U.S. Gives Tacit Nod to Bitcoin. Is That a Good Thing?

LOS ANGELES—Last year, AVN reported on issues surrounding Bitcoin, the global e-wallet and money transfer service that at that point in time had just been dropped by Paxum as a payment option at the insistence of its banking partners.

“This was not an overnight/impulsive choice,” Paxum’s Ruth Blair said at the time. “We had been in discussions with our banking partners, Mastercard and our auditors for the last couple of weeks, and on Friday our banking partners ended the discussions with us and stated that it was too much of a potential risk to continue doing business with Bitcoin and Bitcoin Exchangers and instructed us to close all Bitcoin-related accounts. We had no choice but to follow those instructions and therefore, all Bitcoin associations were severed on Friday.”

The Paxum situation was but one obstacle facing Bitcoin a year ago, and as with other virtual currencies that have come and gone it seemed as if the embattled currency’s future might be in doubt. One year later, however, Bitcoin’s fortunes have about-faced in a big way; not only is it as popular as ever, but in recent days it has been reported by the Register that the “well-publicised idea that Cyprus could pinch ten per cent of all local savings accounts to help pay for its government's budgetary woes seems to have sparked a rush of interest in the crypto-currency Bitcoin.”

Bloomberg concurred, noting Wednesday, “The value of the virtual currency has soared nearly 15 percent in the last two days.”

But that’s just the tip of the iceberg. Monday, as Salon noted with some alarm, “The U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) released its first ‘guidance’ as to how ‘de-centralized virtual currencies’ should fit into the larger regulatory regime under which currencies of all kinds are required to operate. The word ‘Bitcoin’ is never mentioned in FinCEN’s release, but that’s just a technicality. Everyone in the Bitcoin community knew who the guidance was aimed at. Bitcoin is a big boy now. The State is paying attention.”

Not only is it paying attention, but the U.S. government has also given a clear, if somewhat tepid, endorsement of the currency, with some conditions attached. “Reading between the lines,” writes Timothy B. Lee for Forbes, “FinCEN is saying that if Bitcoin-based businesses fill out some paperwork and collect some information about their customers, then they’ll be left alone.”

And therein, according to Salon’s Andrew Leonard, lies the rub. As a currency that embodies the libertarian (i.e. adult entertainment) ethic—“a currency created out of the workings of the free market, unaffiliated with any state authority, respectful and protective of user privacy and anonymity, and designed to resist inflationary pressures. By its very nature, Bitcoin is made for people who don’t want other people to know what they are doing."—playing regulatory footsie with The Man doesn’t quite, as Leonard put it, “fit in with the idea of ‘resistance.'”

As luck would have it, simultaneous to all this Bitcoin hoo-haw the Guardian has posted a timely and revealing video titled “Bitcoin: the fastest growing currency in the world,” featuring Bitcoin developer Amir Taaki and Bitcoin magazine editor Mihai Alisie explaining the inner-workings of the currency, and naturally extolling its virtues. The video works to support Leonard’s claim that Bitcoin is not just a currency and technology but also an ideology, though it remains to be seen if the purity of the underlying principles can be sustained following the announcement of the new FinCEN guidelines.

Lee concludes, “FinCEN’s guidance is probably the best Bitcoin fans could have hoped for: it sends a clear sign that America’s anti-money laundering regulators do not consider the currency a threat and isn’t going to try to force it to change or shut down.”

But Leonard ends his piece with a warning that despite the tacit approval, “the state will not sit idly by if vast sums of drug money start getting money laundered through Bitcoins, or if a significant enough stream of tax dollars starts getting diverted into the Bitcoin ether.”

Unless of course Bitcoin becomes “too big to fail.” In other news of the week: “Man selling house for Bitcoins, the first sale of its kind.”