Originally posted on Tuesday, May 21st, 2013
“Bitcoins” are a software novelty presenting as virtual coins. They have been much in the news of late as the implicit market cap of these novelties soared to over $1 billion.
This novelty “coin” has its enthusiasts in Silicon Valley, notably the Winklevoss twins of Facebook fame. TheLA Times notes an upcoming conference of 1,000 techies: “Bitcoin’s growing popularity and a recent surge in value has caught the eye of entrepreneurs and venture capitalists, including some who are convinced that Bitcoin could be the biggest thing on the Internet since, well, the Internet itself changed our lives two decades ago.”
Some libertarians have hailed Bitcoin as an important monetary development, one beyond the reach of governments. But “mirror mirror on the wall, who’s the fiatest of them all?”
Courtesy of CASASCIUS via Wikipedia
Bitcoin presents simply as a virtual fiat money. Its largest trading exchange has been a website called Mt. Gox — which was an acronym for “Magic The Gathering Online Exchange” — a reference to a trading card game in which mighty wizards battle one another. It appears that bitcoins fit very well in a “fantasy roll playing game environment.” As recent developments suggest, Bitcoins are by no means beyond the reach of Uncle Sam. Nor should they be. Nor is this clever code gold, or the base for any kind of monetary regime (virtual or real). Now, Mt. Gox has had its funds seized by the US Department of Homeland Security.
According to PCWorld
The seizure of funds of the largest bitcoin exchange, Mt. Gox, was triggered by an alleged failure of the company to comply with U.S. financial regulations, according to a federal court document.
The U.S. District Court in Maryland on Tuesday ordered the seizure of Mt. Gox’s funds, which were in an account with Dwolla, a payments company that transferred money from U.S. citizens to Mt. Gox for buying and selling the virtual currency bitcoin.
A copy of the seizure order was provided on Wednesday by a spokeswoman for the U.S. Immigration and Customs Enforcement (ICE), the investigative arm of the Department of Homeland Security.
The warrant alleges that Mt. Gox failed to register as a “money transmitting business” in accordance with 18 U.S. Code 1960. Violators can be fined and sentenced up to five years in prison.
The warrant states that Mt. Gox owner Mark Karpeles answered negatively on a questionnaire when asked if its U.S. branch, called Mutum Sigillum LLC, exchanged currency or transmitted funds based on instructions to customers. Mt. Gox did not immediately respond to a request for comment.
The questionnaire was supplied by Wells Fargo when Mutum Sigillum opened an account with the bank on May 20, 2011, according to the warrant. Companies that transmit money are required to register with the Financial Crimes Enforcement Networks (FinCEN), part of the U.S. Treasury Department.
How bitcoin exchanges fall under U.S. federal and state law had been somewhat in question. But in March, FinCEN issued guidance specific to virtual currencies, stating that exchanges are required to register but users are exempt.
The Washington Post’s Wonkblog sums it up neatly in The Coming Battle Over Bitcoin:
Given that Bitcoin first broke into mainstream attention when Gawker explained how to use it to buy drugs, perhaps the surprise is that it took federal regulators this long to take action against it.
In the wake of the Gawker story two years ago, Sen. Chuck Schumer (D-N.Y.) described Bitcoin as an “online form of money laundering” and called for the authorities to shutter the Bitcoin-based drug market Silk Road. Yet until recently, the feds have taken a relatively hands-off posture….
For years, Bitcoin supporters have touted the currency’s potential to resist government surveillance and censorship. … The Bitcoin network is fully decentralized, so there is no one with the ability to monitor the network and block illicit transactions. …
That’s a feature for people concerned with press freedom, but it looks more like a bug for government officials charged with enforcing the nation’s drug, gambling, counter-terrorism, and money laundering laws. The government relies heavily on financial institutions to help them monitor their customers’ financial activities and flag or block potentially illegal transactions. The lack of intermediaries makes Bitcoin an attractive technology for those who want to evade government scrutiny. It was only a matter of time before authorities started to give the technology some unwelcome attention.
The classical gold standard is not in any way a form of subverting legitimate government law enforcement or even to “evade government scrutiny.” The legal definition of the dollar, or any currency, as a fixed weight of gold is a simple matter of maintaining integrity in the key unit of account in order to create a climate of equitable prosperity. It is neither necessary nor sufficient to turn to a synthetic mechanism — an elegant software hack — to fulfill this purpose. Bitcoin merely is a high tech version of “fool’s gold.”
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