Bitcoin’s Fate Is in the Hands of Clueless Regulators

cluelessregulators31 Jan 2014 / Wired – New York financial regulators held hearings on bitcoin and other digital currencies this week, and many of the businesses looking to push the digital currency into our everyday lives welcomed them with open arms. Companies like Coinbase — a Silicon Valley bitcoin startup with $25 million in venture capital — are eager to operate within guidelines laid down by federal and state regulators. They want to build businesses that will last.

The problem is our financial regulators don’t understand bitcoin well enough to regulate it. That became increasingly obvious during the hearings, and it’s not at all surprising. The five-year-old cryptocurrency is an unprecedented experiment in the power of peer-to-peer networking, open source software, and a certain kind of financial anarchy.

If services that merely ‘enhance anonymity’ are suddenly banned by New York financial regulators, then New York will scare away legitimate businesses, and maybe an entire industry.

The crystallizing moment came Wednesday when Richard Zabel, a seemingly well-informed deputy U.S. attorney, testified before the New York Department of Financial Services, which has been looking into regulating bitcoin businesses. At one point, the Manhattan prosecutor started talking about bitcoin-mixing services, called tumblers. Bitcoin includes a public ledger that openly displays all financial transactions on its vast computer network; tumblers provide a means of hiding your transactions from the rest of the world — something Zabel doesn’t like.

“There may be, out there, legitimate uses for those, but in the cases that I’ve seen, they serve no other purpose to be automated money laundering and identity concealers,” said Zabel, whose office has brought money laundering charges against bitcoin advocate and Bitinstant CEO Charles Shrem — charges filed the day before New York’s hearings began…. Read more

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