Source: Andy Greenberg Forbes.com
Since Senator Charles Schumer first called on law enforcement nearly three years ago to shut down the Silk Road and cited the black market’s use of Bitcoin for anonymous transactions, the cryptocurrency community has been waiting for the other shoe to drop. It just did: Another lawmaker has demanded an outright ban on Bitcoin.
In a letter to Treasury Secretary Jack Lew, Fed Chairwoman Janet Yellen and other financial regulators, West Virginia Senator Joe Manchin demanded that they “take appropriate action to limit the abilities of this highly unstable currency.”
“This virtual currency is currently unregulated and has allowed users to participate in illicit activity, while also being highly unstable and disruptive to our economy,” Manchin wrote. He went on to cite Bitcoin’s use by the Silk Road and other black markets for anonymous transactions, as well as its volalitility as a currency. “The clear ends of Bitcoin for either transacting in illegal goods and services or speculative gambling make me weary of its use.”
Congressional hearings and New York financial regulatory hearings have floated the idea of new regulations on Bitcoin that would treat it as a more or less traditional currency, subject to the same anti-money-laundering laws as any other form of money. But Manchin advised that the U.S. instead follow the example of China and Thailand, who he described as having made the currency fully illegal. (In fact, China at least allows Bitcoin to act as a commodity and a store of value, if not a means of transaction.) The clear ends of Bitcoin for either transacting in illegal goods and services or speculative gambling make me weary of its use. “Our foreign counterparts have already understood the wide range of problems even with Bitcoin’s legitimate uses – from its significant price fluctuations to its deflationary nature,” he writes.
Update: A spokesperson in Senator Manchin’s office said that his call for regulation doesn’t yet extend to other cryptocurrencies, such as Litecoin or Dogecoin. And asked how such a ban would be technically feasible, he admitted that the senator is still trying to gather information on “different ways to protect consumers” that might entail a ban or simply increased regulation.
Whether Manchin seeks a ban or stricter regulation for Bitcoin, his announcement comes as the latest bad news for the cryptocurrency, which was already pummeled earlier in the week by the shutdown of Mt. Gox–its oldest and once-largest exchange–after what may have been a theft of hundreds of thousands of the exchange’s stored bitcoins. Bitcoin’s value has fallen to around $567 as of Wednesday afternoon from a high of more than $850 earlier this month.
Here’s the full letter Manchin sent to regulators:
Dear Secretary Lew, Chairwoman Yellen, Commissioner Curry, Acting Chairman Wetjen, Chairman Gruenberg, Chairwoman White:
I write today to express my concerns about Bitcoin. This virtual currency is currently unregulated and has allowed users to participate in illicit activity, while also being highly unstable and disruptive to our economy. For the reasons outlined below, I urge regulators to take appropriate action to limit the abilities of this highly unstable currency.
By way of background, Bitcoin is a crypto-currency that has gained notoriety in recent months due to its rising exchange value and relation to illegal transactions. Each Bitcoin is defined by a public address and a private key, thus Bitcoin is not only a token of value but also a method for transferring that value. It also means that Bitcoin provides a unique digital fingerprint, which allows for anonymous and irreversible transactions.
The very features that make Bitcoin attractive to some also attract criminals who are able to disguise their actions from law enforcement. Due to Bitcoin’s anonymity, the virtual market has been extremely susceptible to hackers and scam artists stealing millions from Bitcoins users. Anonymity combined with Bitcoin’s ability to finalize transactions quickly, makes it very difficult, if not impossible, to reverse fraudulent transactions.
Bitcoin has also become a haven for individuals to buy black market items. Individuals are able to anonymously purchase items such as drugs and weapons illegally. I have already written to regulators once on the now-closed Silkroad, which operated for years in supplying drugs and other black market items to criminals, thanks in large part to the creation of Bitcoin.
That is why more than a handful of countries, and their banking systems, have cautioned against the use of Bitcoin. Indeed, it has been banned in two different countries—Thailand and China—and South Korea stated that it will not recognize Bitcoin as a legitimate currency. Several other countries, including the European Union, have issued warnings to Bitcoin users as their respective governments consider options for regulating or banning its use entirely. While it is disappointing that the world leader and epicenter of the banking industry will only follow suit instead of making policy, it is high time that the United States heed our allies’ warnings. I am most concerned that as Bitcoin is inevitably banned in other countries, Americans will be left holding the bag on a valueless currency.
Our foreign counterparts have already understood the wide range of problems even with Bitcoin’s legitimate uses – from its significant price fluctuations to its deflationary nature. Just last week, Bitcoin prices plunged after the currency’s major exchange, Mt. Gox, experienced technical issues. Two days ago, this exchange took its website down and is no longer even accessible. This was not a unique event; news of plummeting or skyrocketing Bitcoin prices is almost a weekly occurrence. In addition, its deflationary trends ensure that only speculators, such as so-called “Bitcoin miners,” will benefit from possessing the virtual currency. There is no doubt average American consumers stand to lose by transacting in Bitcoin. As of December 2013, the Consumer Price Index (CPI) shows 1.3% inflation, while a recent media report indicated Bitcoin CPI has 98% deflation. In other words, spending Bitcoin now will cost you many orders of wealth in the future. This flaw makes Bitcoin’s value to the U.S. economy suspect, if not outright detrimental.
The clear ends of Bitcoin for either transacting in illegal goods and services or speculative gambling make me weary of its use. The Senate Homeland Security and Governmental Affairs Committee issued a report just this month stating, “There is widespread concern about the Bitcoin system’s possible impact on national currencies, its potential for criminal misuse, and the implications of its use for taxation.” Before the U.S. gets too far behind the curve on this important topic, I urge the regulators to work together, act quickly, and prohibit this dangerous currency from harming hard-working Americans.
U.S. Joe Manchin III
United States Senator