Nov 28 2013
By Chad Pergram
Unfortunately, no one can be told what Bitcoin is. You have to see it for yourself…
But Senate Homeland Security and Governmental Affairs Committee Chairman Tom Carper (D-DE) sure wants to learn more.
“Virtual currencies, perhaps most notably Bitcoin, have captured the imagination of some, struck fear among others and confused the heck out of many of us,” Carper said. “Including me.”
Carper gaveled the first ever Congressional hearing on Bitcoin to order last week. No, he didn’t invite attendees to take the red pill or the blue pill as the panel explored the dangers and risks posed by computer-generated cryptocurrencies. The signature “Matrix” green lines of computer code didn’t drip down the committee room walls during testimony from witnesses. Nor did Agent Smith work security at the door. But Carper certainly probed a virtual marketplace of determining what’s real, what ‘s valuable and what lurks in the shadows of digital money.
In the movie “The Matrix,” the character Morpheus asks “What is real? How do you define real? If you’re talking about what you can feel, what you can smell, what you can taste and see, then real is simply electronic signals interpreted by your brain.”
And that’s the question which lingers around Bitcoin. How real is it? Is it a currency which can be used in financial transactions? Or is it a commodity which can be mined and monetized at a market rate?
First of all, an explanation on Bitcoin.
Created four years ago, Bitcoin is essentially very complex computer code, thus assigning it value. The algorithm is set up to continue to “mine” additional Bitcoins between now and 2140. That limits the potential for “inflation” and imposes traditional “supply and demand” rules of the market.
People who acquire Bitcoins may store them in a digital “wallet,” accessing the currency much the way people would access traditional reserves in their bank account, protected by private “keys.”
“It’s like email for money,” testified Patrick Murck of the Bitcoin Foundation.
And it’s this potential for “off-the-books” transactions and unique anonymity which make Bitcoin so controversial – and simultaneously fascinating.
“Criminals will always seek to hide their crimes,” said Acting Assistant Attorney General Mythili Raman to the committee. “This will be another vehicle through which criminals may try to launder proceeds or commit additional crimes.”
Jennifer Shasky Calvery, who heads the Treasury Department’s Financial Crimes Enforcement Network (FinCEN), noted that “virtual currency has been exploited by criminal actors” and that regulation is essential to probe potentially questionable transactions.
All of this comes a little more than a month since the FBI took down the “hidden” service called the Silk Road, an anonymous underground website decried as the “eBay of drug sales.” The Silk Road was a digital venue, virtually untraceable via its coding. In addition to drugs, customers could purchase child porn, stolen credit card numbers, cigarettes, and even weapons on the Silk Road. The Feds contend that cybercurrencies served as the Bitcoin of the realm in this blackest of markets.
But Murck disputes suppositions about Bitcoin’s potential as the preferred medium for vice and lawlessness.
“Bitcoin is not some magical cloaking device that simply allows criminals free rein,” he said.
At the hearing, Carper told the story of watching the movie “Dillinger” some years ago about legendary gangster John Dillinger. Carper described a scene where Dillinger seeks out one of his old bank robbing buddies and discovers that his pal retrofitted the lair he once used. It’s now lined with long tables and telephones, populated by men in suits and jackets. Dillinger’s friend tells him he doesn’t knock off banks any longer. He’s upgraded to bookmaking. He tells Dillinger that this is the emerging wave of criminal activity and scams.
“I suspect for some people, they see this (Bitcoin) as the future to make them money,” said Carper. “We figured out how to deal with those guys in that film, wearing their shirts and ties and doing illegal activities, not robbing banks any more, not shooting people any more.”
The question Carper had for the panel, is how does the U.S. government deal with a new criminal enterprise, much of which could be rooted in secret currencies like Bitcoin? And that’s to say nothing of everyday consumers and businesses.
“It’s still very much an experimental currency,” said Murck. “It’s not quite ready for mass consumption. It’s coming. But not today.”
Which is why Murck asserts that efforts to integrate Bitcoin into traditional financial services systems are met with suspicion.
“There is currently a chill in the banking system and in the banking industry that is preventing businesses from getting just simple checking accounts,” Murck said. “There are stories that if you have the word Bitcoin anywhere in your name, your applications will be immediately placed in the circular file.”
It’s not clear if that’s a virtual trash can as a part of some Windows program…or perhaps an actual metallic one sitting underneath a banker’s desk.
No one is really sure who invented the “circular file,” as Murck put it. And the same goes for who crafted Bitcoin.
“Who was the creator? Who were the creators?” questioned Carper of the panel.
Someone (or someones) using the pseudonym Satoshi Nakamoto conjured up the first Bitcoin. No one knows if Nakamoto is male or female and whether or not they’re even Japanese. The only certainty is that they know a lot about cryptography, economics and writing computer code.
“Who Satoshi is is largely irrelevant to the story of Bitcoin going forward and I think that was intentional and possibly why a pseudonym was chosen in the first place,” said Murck.
“It’s a little strange that with the Bitcoin, we don’t know who the creator is,” replied witness Jerry Brito of the Mercatus Center at George Mason University.
“You don’t think it was Al Gore, do you?” deadpanned Carper, eliciting laughter.
Carper closed the hearing a few minutes later. Two-and-a-half hours had passed and the Delaware Democrat was the only senator to attend the hearing, virtually or otherwise. Carper gaveled the hearing out by quoting Albert Einstein’s wife. She once told him that when her husband spoke about complex quantum theories, she “understood the words but not the sentences.”
Carper said that with the hearing on virtual currency, “I’m starting to understand more than the words, but a few of the sentences, too.”
In the 1999 movie The Matrix, Morpheus asks “What is real? How do you define real?”
The potential for virtual currencies opens up new questions about what is “real money” and whether it actually carries monetized value. Value which could be converted into dollars or Euros or pounds or krone.
Is that money you’re holding in your hand which you can feel? Or is it something tucked away in a digital wallet? Which may have value – because other people want it.
The Treasury Department’s Jennifer Shasky Calvery told the hearing that despite Bitcoin’s arrival on the scene, “cash is probably the best medium for money laundering.”
And despite the criminal attraction of virtual currencies, Shasky Calvery’s words form a sentence which most on the black market can understand.