A big warning side for Silk Road and MtGox, I would guess.
If you let a large proportion of Bitcoin transactions become linked with illegal things like drugs, credit card fraud, and money laundering, the law will certainly figure out a way to shut it down.
So I guess the interesting question is how the Bitcoin community can police itself to ensure that these types of transactions (while ultimately not avoidable altogether) remain a minor part of the whole.
The key detail here is that Liberty Reserve (Like MtGox) was operating an unlicensed money transmitter. Let's be honest, if you're transmitting money without a license, you're gonna end up in jail once you hit scale. It's inevitable; the only companies that evade capture are the small potatoes.
So I think companies like MtGox have a lot to worry about, but companies like Tradehill, which have gone and done the regulatory dance, will be fine.
This is not the US versus Bitcoin, this is the US versus dumbasses who try to cheat the money transmitting rules and know damn well what they're doing is illegal. I happen to sympathize with these folks because I don't think the government should have its hands in every monetary transfer, but regulatory concerns are always a part of any business plan and ignoring them is a plan too (albeit not necessarily the best one).
Are you sure about this? It was my understanding that MtGox meets the legal requirements of its jurisdiction (Japan), and I know they require identity verification depending on how much money you're moving around(1).
What I would like to know definitively is whether MtGox is openly flaunting the rules, or is just doing their best to operate in a legally untested area.
Well, AFAIK they didn't seize MtGox LLC's money per se, they seized the accounts of Mutum Sigillum, which appears to be a subsidiary company in the USA set up to facilitate transfers through Dwolla which only offers services to US entities.
Yup, hardly sufficient to operate in the USA under Japan's rules. For the same reasons you are subject to the local laws when visiting another country; their roof, their rules.
Lots of people have been commenting about Tradehill doing all of the regulatory work needed to by completely in the clear, yet, a cursory search for a registered MSB[0] going by Tradehill, inc. or Tradehill didn't turn up any results.
Tradehill alludes to the fact that they are doing some simple "know our customer" type verifications, but that won't satisfy FinCEN when they come knocking.
> If you let a large proportion of Bitcoin transactions become linked with illegal things like drugs, credit card fraud, and money laundering, the law will certainly figure out a way to shut it down.
That hasn't happened with cash [yet]. Humorously, if the idea of cash was new today like digital currencies are it would be outlawed for our "safety".
This is a rather tired argument. Try to get $50,000 of cash from a bank--you won't be able to without going through some anti-laundering rigamarole. Try to transport $50,000 of cash to another country--if you get caught, you're going to be answering a lot of questions about it.
This is not a crackdown on virtual currencies--it's a crackdown on unlicensed money transmitters. If they follow the law, they can trade bitcoin without issue.
The only problem I can imagine having with this is if you don't believe in anti-money laundering legislation, which is one of the best weapons governments have against organized crime, human traffickers and terrorist groups.
There are a lot of things that are great weapons against organized crime, human traffickers, and terrorist groups that are unacceptable as law enforcement techniques. The fact that something is a good weapon against crime is not sufficient justification.
It also needs to be shown that such weapons are not unduly harmful to law-abiding citizens.
Honestly, it's not something I'd thought about much before all the recent government crackdowns on money transmitters. But when I stop to take a look at it, it seems to me that the freedom to exchange money without government interference is close to a fundamental human right.
When I look at it carefully, it seems very very strange that we've accepted that governments have the right to minutely examine what we do with the fruits of our labors.
I get that it's a good tool to stop crime, but so is listening to every phone call. So is recording every move every person makes in public. We're starting to see resistance to movement in those directions, why should our economic actions be subject to the same level of scrutiny?
I'm not ready to throw out the whole shebang, but I've started to think there should be some firm limits.
'Anti-money laundering' isn't the government tracking your every purchase in a big 'ol database. This is you withdrawing $20,000 from the bank and the government making note of it.
The only time they actually interfere is when they believe crime is going on, which is how things always go.
Are you saying they should be blinded so that they don't accidentally accost people who are not engaged in crime?
And when do they believe crime is going on? When you're driving with cash, no more evidence and no conviction needed to confiscate that cash, says the law. Search for: Eighth Circuit Appeals Court ruling says police may seize cash from motorists even in the absence of any evidence that a crime has been committed.
> should [they] be blinded so that they don't accidentally accost people who are not engaged in crime?
Given the law above, yes. So they don't intentionally accost people to get their cash.
That seems like "solving" the wrong problem. How is preventing the government from tracing very large transactions going to do anything to stop them from conducting random searches of your car and seizing cash you had on-hand?
Ok, I would really like some evidence that the government is tracking your withdraws and dispatching police cruisers to pull you over and confiscate the money.
