Another Black Eye For The Bitcoin

October 4, 2013 at 8:17 am Leave a comment

Federal law enforcement officials in Manhattan announced criminal charges against Ross Ulbricht, aka Dread Pirate Roberts, a 29 year old drug dealer whose underground “silk road” website was allegedly used to facilitate an multi-million dollar online marketplace for drug paraphernalia.  It sounds like it was the e-Bay for drug dealers.  Unfortunately for those of us who believe that electronic currency is getting a bum rap, the key currency used to facilitate this criminal enterprise was the Bitcoin.

I think I have blogged about the Bitcoin before, but the basic idea is that it’s a completely electronic currency that people can “purchase” and use right from their computers.  In the utopian vision of technophiles, the electronic currency is a way of trading free of traditional currency.  It is a way of sticking it to the man.  A more moderate view of it is that it simply provides an easy and quick way for computer savvy individuals to buy and sell online services like additional lives or moves for your favorite Facebook game.

The problem is that the Bitcoin is also ideal for money laundering, provided that the criminal can find someone willing to convert the Bitcoin into dollar bills.  For example, earlier this year, FinCEN became the first financial regulator to put companies on notice that they had to register as money brokers and were subject to regulatory requirements such as BSA and OFAC as soon as they convert an individual’s Bitcoins into dollar bills.

The regulatory grey area in which electronic currencies find themselves has retarded their expansion into the banking system.  For example, in August, the Credit Union Times reported that Internet Archive FCU in New Jersey had apparently decided not to move ahead with plans to host an account for a virtual currency exchange trader citing regulatory uncertainty.  Clearly more has to be done to regulate Bitcoin or whatever rises from its ashes.  But, let’s not throw out the baby with the bath water.

Why is this in the interest of credit unions, and banks, for that matter?  For one thing, physical currency costs money.  The more cheaply currency can be moved around, the more efficient everyone’s operations will become.   Second, virtual currencies are here to stay, in one form or another.  Those financial institutions that have the foresight to help facilitate this trend and ensure that the proper regulatory modifications are made are the ones that are going to be in the best position to benefit from the currency’s transition.

I am sure when the ACH system was created, there were those who felt it was too complicated to be of use to the general banking industry and that the quick conversion of cash into electronic bits would do nothing more than facilitate money laundering.  The nay sayers were wrong then and they’re wrong now.

Entry filed under: General. Tags: , , .

Is Obamacare Good For Credit Unions and Bad For Their Employees? Surcharge Away! Judge Invalidates Surcharge Ban.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

Trackback this post  |  Subscribe to the comments via RSS Feed

Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

Join 503 other followers