoins besides programming codes and a promise to ultimately limit the number of them? Which of course, would encourage hoarding as long as it continues its existence up to its limit, and that's a leap of faith in itself.


MrBenGhazi
MrBenGhazi

Attempts at regulating cryptocurrencies are going to fail miserably. Government is slow and inefficient; internet denizens act quickly, collectively, and efficiently. There is no way that the government can react fast enough to keep up with cryptocurrency innovation. For every way the government tries to tax and/or limit the distribution of cryptocurrency, another method of transfer will pop up, or another cryptocurrency will appear to replace the previous one.

I believe we are moving into a new time of currency, where your money is no longer backed by the word of a government. The US government would be wise to accept this and make the US as cryptocurrency friendly as possible, or we will just be left behind.

JohnDavidDeatherage
JohnDavidDeatherage

The government will regulate bitcoins out of existence.  Why should bitcoins be subject to any government regulation?

CodyEvans
CodyEvans

Our government REALLY hates competition...

cdblnr
cdblnr

I recently purchased some magic beans. These are not at all like the kind you see advertised on TV.  These are backed by the full faith and credit of the U S Government.  Obama also pledged we will be able to keep our magic beans if we want to.  These beans are now available on the Government website, but due to the demand you might not be able to purchase them right away.

islandertech74
islandertech74

How can bitcoin goto washington?  Don't they understand that its a self govern exchange of the world? 

drudown
drudown

There is no compelling State Interest in "honoring" a "cyber currency" for our Nation.  This lobbyist-driven push to create a "new, secret" way to BRIBE our ELECTED OFFICIALS needs to be stopped DEAD in its tracks.

How about PASSING A BUDGET pursuant to Article I, Section 8 instead of "legalizing" Super Mario Coins? Give us a &*%$ing break. Do your ACTUAL job for a change. This is precisely the kind of "distractions" that our Congress has NO RIGHT to entertain when they REFUSE to do their prescribed LEGAL DUTY TO TAX AND SPEND.

As such, is not the larger issue the fact that the GOP Congress has used the Filibuster device in a manner than (literally) subverts Democracy and, as such, the People's Procedural and Substantive Due Process rights? Namely, how is the GOP Senate's refusal to bring the most fundamental functions of our Founding Fathers' system of government (e.g., "Advice and Consent" Power; advocating we "abolish" the IRS or EPA)- not to mention WEAKENING the State by doing so?

And THIS is what we get instead? A license to BRIBE?

(sigh.)

Ugh. Where is the MOTION TO ABOLISH the FILIBUSTER?

"Thy love afar is spite at home." - Emerson

huryde
huryde

Sell off you bitcoin at the high price now before it crashes. Greed is driving up the price so quickly. Bitcoin should average out around $150 after the crash.

HiFreqTraitor
HiFreqTraitor

@Concerned100 I will point out the obvious fact that bankers are criminals, and own everything.  So you can stop worrying about Bitcoin.

jefnvk
jefnvk

@ZacPetit Says the person who only thinks laws can be written for specific instances, and not in a generic method.  it would be like saying the government can't regulate every stock, because they are constantly popping up.

drudown
drudown

@ZacPetit

Sure, right. 

And why, pray tell, would the People of the United States want to "deregulate" OUR OWN currency?

(cricket, cricket)

Sorry, you can keep your Super Mario Fraud cycler coins OUT of OUR jurisdiction. They aren't even legally recognized. Period.

In order for a creature to be a "cat"... it must share the proper change in gene frequencies over time to manifest in such a feline state.


In order for a medium of exchange to be a "currency"…it must be issues by a government recognized by Western Civilization and that's that.

"Meow, isn't transparency in elections great?" - Morris the Cat


Similar to enlightenment, any "thing" that needs to be certified, recognized or accepted as being is most likely a false or at least incomplete one. 

By analogy, you can imagine palaces in the air or, like a child, create them in the sand.
With the sheer will of the sword- or modern nuclear might- "value" is determined by the coercive will and agreed-upon right of the Diplomatic Unity between the EU, UK, Russia and USA's collective hand. 


