POSTED BY Marion Goodsell on October 4, 2013
The United States Treasury Department’s Financial Crimes Enforcement Network (FinCen) has applied similar regulatory constraints to bitcoin as it has to other money-transferers such as Western Union. FinCen determined that users exchanging bitcoins are acting as money-transmitters and are subject to the Banking Security Act. FinCen has actively pursued such regulation as bitcoin offers potential anonymity to those operating black markets.
However, the structure of bitcoin itself may guard against a certain amount of fraud. In Dan Kaminsky’s article for Wired, he drew an apt analogy to stolen art, in that stolen bitcoins are not readily used or converted to a mainstream currency for fear of detection. Indeed, in many instances, the account holding stolen bitcoins appears static as the thief contemplates how to abscond. The structure of bitcoin, like any other currency, does facilitate trade in illegal goods. In the short term, the anonymity of the currency paired with anonymous online market places is a boon to black market profiteers. Yet, bitcoin cannot approach the subtly of traditional cash, and even the faintest online trail seems susceptible to law enforcement investigation.
This susceptibility came to fore this week, as the FBI arrested Ross Ulbricht, the alleged operator of Silk Road, an online drug bazaar with an estimated net worth of 1.2 billion dollars. Interestingly, for the secrecy and technical savvy associated with Silk Road and the bitcoin transactions that supported it, the FBI traced Ulbricht through traditional sleuthing. While it was undoubtedly unwise for the black market operator to give an interview to Forbes, the FBI mapped years of online communications and discovered the hallmarks of his presence and identity. The FBI also noted that Ulbricht’s online presence was associated with efforts to market Silk Road. Encryption or digital intricacy did not conceal a human tendency toward excess, personality, and habit.
Almost two weeks before the arrest, Silk Road’s competitor Atlantis shut down preemptively citing security concerns. The promise of anonymity and a boundless market place fit for black market exploitation has not delivered true stability and reliability. That is good for bitcoin and innocent users of encrypted servers, such as oppressed political dissidents and whistle blowers. While many forecast an arms race in security tactics, with regulations trailing reality, in the short-term investigation has yielded parties on rather equal footing, and Ulbricht did not get away with murder.
