Erm ... I hope no one here had too much invested in bitcoin

[Adam]

Bitcoin executive Charlie Shrem is accused of money laundering

NEW YORK — The federal government has arrested one of the biggest names in the bitcoin community in the latest crackdown on digital currencies and their illicit use.

Charlie Shrem, chief executive of digital currency exchange BitInstant, stands accused with a Florida man of laundering money through a notorious drug-trafficking website. Shrem is also vice chairman of the Bitcoin Foundation, a nonprofit group aimed at promoting the digital currency.

He and codefendant Robert M. Faiella of Cape Coral, Fla., are accused of selling more than $1 million worth of bitcoins to people attempting to buy and sell illegal drugs on the Silk Road website, which the FBI shut down in October.

Not only is Shrem prominent in the digital currency world, but so are two backers of his company: Cameron and Tyler Winklevoss, the twins famous for alleging that Facebook was their idea. The Winklevosses have also been trying to win regulatory approval for a financial vehicle that would enable ordinary investors to cash in on bitcoins, whose value has skyrocketed over the last year.

Federal prosecutors also accused Shrem and Faiella of sidestepping regulations aimed at keeping criminal proceeds out of the financial system.

The charges come as state and federal authorities wrestle with how to regulate burgeoning digital currencies. They also come just before Benjamin Lawsky, New York's top financial regulator, kicks off two days of hearings on potential new rules for digital currency exchangers.

"This is going to send shivers through a lot of people," said Carol Van Cleef, a partner at the law firm Patton Boggs in Washington, D.C., and an expert on regulations aimed at curbing money laundering who will testify at the hearings in New York. "It's intended clearly to send a lot of messages to the bitcoin community."

Yyyyeeeaaahhhh .... I'm thinking I'm pretty glad I'm not "invested" in bitcoin right about now. I'm pretty sure I don't want to have too much invested in invisible electrons used to move drug money, pay hackers, and possibly fund global terrorism.

[Dallas]

Bitcoin is still a valid idea, but waiting and seeing was also a valid idea, which won out in my mind.

~Dallas

[Norm dePlume]

Yyyyeeeaaahhhh .... I'm thinking I'm pretty glad I'm not "invested" in bitcoin right about now. I'm pretty sure I don't want to have too much invested in invisible electrons used to move drug money, pay hackers, and possibly fund global terrorism.

Do you have similar feelings about cash? Because it does all of the above.

[Adam]

Do you have similar feelings about cash? Because it does all of the above.

To date, the executive in charge of cash has not been arrested and charged with multiple federal counts.


ETA: OK, "in charge of" isn't really the best way to say that. How about "one of the biggest executives who has a controlling interest."

[scott]

Do you have similar feelings about cash? Because it does all of the above.

Are you equating federally printed and regulated cash with bitcoin?

[Norm dePlume]

Are you equating federally printed and regulated cash with bitcoin?

No, I'm not "equating" them. I'm saying that cash also has been "used to move drug money, pay hackers, and possibly fund global terrorism." That doesn't make cash equal to bitcoin. There are several important differences. But we don't normally judge a currency by the worst things that people do with it.

[Norm dePlume]

To date, the executive in charge of cash has not been arrested and charged with multiple federal counts.


ETA: OK, "in charge of" isn't really the best way to say that. How about "one of the biggest executives who has a controlling interest."

The whole point of Bitcoin is that it's decentralized. It isn't under control of any one entity, so its credibility isn't attached to anyone.

[scott]

The whole point of Bitcoin is that it's decentralized. It isn't under control of any one entity, so its credibility isn't attached to anyone.

Decentralized means unaccountable and easy to manipulate if one is at the proper point in the chain. The decentralization is the reason it's used for graft so often, and it's why cash is very limited in this role.

[Norm dePlume]

Decentralized means unaccountable and easy to manipulate if one is at the proper point in the chain. The decentralization is the reason it's used for graft so often, and it's why cash is very limited in this role.

Do you seriously believe that more graft is occurring using Bitcoin than using US dollars? I mean here and now in this world and time.

[Billy Jingo]

Do you seriously believe that more graft is occurring using Bitcoin than using US dollars? I mean here and now in this world and time.

I was surprised that he was gigged on a rounding error.

[Adam]

Do you seriously believe that more graft is occurring using Bitcoin than using US dollars? I mean here and now in this world and time.

Depends.

Depends upon just what you define as "graft," and it also depends upon whether you're talking about as a function of overall monetary supply or just raw dollar figures. If "graft" is to include generally illicit transactions (payments for the drug trade, payments to hackers for "services" rendered, kidnapping ransoms, etc.), and you're looking at this as a function of the total monetary supply, then bitcoin wins that one hands-down, as far as I know: last I had heard, it had become the international currency for engaging in illegal activity. I think someone has said that it has actually replaced diamonds as the "universal illicit currency."

If you're looking at just raw numbers, then the dollar is always going to win that, by sheer function of the fact that we have (or at least had; I haven't looked lately) the largest monetary supply in the world, largely due to being the largest economy in the world.

[scott]

Do you seriously believe that more graft is occurring using Bitcoin than using US dollars? I mean here and now in this world and time.

Proportionately yes.

[Norm dePlume]

I would agree that the proportion of illegal trade to legal is higher for Bitcoin. But that has nothing to do with decentralization. That has much to do with traceability. Federal Reserve notes are issued by a Central Bank, but they are widely used for illegal trade. A personal check might be issued by a local credit union and cashed in an unaffiliated bank. That is a less centralized payment system, but more traceable. Drug dealers don't take personal checks, as a rule.

[Norm dePlume]

I was surprised that he was gigged on a rounding error.

Yeah, a million bucks. Los Angeles probably moves that much meth before lunch. I haven't really looked into the case, but from the article it sounds like he's only guilty of converting dollars to Bitcoin and vice (ha!) versa in virtual proximity to a bunch of drug dealers. This seems like a political show case. They're sending a message.

[Norm dePlume]

Decentralized means unaccountable and easy to manipulate if one is at the proper point in the chain. The decentralization is the reason it's used for graft so often, and it's why cash is very limited in this role.

Actually, the exact opposite of this is true. If there were a central server that processed transactions, then someone could occupy the right spot in the network topology and intercept traffic and transmit manipulated data, and that data would have the authority associated with the central server. Bitcoin operates as a peer to peer network where all the peers independently process all the transactions and compare results. So you could occupy any point in that network and transmit as much manipulated information as you like, and when 99% of your peers' results agree that your results are wrong, your results are ignored. There is a recognized weakness in Bitcoin where one entity would have more processing power than the rest of the network combined, and at that point it's susceptible to manipulation. This has almost happened once. That is the point at which it is no longer decentralized, and it's the centralization that makes it vulnerable.