Bitcoins are for kids and those that seek to subvert the rule of law.

drudown
drudown

@JohnDavidDeatherage 

A better question is why "fracking" is not OUTLAWED across the United States insofar it will POISON the People? What, the known/undisputed Scientific understanding that "Benzene causes cancer and human death" is any less "known" than "if methane leakage occurs in ANY fracked area…ALL life is at grave if not certain risk of death?"

Have any ideas why?

I mean, like "two Bitcoins" worth why there is NO URGENCY to enjoin such harmful conduct that will foreseeably CAUSE human misery and disease in our OWN JURISDICTION?

Please. I'd like to know why enabling MORE CORRUPTION via the lurky Bitcoin route won't just make such corruption easier.

drudown
drudown

@CodyEvans 

You presuppose there is no self-evident COST/BENEFIT argument militating AGAINST such competition. 

Say, you Bitcoin "champions" do not believe Global Warming is CAUSED by burning Fossil Fuels from OPEC states, do you? You think "fracking" is safe in America, just like such currency "deregulation", correct?

Do I have that right?

drudown
drudown

@cdblnr

I think you peddle a different kind of "black magic"…you do not believe Global Warming is CAUSED by burning Fossil Fuels from OPEC states, do you? You think "fracking" is safe in America, just like such currency "deregulation", correct?

Do I have that right?


jefnvk
jefnvk

@islandertech74 If funds are passing through US banks, you better believe it can be regulated.

drudown
drudown

@islandertech74 

You don't want any regulation of ANYTHING by the United States Federal government, correct?

drudown
drudown

Just this: as if the not-so-speculative-but-eminently-foreseeable-and-unpreventable "possibility" that (lo and behold!) manipulation of "cyber currency" is an arguably an ABSOLUTE CERTAINTY…the concurrent "risk" that the State attempts to use such a "pre-meditated" pretext to "regulate content on the internet" to stifle FREE SPEECH is yet ANOTHER independent reason why the State has a COMPELLING STATE INTEREST to NEVER, EVER "acknowledge" ANY "cyber currency."

Such vigilance is, as they say, the price of Liberty.

Sorry, no Zelda coins. 

"All bad precedents began as justifiable measures." - Julius Caesar

Chosun1
Chosun1

@huryde -- they can just offshore the whole thing. if they don't someone else will.  It is a virtual currency that can evade conventional jurisdictions.  there is no question that it is a currency within a basic econ 101 definition of "currency"....

BeVoluntaryist1
BeVoluntaryist1

@drudown @ZacPetit The point of bitcoin is to subvert rulers, not rule of law; bitcoin has a very strong rule of law built in. You are right; it is for the young, not for the old who are stuck in their slave mentality.

JohnDavidDeatherage
JohnDavidDeatherage

@drudown Do you have ADHD?  You seem to have trouble staying on topic.

Did you know hydraulic fracturing (fracking) has been done for 50 years? Why are you only now concerned?  I think you are someone who knows almost nothing but you are eager to SHOUT what little you DO KNOW.


jefnvk
jefnvk

@Chosun1 @huryde No, it isn't.  It is not in common usage, which is generally required of a currency.  There is relatively little (if anything) denominated in bitcoin units (i.e., I can't go to a restaurant day after day and pay 0.020 bit coins for a burger, it fluctuates based on the USD-Bitcoin rate).  Essentially, it is a virtual stock.

drudown
drudown

@Chosun1 @huryde 

Other than, say, it is not recognized as such by the Independent Judiciary so…it is NOT a legal currency.

Show me CASE LAW that proves otherwise.

(cricket, cricket)

drudown
drudown

@BeVoluntaryist1 @drudown @ZacPetit 

Let's see.

"Pine away under the alleged burden of being a purported slave to government backed currency that has served the People, Several States and trusted Allies very well thus far"or…"follow the bread crumbs [I mean Bitcoins] that lead into an altogether 'unknown' state of 'deregulated currency' that has no military might, nor rule of law, whatsoever behind it."

Try to be serious. 

Why would ANY rational, non-corrupt United States citizen step down from the Statue of Liberty to climb up on your Bitcoin jacka$$? Just to "be free"?

