Is Liberty Reserve's Demise Bitcoin's Gain?
Bitcoin users should stop freaking out about the Department of Justice's latest attack on digital currencies.
The DOJ shut down the digital payment service Liberty Reserve yesterday, charging it with money laundering and arresting its principal founder and four others. The U.S. Treasury Department named the network, which it said hosted more than $6 billion in illegal transactions over the last seven years, a "financial institution of primary money laundering concern."
The shutdown, using authority granted by the Patriot Act, is a warning to online criminals -- and the networks on which they exchange. The DOJ statement threatens: "Our message is clear: money launderers can run, but they can't hide from the U.S. justice system."
The crackdown on an anonymous online-payment network has made some Bitcoin users nervous. Bitcoin exchanges operate a lot like Liberty Reserve. But more government scrutiny could actually turn out to be a good thing for the popular crypto-currency.
According to the indictment, virtually all of Liberty Reserve's business enabled suspected criminal activity. While Bitcoin has gotten heat in the past for facilitating drug deals and other illegal activities, the currency is increasingly attracting mainstream businesses and consumers.
There's also a technical consideration: Even if authorities at some point wanted to prosecute Bitcoin, there's no clear person to target. The online currency was created by the mysterious "Satoshi Nakamoto," which is believed to be an alias, and its decentralized, anonymous network makes it nearly impossible to track users.
Bitcoin users should embrace the extra scrutiny and welcome the chance to ensure more security, making the currency less accommodating to criminals. Plus, as some Reddit commenters were quick to point out, the demise of Liberty Reserve will mean less competition for Bitcoin.
Increased federal attention is inevitable in any case. The U.S. Treasury's Financial Crimes Enforcement Network published guidelines in March to apply money-laundering rules to companies that issue or exchange virtual currencies. Liberty Reserve, which had more than a million customers -- 200,000 in the U.S. -- wasn't registered with the Treasury. Bitcoin's biggest exchange, Mt. Gox, isn't properly registered as a money transmitter, either. Mt. Gox was the subject of a Department of Homeland Security seizure warrant this month when the government targeted a company using a Bitcoin mobile-payment service.
It's difficult to fit virtual currencies like Bitcoin into existing laws regulating money laundering. I have faith that a network of users that has created and maintained a system to mine and monetize virtual, encrypted data worth almost $1.5 billion, is up to the challenge.
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.