Tag Archives: Privacy

‘Digital Asset’ businesses embrace regulatory compliance with new industry group

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dataAnnounced this week at the Inside Bitcoins conference  the new DATA industry group aims to represent businesses not just in the Bitcoin space but any digital asset including, “emerging payments, virtual currency, and other financial technology innovations”.

DATA, or the Digital Asset Transfer Authority’s founding members include the CEO’s of leading Bitcoin businesses such as BitInstant, BitPay, & BitStamp as well as the CEO’s of other digital currency businesses including Ripple’s OpenCoin and Ven.

However, the groups stated goals seem sure to heat up the regulation debate.

From DATA’s official announcement …

To reach this potential, to inspire confidence in the services we offer, and to ensure fair and responsible treatment of consumers and merchants, we believe our industry must evolve in compliance with law and regulation. We must work proactively with regulators and policymakers to adapt their requirements to our technologies and business models. We must develop and implement common risk management and compliance standards that address the public policy concerns associated with our businesses. And our firms must build risk management and compliance programs that meet those standards.

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Bitcoin, Regulators and Online Markets – a look at the World of Bitcoin Exchange

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forexExchanges are the link between the old world of banking and the new world of crypto-currencies; they play a vital role in supporting the growing Bitcoin economy. If Bitcoin hopes to continue rapidly gaining new users it needs this bridge between the old and new systems to be up and functioning. While Bitcoin is in no way dependant on a link to the traditional banking system, its smooth transition into mainstream use certainly is.

Unfortunately these bridges which make up the exchange market are concentrated and often broken.  This leads to concerns over reliability and security, which can cause market panic and extreme volatility. As Bitcoin enters the mainstream a wave of new businesses, services and software developers have recently dedicated their efforts to solving this problem. Their task will not be easy, and the while the exchange rate has seen some recent stability, there is a long way to go before obtaining bitcoins can be called user friendly and reliable.

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A possible Bitcoin fork? – Bitcoin 2: Freedom of Transaction

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Those following the internal rift in the Bitcoin community over regulation have often discussed the possibility of a fork.  The Bitcoin world moves quickly.

Hitting the web only hours ago is a paper detailing the how and why of a proposed “Bitcoin 2”. The authors, and many in the Bitcoin community, are concerned that changes will be made to the Bitcoin protocol turning it into “a distributed PayPal instead of a censorship resistant currency”.  

The paper discusses inherent weaknesses and changes to the protocol currently being discussed which could see users lose the option of anonymity or see miners concentrate into larger centres of control. The proposed “Bitcoin 2″ aims to increase Bitcoin’s resistance to centralization, censorship and political control and prevent it from being “absorbed by the established financial and regulatory environment.”

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Bitcoin Foundation Comments on Liberty Reserve Special Measures

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After shutdown of Liberty Reserve in May this year FinCEN proposed an “Imposition of Special Measure Against Liberty Reserve S.A. as a Financial Institution of Primary Money Laundering Concern”. The primary purpose of the ‘Special Measure’ being to cut Liberty Reserve off from the banking system.

FinCEN noted Liberty Reserve’s irrevocable transactions and lack of ID verification as evidence that “Liberty Reserve’s system is structured so as to facilitate money laundering and other criminal activity,” these comments worried the digital currency community and was likely what scarred off many of their banking partners.

On the 19th, the Bitcoin Foundation responded to FinCEN’s proposed special measure urging them to clarify that not all virtual currency transactions are inherently suspect.

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The e-gold story

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As Bitcoin continues its move towards the mainstream and Bitcoin businesses experience rocky relations with bankers and regulators, now is a good time to look at previous leaders in the digital currency world.

In the late 90’s and early 2000’s, e-gold was the industry leader.  As one of the world’s first successful online payment systems e-gold was a pioneer using many now standard practices such as SSL connections and API’s.  Brought down by a run in with regulators in 2008 the e-gold story is required reading for anyone involved in the digital currency world.

Sent in by Wikipedia editor Cadwallader, below is a thoroug review of the e-gold story.

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Can you trust an anonymously run business??

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US authorities have begun to enforce regulation on Bitcoin businesses making some Bitcoin related services illegal or simply not feasible.  Regulators have also expressed, and demonstrated, a willingness to prosecute off-shore financial businesses who do not adhere to their policies.

In this situation many Bitcoin businesses are faced with a choice, comply or go underground. But how can you run a business ‘underground’? How do you establish trust when there is no authority to give you a stamp of approval? How do you gain customers when your users know that you can simply disappear with their money?

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Liberty Reserve’s irreversibility was a legitimate and important service

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One of the more worrying aspects of the Liberty Reserve takedown was the constant insistence by US authorities that Liberty Reserve was only a money laundering service with no legitimate use.

Regulators were very concerned with LR’s anonymity which was a serious draw to the service for many people. But what was likely an even bigger factor in LR’s success was its irreversible payments. This is a very important feature for businesses that are at risk of payment fraud or chargebacks, and it’s a feature that is not available in the current regulated financial system.

Jon Matonis via PaymentsSource

In the case of Liberty Reserve, It’s not the individual infractions committed by clients of Liberty Reserve that are worrisome to the regulators, it’s the fact that a semi-reliable platform for private payments existed in the first place.

Liberty Reserve provided a service that had a true market demand from legitimate business sectors and from non-criminals, notwithstanding the government’s claim that “virtually all” its business was illicit. If banks and traditional financial institutions still respected basic client privacy and facilitated some form of digital payments that did not always involve harmful reversibility to the merchants, then companies like Liberty Reserve wouldn’t even be necessary.

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CoinDesk: Bitcoin exchanges need to grow up fast

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CoinDesk does an excellent job of pointing out the very different standards that entrenched TBTF financial institutions are held to as compared to those outside the system. Those choosing to operate alternative financial businesses are going to face many challenges. In fact, if you’re considering running a digital currency exchange you have only 3 choices…

  1. Find some damn good security experts and operate anonymously
  2. Forget about privacy for yourself or your customers and jump through any and all regulatory hoops
  3. Go to jail

Indeed it is time for digital currency businesses to grow up and make some tough choices.

Via CoinDesk

The relationship between big banks and their regulators is pretty dubious, to put it mildly. But expecting federal investigators to give Bitcoin exchanges the same free ride is childishly naive.

When HSBC got caught laundering money for drug dealers and terrorists, it promised regulators it would improve controls.

It didn’t.

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