Fear and Loathing Over Bitcoin in the Senate
“I suspect that for some people, they see Bitcoin as a way to make money—money laundering, child pornography, human trafficking. How confident are you that we’ll be able to deal with these criminals?”
So began Senator Tom Carper’s line of questioning at Monday’s Senate hearing, “Beyond Silk Road: Potential Risks, Threats, And Promises of Virtual Currencies.” If it was any indication of how the federal government plans to handle Bitcoin, you should probably gear up for a massive clampdown.
Anticipation for Monday’s event was high—it was the first ever congressional hearing on virtual currencies, less than two months after the FBI shut down Silk Road, the Tor-based black market where Bitcoin was the currency of choice. About 100 people—a mix of congressional bureaucrats, reporters and Bitcoin enthusiasts—crammed into room 342 of the Dirksen building, the sprawling Senate office building about a mile from Capitol Hill. They came to hear how the U.S. government plans to handle Bitcoin.
The argument against Bitcoin, voiced over and over again, is that Bitcoin is both anonymous and irreversible and, therefore, a boon for criminals. “[Bitcoin] is appealing because they are cheap and convenient for customers,” Jennifer Calvery, the director of the financial crimes enforcement network at the Department of the Treasury, told the senators. “Many of those same features make it appealing for criminals.”
But the fact is: Bitcoin is not, in itself, illegal. It’s a decentralized payment currency—basically a commodity. And, like any commodity, it certainly should be regulated, but in conversations (and especially in Senate hearings like Monday’s) it shouldn’t receive the same sort treatment as a site like Silk Road.
It was remarkable to see how quickly Senator Carper seemed to conflate Silk Road and Bitcoin in his statements. It’s hard to blame him. The 66-year-old senator was pretty open about the fact that he knows very little about how Bitcoin even works.
“Virtual currencies, perhaps most notably Bitcoin, have captured the imagination of some, struck fear among others, and confused the heck out of many of us—including me,” he said.
At one point during the hearing, Carper asked the panelists who was responsible for the building of Bitcoin in the first place.
“Who is Satoshi Nakamoto?” he asked. A few in the audience snickered. Satoshi Nakamoto is the pseudonym for the creator—or creators—of Bitcoin. The truth is that no one really knows who, exactly, the architects of Bitcoin are—they’ve chosen to remain anonymous and will likely stay that way.
Even if it was meant as a joke, the question seemed to reinforce the fact that Carper, who is very likely a nice and smart man, is at best uninformed and at worst ill-equipped to navigate the regulation of Bitcoin.
The hearing was split into two panels and seven different people, representing a variety of interests. The first panel was composed of Calvery; Mythili Rama, the acting assistant attorney general of the Department of Justice; and Ed Lowery, the special agent in charge of the criminal investigative division of the U.S. Secret Service.
In each of their opening statements, these panelists were quick to explain how virtual currencies, like Bitcoin, are often exploited by “cybercriminals” and “illicit actors” for “nefarious” purposes.
“Criminals are nearly always early adopters of new technologies and financial systems, and virtual currency is no exception,” said Rama, who was quick to point out that the Department of Justice, under her supervision, has seized about $70 million worth of Bitcoin.
Each federal agent assured Senator Carper, a Democrat from Delaware, that Bitcoin should be closely monitored by a smattering of Washington agencies—from the Securities and Exchange Committee to the Department of the Treasury.
But as the second panel pointed out, unlike with traditional credit systems, Bitcoin transfers are instantaneous and free and hold plenty of potential for consumers and businesses around the world.
“It’s like email for money,” Patrick Murck, general counsel of the Bitcoin Foundation, told the senators. “It’s secure, efficient and low cost.”
Murck also urged Carper to view Bitcoin not solely as a means for criminals, but as a sophisticated new payment network born in the digital age.
“There is a real need to create on-ramps into the traditional economic system,” Murck said. “The biggest obstacle to that happening is the ability of businesses to get bank accounts in the current system, even a checking account.” Jeremy Allaire, CEO of the digital currency startup Circle Internet Financial, also pointed out that a Bitcoin exchange in China has already become the single largest currency exchange in the world.
Meanwhile, Carper did his best to understand the proceedings—but even admitted toward the end that though he understood the words, he didn’t grasp “all the sentences.”
The Senate hearing was likely the first of many discussions of how best to regulate Bitcoin, involving a whole alphabet suit of bureaucratic Washington agencies. But if the hearing underscored anything, it was Washington’s proclivity towards knee-jerk reactions towards technology they, sometimes admittedly, don’t understand.