Evan L. Greebel, Kathleen H. Moriarty, Claudia Callaway, Gregory E. Xethalis
Purpose – To explain and draw conclusions from six recent bitcoin and virtual currency regulatory and law enforcement developments. Design/methodology/approach – Discusses and draws conclusions from six recent, important developments: two administrative rulings from the Financial Crimes Enforcement Network (FinCEN), recent remarks by New York State Department of Financial Services Superintendent Benjamin Lawsky, remarks by Mark Wetjen of the Commodity Futures Trading Commission (CFTC), a recent Securities and Exchange Commission (SEC) informational sweep of crowdsales of crypto-equity, and the US Department of Justice proceedings against Trendon Shavers. Findings – Rather than trying to stifle or control virtual currencies, US governmental entities recognize the long-term value of virtual currencies and are trying to create a regulatory regime to foster growth and development, and an atmosphere where institutional and retail investors are protected. Originality/value – Provides an overview of the key United States regulatory issues facing companies engaged in Bitcoin-related businesses.
Purpose – This paper aims to explore the challenge posed by Bitcoin to regulators, particularly anti-money laundering regulators. Bitcoin is a crypto-currency based on open-source software and protocols that operates in peer-to-peer networks as a private irreversible payment mechanism. The protocol allows cross-border payments, for large and small items, with little or no transactional costs. Design/methodology/approach – Case studies and case law are examined as are relevant reports by regulators. Findings – Bitcoin is based on complex computer code supported by a robust community in a peer-to-peer network. Unlike other virtual currencies, Bitcoin appears to have obtained purchase and as such poses unique challenges to regulators. Research limitations/implications – Bitcoin is at a nascent stage and the evolution of the virtual currency is difficult to predict. Practical implications – Those who study financial systems, anti-money laundering regimes and asset forfeiture laws will have an interest in this topic. Originality/value – This is a new and emerging currency; there is limited literature on the implications of this currency to anti-money laundering systems.
This paper examines the effects of the Silk Road on the global prohibition regime on the international trade in illicit drugs. Situating the FBI’s effort in shutting down the online illicit drugs black market, it is argued that The Silk Road represents a fundamental challenge to this global prohibition regime. The paper will look at how this challenge is shaped through the technological difficulties the complexities of The Silk Road has dealt law enforcement agencies and legislative bodies looking to regulate and expand this prohibition regime in the virtual world. It is also argued that the approach taken by law enforcement efforts in this regard is problematic and doomed to fail. Lastly, this paper looks at controlled samples of social media reactions to gage public response to this phenomenon in order to explain the lack of clear moral opprobrium against this type of criminal activity. Résumé: Cet essai examine les effets de la plateforme Silk Road sur le régime de prohibition globale du commerce international de drogues illicites. Localisant les efforts du FBI visant à fermer le marché noir en ligne de drogues, on reconnaît que Silk Road représente un défi fondamental au régime de prohibition globale. Cet essai explore ensuite les manières dont la technologie a façonné les tactiques et stratégies utilisées par les organismes d’application de la loi et les organes législatifs cherchant à réguler et à combattre ce monde illicite virtuel. Plus spécifiquement, on illustre la problématique de l’approche transparaissant des efforts d’application de la loi à cet égard, argumentant ainsi qu’elle soit vouée à l’échec. Enfin, cet essai analyse des échantillons contrôlés des réactions sur les médias sociaux afin de mesurer la réponse du public à ce phénomène et d’expliquer le manque d’opprobre moral clair contre ce type d’activité criminelle.
