Bitcoin, the virtual currency that fuels transactions on Internet black markets such as Silk Road and Black Market Reloaded, will make its case to Congress today that it is currency with potential to open the digital economy to poor societies around the world.
Federal law enforcement agents will argue that Bitcoin makes it easy for criminals to launder money.
Last month, federal agents shut down Silk Road, a black market that sold illegal goods such as heroin and forged documents, and arrested its alleged operator, Ross Ulbricht. The site operated on an underground network known as Tor and transacted its sales in bitcoin.
Patrick Murck, general counsel for the Bitcoin Foundation, will appear before the Senate Homeland Security Committee for the first congressional hearing on virtual currency. Murck, in prepared testimony, said he hoped Congress would "chart a safe and sane regulatory course" without tamping down the economic and societal potential for the digital economy and Bitcoin.
Bitcoin can help people do business without carrying money, avoid official corruption and punitive taxes, and spend money on unpopular causes without interference from government, Murck said.
"Bitcoin can facilitate private and anonymous transactions, which are resistant to oversight and control," Murck's testimony says.
The committee has asked Murck and representatives of the Justice Department, Homeland Security and the International Centre for Missing & Exploited Children to discuss the risks and potential of digital cash that can be transferred anonymously and without government regulation.
Bitcoin, invented in 2008 as a person-to-person digital currency that can be traded without banks or a central monetary authority, has grown exponentially as Internet businesses, legal and illegal, adopt it as a payment method. Bitcoin can be exchanged for standard currency, such as dollars, euros or yen, but the exchange rate varies wildly. One Bitcoin has sold for more than $400.
In March, the Treasury Department's Financial Crime Enforcement Network said Bitcoin exchanges that allow users to convert their virtual currency to dollars must register with the government and abide by anti-money-laundering regulations. European regulators issued similar requirements in July.
To pay with Bitcoin, users create a "wallet" using Bitcoin software that is identified with a 33-digit code. That code links to a private one known only to the owner. The wallet's owner uses the private key to "sign" transactions, which is then validated by the computer. Every transaction is listed in a public ledger, called the "block chain," which prevents spending Bitcoin twice.
Criminals have migrated to Tor to hide their identities and use virtual currency to hide their transactions, said Ernie Allen, CEO of the International Centre for Missing & Exploited Children, in prepared testimony submitted to the committee.
In August, police arrested the operator of Freedom Hosting, which maintained "deep Web" servers that hosted child porn sites that accepted payment in Bitcoin.
"The attractiveness of Tor and Bitcoin for child pornography is based upon a perception of anonymity," Allen said. "If the perception of anonymity diminishes, we believe the criminal use will diminish with it."
Copyright 2013 USA TODAY
Original headline: Bitcoin seeks "sane" regulation
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