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Bitcoins Are Scarier Than Burner Phones, Attorneys Warn
By
Marc Yearsley
Published Jan 29, 2014
Modified Jan 29, 2014
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By
Marc Yearsley
Published Jan 29, 2014
Modified Jan 29, 2014
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The New York Department of Financial Service's two-day hearing on virtual currencies continued today with a panel on law enforcement related issues. Manhattan D.A. Cyrus "The Virus" Vance and Deputy U.S. Attorney for the Southern District of New York, Richard "Ethernet Cable" Zabel, discussed anonymity and ease of movement, the expansion of the geographic footprint of criminal activity, the elimination of practical barriers of entry, irreversible transactions, the currencies' implications on taxes, and the potential security problems they pose in investments.
Sunday's arrest of bitcoin startup owner Charlie Shrem on money laundering charges hung over the proceedings, as local and federal law enforcement continue to calibrate their response to the proliferation of anonymous, largely untraceable transactions.
"Is there something qualitatively different about virtual currencies than a burner phone, in regards to anonymity?" NYDFS Superintendent Benjamin Lawksy asked the attorneys. Ed Felton, professor of Computer Science and Public Affairs at Princeton University, discussed the power of consensus to Bitcoin. Bitcoin relies on consensus to manage transactions and to confirm Bitcoin ownership, but users must fundamentally agree that Bitcoin even has value in the first place; for "real" currency, banks and governments do that work.
In response, U.S. Attorney Zabel suggested that a main aspiration, at least for Bitcoin, is to become a central avenue of commerce, unlike a burner phone that still exists on the fringes. Bitcoin is, Zabel said, "in some ways not that different than cash, but you can do things with it that you can't easily do with cash. Some of its intrinsic qualities mean it needs to be treated differently."
Vance, the more excitable of the two, discussed two past cases of how virtual currency facilitated crime, including the prosecution of an international credit card theft ring, telling the committee that "without stronger governmental oversight in this area we are going to be permitting cyber criminals a...digital wild west. We live in a world in which criminals are exploiting new manners to commit crimes every day."
Vance then suggested the issuance of licenses for virtual currency exchanges as a regulatory possibility, because though they consider the nature of a digital transaction as legitimate in general, "the anonymity offered by these systems attract, from time to time, criminals. Finding out who is behind the keyboard is very important."
There appears to remain some confusion about the actual production, operation, and dissemination of Bitcoin in particular, especially with regard to the functional anonymity.
Bitcoins are linked to user's public and private key via simple cryptography, so that whenever a transaction is made, it is processed by the entire network of Bitcoin users. The two public keys involved are available for all to see as the transaction is verified and the entire history of every Bitcoin is recorded. More than anything, though, Bitcoin follows an entirely different logic of necessary information when compared with traditional financial institutions, rather than simply demanding and guaranteeing absolute anonymity.
In short though, Vance and Zabel were arguing that the very nature of virtual currencies required much more time and money to decipher on their end, while remaining attractive both to criminals and to potentially vulnerable consumers.
The hearing continues this afternoon with a panel on consumer protections and ends with an academic perspective from professors at Stanford and Princeton.
Tagged
bitcoin
cyber crime
scary hackers
shrem
the Internet
the silk road
vulnerability
original
Marc Yearsley
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