Bitcoin is most radical innovation in monetary space for a very long time. It is an entirely private monetary system that runs itself and does not depend on trust in any central authority to honor its promises. Instead, it relies on trust in Bitcoin community or network that verifies transactions and maintains integrity of system. This system of distributed trust creates bitcoins and produces an automatic, tamper-proof bitcoin money supply process. (1) As such, it avoids dangers of discretionary monetary policy--namely, quantitative easing, manipulated interest rates, and need to rely on wise men or women to withstand political pressure or successfully forecast future. Indeed, under Bitcoin there is no monetary policy at all. There is just an automatic monetary rule dictated by Bitcoin protocol designed in 2009 by an anonymous programmer using alias Satoshi Nakamoto. Bitcoin has been widely hailed as a success and has won a substantial following. Unfortunately, underlying economics of Bitcoin mean that it is unsustainable and in all likelihood will be remembered as a failed experiment--at best a pointer to some superior successor. A first-pass intuition into Bitcoin can be obtained from a comparison with stone money in Milton Friedman's (1992) case study, Island of Stone Money. In this story, people of island of Yap in Micronesia used as money large round limestone disks transported from nearby island of Palau. These were too heavy to conveniently move around, so they were placed in prominent places. When ownership was to be transferred (e.g., as part of a dowry, inheritance, or ransom payment), current owner would publicly announce change in ownership but stone would typically remain where it was and islanders would maintain a collective memory of ownership history of stones. This collective memory ensured that there was no dispute over who owned which stones. Similarly, in Bitcoin, record of all transactions, blockchain, is also public knowledge and is regarded as die definitive record of who owns which bitcoins. Both stone money and Bitcoin share a critical feature that is highly unusual for a monetary system: both systems operate via a decentralized collective memory. On February 11, 2009, Nakamoto gave an explanation of thinking behind Bitcoin in an e-mail announcing its launch: root problem with conventional currency is all trust that is required to make it work. The central bank must be trusted not to debase currency, but history of fiat currencies is full of breaches of that trust.... With e-currency based on cryptographic proof, without die need to trust a third-party middleman, money can be secure and transactions complete. Cryptocurrencies, however, face problem of As Nakamoto notes, owner could try to re-spend an already spent coin by [digitally] signing it again to another owner. The usual solution is for a trusted company with a central database to check for double-spending, but that just gets back to trust model.... Bitcoin's solution is to use a peer-to-peer network to check for double-spending. Consequently, the result is a distributed system with no single point of failure. (2) Kevin Dowd is Professor of Finance and Economics at Durham University in United Kingdom and a partner at Cobden Partners. Martin Hutchinson is a journalist and author of Bear's Lair column (www.tbwns.com/category/the-bears-lair). The authors thank Ferdinando Ametrano, Gavin Andresen, Raadhiyah Anees, Steve Baker MP, Roger Brown, Dave Campbell, Akin Fernandez, Dominic Frisby, Jim Harper, Doug Jackson, Gordon Kerr, Jim Rapp, Eric Samieski, Lawrence H. White and Basil Zafiriou for much helpful feedback. We note that several of our readers have expressed serious reservations about our analysis and conclusions. Any remaining mistakes are authors' own. …
The Bitcoin system (https://bitcoin.org) is a pseudo-anonymous currency that can dissociate a user from any real-world identity. In that context, a successful breach of the virtual and physical divide represents a signficant aw in the Bit-coin system [1]. In this project we demonstrate how to glean information about the real-world users behind Bitcoin transactions. We analyze publicly available data about the cryptocurrency. In particular, we focus on determining information about a Bitcoin user's physical location by examining that user's spending habits.
In dit artikel worden de mogelijke gevolgen belicht van de introductie van nieuwe en bestaande toepassingen van Bitcoin-technologie. De transnationale, decentrale en gedistribueerde peer-to-peer-structuur van de Bitcoin-technologie en van nieuwe toepassingen hiervan, hebben de potentie om bestaande sociale relaties en instituties te ontregelen. Het krachtenveld waarin maatschappelijke actoren staan kan hierdoor uit balans worden gebracht. De meest radicale van deze nieuwe technologieën is Ethereum. Met name het concept van de Digital Autonomous Organisation (DOA) heeft mogelijkerwijs verregaande consequenties. Ethereum is een ‘contract validating and enforcing system’, een gedistribueerd systeem dat een platform biedt voor autonome computerprogramma’s die in staat zijn om zelfstandig overeenkomsten met rechtspersonen en andere DOA’s aan te gaan en te ontbinden. Ik richt mij op de mogelijkheden van deze toepassingen als nieuwe platformen voor International Financial (Cyber) Crime.
