Another Black Eye For The Bitcoin
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.