Like your master "freed" the Iraqis? I fancy.

Why don't you go "guzzle down" some radioactive "fracking fluid" and we'll think about how long you'll be "stuck" in the ER…

Speaking of which, I have no doubt you and your ilk likewise extol the "freedom" of having "no Health Care system, much less entitlement entanglements"…do I have that right? I mean, entitlements are "great in Kuwait" but…not here in the US, or UK/EU or Russia…er, after 9/11. So to speak.

But like your suicidal Bitcoin caper, isn't the threshold issue for the ACA much simpler: namely, isn't it true that the ACA's Consumer Protections and Competitive Pricing Component are what ultimately distinguish the ACA from the former status quo, i.e., like a government backed currency having a military and court to enforce it? 

As such, there is NOTHING about insurance being "highly regulated" in the abstract that bears any real relevance to what makes the ACA crucially important to the People and, per the CBO's independent research, to the fiscal well-being of the Nation. In this regard, it is absurd how the (once mighty) media prates on an on about little "Miss Fox's" self-perceived or wholly fabricated plight of (boo hoo) 'not being able to keep her [non-ACA compliant, consumer-protection-less] "former policy", as if, in the end, that should, what, "outweigh" the TRILLIONS in savings to the Nation over the next 150 years?

(***assuming the People in the United States are "fracked" to death in 150 years if it goes forward as Bin Laden's promised genocide was seemingly planned***)

Do I have that right as well, Tea Party snake?

Fyile
Fyile

@BeVoluntaryist1, What evidence do you have Bitcoin was not created by rulers? I find the story of some mysterious Asian man that no one knows a bit hard to believe. Anyways, I am not old, but old enough to know corporate interest and government will own Bitcoin if they do not already. That is if it becomes big enough. I also know that world banking will destroy it if it poses a threat to their financial institutions. Either destroy it or control it. So the fantasy of a rouge "currency" kept away from taxes and control sounds nice, but I am "old" enough to know if there is an opportunity for control there will be someone out there in the position to take it.

RoxanneRoxanadanna
RoxanneRoxanadanna

@drudown @JohnDavidDeatherage What the frack are you complaining about? This will free us of Middle East oil.  That will eliminate the need to have soldiers all over the planet.  There is no real danger from fracking, especially when it is complemented by increments in ethanol in fuel.

drudown
drudown

@JohnDavidDeatherage @drudown 

Btw, I firmly believe that the SAME FOREIGN MONEY that "funds" Bitcoin is likewise FUNDING certain super-PACs that are being used to BRIBE our Congress into its "refusal" to perform prescribed functions under Article I, Section 8, i.e., fulfilling the People's Due Process Right to a STRONG and SOLVENT United States Military and General WELFARE.

That's the "true goal" of the "shut down" and "default" and "cut entitlements" and "reduce education" and "curtail opportunity" and the Tea Party's "no new taxes, ever" agenda, correct?

It's ALL RELATED. 

Yes or no.

"Politics is not the art of the possible. It consists in choosing between the disastrous and the unpalatable." - John Kenneth Galbraith

Say, choosing between a Global Settlement vis-a-vis Colonial Powers/Former Colonies creating the NECESSARY funds to alleviate the US/UK/EU/Russia and World Community's debt rather than "Austerity" +  "fracking" the People to death under the "no new taxes, ever" GOP agenda.

drudown
drudown

@JohnDavidDeatherage @drudown

Do you deny that methane leakage as depicted in the documentaries 'Gas Land' are true and correct? Yes or no. 

It is such an easy way to identify you Replicant Tea Party Americans "posing" as "ordinary people". 

Too bad "fracking" hardly produces any jobs and comes at such an environmentally disastrous cost (see, e.g., 'Gas Land' documentaries holding the devastation IN TX, WY and PA face to face). Taken to its illogical conclusion, these "paid for" PR articles never, ever even touch upon the foreseeable consequences when methane leaks into the water table and/or known cancer-causing agents in the "pre-fracking" fluids (e.g., Benzene) ends up COSTING the State of CA far, far MORE than any purported "fiscal benefit" of a few jobs that, not mentioned herein, obviously involve high health hazards. 