Anti-Money Laundering is a set of rules and guidelines designed and agreed among countries to use as standard policies and framework in establishing their domestic laws on prevention and suppression of money laundering activities. The expansion of the financial sector and businesses brings about the continuous development of innovative and new financial instruments to facilitate the businesses. In parallel with this development, criminals also take advantages of the unfamiliarity to the newly developed innovation and create new money laundering methods. In this circumstance, and whilst the financial sector is a foundation of the national economic, the government and relevant state authorities have to monitor closely and supervise such new innovations.Among other innovations, virtual currency is created to facilitate financial transactions. It was found that virtual currency is the new financial innovation and also the system that used to connect with the customers through the online network via the internet. The key points of this currency are the description of it which are anonymous account and the system used in the transaction which is the peer-to-peer or blockchain connection system. These features are different from the standard financial instruments such as fiat currencies, financial institution, bank and non-bank business.The virtual currency is considerably new in Thailand. To date, the laws have not been developed to effectively govern the transactions using the said virtual currency. Exchangers, administrators, and users of the virtual currency are not within the scope of governance of the Anti-Money Laundering Act; nor are they subject to any other regulations. That is to say, the Anti-Money Laundering Act, including rules, regulations and guidelines established thereunder, only regulates performances of financial institutions and some other businesses as specifically determined. In other words, obligations and requirements under the Anti-Money Laundering laws do not apply to the virtual currency transactions and/or the involving parties. Thus, there are certain loopholes for some criminals to use the virtual currency instead of money in various financial transactions to avoid detection by the state authorities. Lacking of government supervision in this part leads to a new risk of money laundering through the virtual currency. This thesis studies the Anti-Money Laundering processes in the United States in comparison with those in Thailand, specifically focussing on the issues of money laundering using a kind of virtual currency: Bitcoin. Bitcoin is the most prevalent kind of virtual currency and is addressed widely and extensively in US laws, regulations and court judgments. Those laws can be useful guidelines for Thailand to develop its appropriate solutions for the problem of money laundering through the virtual currency. The key preventive measures under the Anti-Money Laundering Act are customers profile verification and transactions monitoring and recording. These measures are the essential procedures to control and monitor transactions to reduce the risk of money laundering. Also, it can also examine the suspicious transactions or suspect profiles of each customer. These methods could apply to the virtual currency and their relating business for supervision and manage the risk of money laundering as same as the other financial business under the Anti-Money Laundering law and regulation.
This paper explores the legal character of the Bitcoin and other emerging "virtual currencies," and the legal and policy implications of Bitcoin trading. It observes that these "cryptocurrencies" exhibit different legal characteristics depending on the context in which they are examinedwhether transactional law, tax law, or criminal law, for example. The paper argues that the appropriate legal analogue for classifying Bitcoins should be investment and commercial notes, since this characterisation would lead to the application of an appropriate and effective body of transactional and regulatory law to Bitcoins.
This paper analyzes Bitcoin and associated mining pools. Participants may decide to join a mining pool as an income smoothing device. Such participants are risk averse whereas other Bitcoin participants are risk taking.
Bitcoins and their use are a very actual issue, especially with high popularity and high cost of Bitcoins. Number of Bitcoin’s transactions increasing day to day. But many individuals and business owners do not understand what is Bitcoin, how it works and how could it be used in business. This article discusses the nature of Bitcoin, a decentralized, anonymous and largely unregulated virtual currency, its legal status and use in business. The article includes examination of both advantages and disadvantages of Bitcoin and international regulation of legal status and taxation of this currency.
Nicolas T. Courtois, Pinar Emirdag, Zhouyixing Wang
In this paper we study the question of centralisation in bitcoin digital currency. In theory bitcoin has been designed to be a totally decentralized distributed system. Satoshi Nakamoto has very clearly postulated that each node should be collecting recent transactions and trying to create new blocks (Satoshi08). In bitcoin transactions are aggregated in block in order to authenticate them and form an official ledger and history of bitcoin transactions. In practice as soon as expensive ASIC bitcoin miners have replaced general-purpose hardware, production of bitcoins and the validation of transactions has concentrated in the hands of a smaller group of people. Then at some moment in early 2012 an important decision was taken: the Stratum protocol was designed (Palatinus12) which took a deliberate decision to move the power of selecting which transactions are included in blocks from miners to pool managers. The growing difficulty of mining and large standard deviation in this process (Rosenfeld13; CourtoisBahack14) made that majority of miners naturally shifted to pooled mining. At this moment bitcoin ceased being a decentralized democratic system. In this paper we survey the question of a 51% attacks and show that there is a large variety of plausible attack scenarios. In particular we study one particularly subversive attack scenario which depends on non-trivial internal details of the bitcoin hashing process. How does it compare with the current mining practices? We have study the Stratum protocol in four popular real-life mining configurations. Our analysis shows that pools could very easily cheat the majority of people. However the most subversive versions of the attack are NOT facilitated and could potentially be detected.