I didn't say they were. I'm saying they shouldn't be allowed to track your withdrawals as long as they can legally confiscate the money you withdraw, no evidence of a crime needed.
Inspect every single monetary transaction. Measure the results.
Do not inspect every monetary transaction. Measure the results.
Has money laundering and crime increase or decreased? If it has increased, inspect every monetary transaction, assuming all other variables stay constant.
Let's suppose that monitoring all monetary transactions actually does reduce crime.
But the apparatus for doing so legitimizes similar actions by oppressive governments, which use it to suppress democracy activists rather than terrorists, and in so doing use the tools we built which they would not have had the funds or local knowledge to build themselves. And if you don't care about those people, imagine what happens if our own government should ever turn malicious, or fall under foreign control, and have this ability to prevent our citizens from funding a resistance.
Then there is the danger of all this data falling into the wrong hands. Requiring it to be collected creates a secret which in the aggregate amounts to a national security threat. If you know who is paying whom for what and in what amount, you can commit industrial espionage on a massive scale. You know where strategic weaknesses are because you know which company doesn't purchase reinforcing materials for its products, you know how much capital an important defense contractor has in reserve before it goes into financial straits that impair its ability to operate effectively, you know who isn't insured against specific risks and could be bankrupted if they were contrived to occur, etc.
This is effectively the same trouble as mandating lawful intercept backdoors. The damage you cause by creating immensely powerful surveillance tools that inevitably fall into the wrong hands by far outweighs the cost of requiring law enforcement to use the more traditional methods of catching criminals.
Good thoughts. Our own government couldn't be trusted with this today. The US has a recent history of thwarting and toppling democracy, ignoring our Constitution while supporting oppressive governments.
The statistics behind A/B testing only works if things are uncorrelated and independent.
If criminals do know know whether they are A or B, then the existence of the A group can deter crime in the B group. Given the increased scrutiny on A, you're likely to catch more crimes there. That doesn't mean that B doesn't have uncaught crimes though.
Thus your test is fundamentally messed up both coming and going.
There's a number of interests outside that potentially usurp efficacy of crime reduction. The cost of 100% monitoring, or moral/ethical interests (I deserve some degree of privacy)
It seems natural that methods of exchanging money are constrained by methods of property preservation.
Neither money nor property exist without government. Sure, you can say that bottle caps and a fence might do the trick, but those don't have the same force.
Money is simply what everyone agrees is money. It can certainly exist without government. It would probably not be a fiat currency, but rather something like gold or silver.
Your counter-argument doesn't rebut jonknee's point. Try to buy $50k of Bitcoin from an exchange--you won't be able to, without going through the same anti money laundering processes, providing your ID, etc.
And, just like Bitcoin, you have alternative illegal ways to obtain cash without going through these AML hassles: trade goods with a individual on the black market.
The point is, cash is comparable to Bitcoin in terms of enabling anonymous transactions. And there are legal as well as illegal ways to obtain both.
Try transporting $50,000 of cash within the US--if you get caught, the money is confiscated. In the US, no conviction is required to confiscate presumed drug cash. The police dept. gets to spend it.
Police regularly abuse forfeiture. It's a horrible and very un-American thing they have going on. Yet because the money ends up in the police pockets, there's little incentive to fix the law.
> That hasn't happened with cash [yet]. Humorously, if the idea of cash was new today like digital currencies are it would be outlawed for our "safety".
The key word here is "proportion." Cash is used in a lot of illegal stuff, but its used legally far more than the illegal. I don't know what the proportion is for Bitcoin, but this answer doesn't that fact. Its a rather poor rebuttal to the issue of Bitcoin being used for illegal activity.
What about 100 dollar bills in particular? I would be curious to see what percentage of transactions using these bills involve tax evasion, drugs, or other illegal activity.
If it's US cash it's safe. Non-US currency that can be shut down by the US without major penalty to the US is not safe. Even a small proportion of illicit transactions will suffice for pretext. Bitcoin's best bet is to become widely used as quickly as possible. At this point it could be shut down (indirectly) with the vast majority of the public believing that was needed to stop the bad guys.
Here is an interesting article talking about the $2 Trillion underground economy of people using cash to avoid paying taxes as part of the economic recovery.
Well, it is not a difficult question. There already are existing laws and regulations that spell out what you have to do. The thing is that whatever exchange follows MtGox in the us, they should follow those rules and not pretend that because they deal with bitcoins, the regulations do not apply to them.
If you let a large proportion of Bitcoin transactions become linked with illegal things like drugs, credit card fraud, and money laundering, the law will certainly figure out a way to shut it down.
So I guess the interesting question is how the Bitcoin community can police itself to ensure that these types of transactions (while ultimately not avoidable altogether) remain a minor part of the whole.