Oh, btw…just because human beings "can" extract energy via "fracking" hardly means it "should" be done when less onerous means are readily available. What, those less disastrous means do not "also create jobs" that don't involve exacerbating the RISK OF EARTHQUAKES? 

Explain this to the readers: how can "fracking" be "legal" if it involves injecting agents that are ACTIONABLE under Federal Law (see, CERCLA/RCRA statutory scheme) if one just purchases real property with them from a prior owner in the chain of title? That is, if George buys a SINGLE ACRE parcel that used to be a gas station, he is liable for the clean up costs for Benzene (and other hazardous waste contained in "pre-fracking" fluids) on the parcel under CERCLA (or Comprehensive Environmental Response, and Liability Act )…even if he wasn't the polluter, i.e., he is still a "PRP" under CERCLA. 

Given that groundwater remediation is COST-PROHIBITIVE (see, e.g., PCE/TCE clean up at Newmark/Muscoy Superfund sites in Inland Empire, CA)…and that fresh, potable water is already in short supply as it is on account of Climate Change's "desertification"…why the "frack" would the State of CA allow ANY "fracking" in its jurisdiction (much less around Los Angeles) when the slightest earthquake could COMPROMISE THE ENTIRE POTABLE WATER UPON WHICH THE PEOPLE, COMMERCE AND OUR AGRICULTURE DEPENDS? My god, doesn't Monsanto see the hazard to its own business operations, much less the legal impossibility of "shipping in fresh water" as needed in Pavilion, WY? It cannot be done and will result in the greatest economic loss the State of CA will ever see.

How is Los Angeles or Central CA “losing its fresh water” not a "deprivation" of life, liberty or property? [see, Davidson v. Cannon (1986) 474 U.S. 344]

Say, Mr. Decider. 

If you told the Attorney General of CA that "there is enough energy in a human brain to run a car" does that mean we should "go forward with that as well, despite the suicidal logic"?

Sorry, "fracking" is a greater threat to the citizens of CA and, indeed, the United States than ANY or alleged "terrorist" threat will ever be.

"About drilling into the brain. Let's use you and your citizens…but not me."

(sigh.)

“In Nature nothing can be given, all things are sold.” – Emerson

Pity our elected leaders focus on imaginary Bitcoin currency hearings as part of a bribed “path to default” with an eye toward WEAKENING the US… in exchange for mere Foreign gold.

Sorry, I have SCIENCE on my side. See, e.g., articles debunking the GOP's "fracking is safe" for the People of CA position:

http://www.nbcnews.com/science/fracking-wastewater-contaminated-likely-radioactive-8C11323012 


http://www.propublica.org/article/scientific-study-links-flammable-drinking-water-to-fracking

drudown
drudown

@ZacPetit @drudown 

Isn't it true that the imaginary "cyber currency" Bitcoins are ALREADY used by drug dealers because it is impossible to trace and, as such, makes ANY sanctioned use of them in our political elections per se UNCONSTITUTIONAL? Of course it does.  

Your assent is immaterial to the truth of the matter asserted. 

And why would OUR OWN GOVERNMENT SANCTION ANY CURRENCY other than our own and/or our trusted Allies? 

Duh.

This red herring Bitcoin farce is just more Tea Party "chaos"…that is all such "de facto currency deregulation" foreseeably brings.

"Good order is the foundation of all things."- Edmund Burke

Chosun1
Chosun1

@jefnvk @Chosun1 @huryde -- how commonly used does a currency need to be to be common?  Chase your tale on that one for a while.  In the meantime, there will be millions of people using bitcoin as a medium of exchange for real goods.  Just because McDonald's doesn't accept it doesn't make it any less of a viable medium of exchange, acceptable in real markeplaces.  If I go to Peru, they don't accept the Korean won but they do accept Euros and dollars for many types of transactions.  It doesn't make the won any less of a currency than the dollar or Euro.  It just means that certain people won't accept it.  Keep chasing your "common usage" tail....  Good luck.