Six assertions concerning the status of Bitcoin are formulated and defended: (i) Bitcoin is not and will not become a currency-like informational commodity, (ii) currency-like informational commodities that aren’t currencies must be frauds, (ii) specific BTC amounts may become monetized and thus may be turned into financial assets, (iii) currently no BTC amounts are monetized in any currency area and therefore none are financial assets, (iv) by means of burocratic steps only some BTC volumes can be turned in to an informational currency within a given currency area, modified client software is not required for that step, (v) if a specific amount of BTC qualifies as currency, it also qualifies as money, (vi) moneyness of Bitcoin, or rather of a specific occurrence of an amount of BTC, should be questioned only after one has agreed positively on its status as a financial asset, and negatively on its status as an amount of currency. Factions in the Bitcoin promoting movement are viewed from a perspective of organizational multi-threading. Different factions of the Bitcoin movement may wish to see status issues about Bitcoin settled in different ways. Overall consistency in these matters should not be expected from the union of factions in the Bitcoin movement.
Bitcoin is the most popular, decentralized virtual currency in the world. Businesses both large and small have begun to accept bitcoins as a legal form of payment. In addition, Bitcoin currency exchanges, which trade bitcoins for real currency, have quickly arisen because of the currency’s growing popularity.\nBut Bitcoin’s evolution has also been marred with criminality. Hundreds of millions of dollars’ worth of bitcoins have been stolen from businesses and large Bitcoin currency exchanges. The infamous “Silk Road”—an illegal, online drug market, which the FBI took down in 2013—dealt in this currency. The use of bitcoins for illicit purposes not only facilitates criminal activity throughout the world, but also undermines the security of individuals using bitcoins for legitimate purposes, such as users who send remittances to family members abroad.\nThe Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury, stands at the forefront of Bitcoin regulation. FinCEN was the first federal agency to address convertible virtual-currency regulation, providing legal guidance (the Guidance) explaining how the Bank Secrecy Act applies to convertible virtual currencies. For this reason, this Article analyzes and evaluates the Guidance’s standards regarding convertible virtual currencies.\nThis Article proposes a refined regulatory framework that both deters money laundering in Bitcoin—a pervasive problem in the world of decentralized virtual currencies—and allows the recognized benefits of this virtual currency to develop free from innovation- stifling regulation. Among other benefits, Bitcoin increases access to financing in impoverished areas, provides an avenue for low-cost remittances, lowers transaction costs for businesses burdened with high credit-card fees, and perhaps most importantly, creates a global platform for financial and technological innovation to flourish. While authorities recognize these advantages, the potential for criminal abuse nevertheless remains salient. This Article seeks to provide the optimal balance between these often-conflicting interests.
This paper assesses costs and benefits of regulating Bitcoin. A review of the main justifications for regulating it shows that scope for efficient regulation is limited. Private governance structures and fee-based services have already begun addressing many of the known problems. Furthermore, since a regulation would discourage use, the costs—in terms of technological gains forgone—are potentially high. Nonetheless, there is scope for regulation, to ensure one has recourse in the event of theft, as long as the following are addressed: 1) provide a clear regulatory framework; 2) supervise transactions to dissuade crime, without compromising the medium; 3) regulate exchanges, rather than users; 4) encourage technological progress by committing to an environment of permissionless innovation.
Bitcoin and Blockchain technology pose a number of novel regulatory and legal issues. This note examines how government agencies and courts have attempted to keep society safe for — and sometimes from — Bitcoin and Blockchain users (with consumers and investors on one end and drug dealers, terrorists, and violent criminals on the other). This note concludes with policy suggestions for changes to disclosure requirements and tax classifications to facilitate the broader adoption of Bitcoin as a currency by the general public.
This paper reports on our research towards an economic analysis of money laundering schemes utilizing cryptocurrencies, which are convertible decentralized virtual currencies based on cryptographic operations. They gain ground as means to offer enterprises and its customers new payment methods, investing opportunities and some are even intended as substitutes for centrally controlled government-issued fiat currencies. Our starting point is the observation that their increasing popularity attracts the attention of practitioners and scholars, particularly because of raising anti-money laundering concerns. Consequently, work has already been conducted in this area, mainly focusing on implications on anti-money laundering efforts. However, we argue that the potential benefits for criminal individuals are an important, yet neglected factor in the dissemination of cryptocurrencies as money laundering instrument. Addressing this issue, the paper firstly presents the structure of the money laundering process and introduces prevailing anti money-laundering controls. This forms the basis for the subsequent analysis of contextual and transactional factors with respect to their influence on the incentives of criminals to utilize cryptocurrencies for money laundering. This aims at providing an answer to the open question, whether cryptocurrencies constitute a driver for money laundering.