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Charlie Shrem, the digital currency entrepreneur indicted on money laundering charges, has resigned as vice chairman of the Bitcoin Foundation.
January 28 -
Authorities arrested the former CEO of a defunct Bitcoin exchange company on charges of conspiring to launder more than $1 million for users of the online drug market Silk Road.
January 27 -
Something resembling deposit insurance for virtual currencies may still be in the distant future. But a growing array of startups is attempting to offer Bitcoin users a similar layer of security to that enjoyed by bank depositors.
January 22
Benjamin Lawsky, a
"I don't know," the superintendent of the New York State Department of Financial Services said several times during an interview Wednesday, between panels at his hearing on whether to require special "
To some extent, Lawsky may have been playing it close to the vest, as his hearings were billed as a fact-finding mission. But his reticence was striking coming from one of the country's most active and assertive regulators, who gained national prominence by going after large banks on money laundering and consumer protection issues and breaking ranks with federal counterparts.
"We're studying Bitcoin," he told me. "It is a very steep learning curve."
Lawsky looked tired near the end of the second day of hearings. Over the previous 24 hours, he'd heard from virtual currency entrepreneurs and investors optimistic about the technology's prospects; law enforcement officials fearful about its potential to facilitate illegal activities; and a national merchant Overstock.com, represented by Executive Vice Chairman Jonathan Johnson which is accepting Bitcoin payments and plans to encourage its suppliers to do so, too.
The
Clearly, Lawsky had a lot to process. But it was also obvious he'd been thinking quite a bit about how to achieve his stated goal of preventing bad actors from exploiting virtual currencies while
During the interview, Lawsky explained why he thinks Bitcoin's privacy features are "probably compatible" with strong anti-money-laundering controls; why online payday lenders' business model could not survive in a Bitcoin world; and how he views the irreversibility of payments in this decentralized network. The transcript follows.
This first question is going to sound off topic but I assure you we're going to bring it back to the topic for today. Separate from looking at the virtual currency space, you've been dealing with
LAWSKY: It's a great question that I might want to think more about before hazarding an answer. We're studying Bitcoin, it is a very steep learning curve and I'd want to think carefully before I spoke about the technology or the advantages that could be potentially transposed. I'm not sure. Nothing comes to mind, but I'm sure if we spent more time on that tricky question I could give you
At the risk of leading the witness
No one is going to object.
[I was thinking of] the concept of a
But in your hypothetical, who would be pushing?
The customer, the accountholder, the consumer.
Oh, I see. Because the way the system works now, I go to a payday lender, online, I say, "OK, please send me $500," they then go to an
You're thinking it through more rigorously than I have. It was more the general concept of a payment that requires each and every time an affirmation by the customer, as opposed to the customer giving out the equivalent of a
I think it would be potentially extraordinarily disruptive to the payday lending industry. One could argue whether you want to be that disruptive. Remember their whole business model is, once they give you the $500, now they can keep taking these interest payments out of your account willy-nilly. And you're saying, set up a system where they would have to authorize each of those payments. That would totally turn on its head their business model. Because think about it: They wouldn't want to make a loan to someone knowing that to get paid back on their loan now they've got to keep coming to you to ask for authorization to take that money.
But, let me think about it more, but I see the argument.
When you have something like the
What they do within the Bitcoin ecosystem?
As opposed to just doing the know-your-customer and identity verification
At the point of exchange. The testimony we're hearing is primarily saying, "focus at the point of exchange. And once they're in all Bitcoin, there's nothing really to worry about, there's no threat to the system at all, until they go back to another point of exchange to come back out." I think there's an interesting question of whether, if you accept that that is the case now, whether if Bitcoin continues to develop, and becomes more mainstream, that will continue to be the case.
Now, who you should give the responsibility to of following what they do in the Bitcoin world? Very difficult technological question. I don't know enough to know, whether, for example, at the point of exchange, you could tell the exchanger, "you must also be responsible for where they go and what they do with their bitcoins." I don't know if technologically how that would work vis-à-vis the ledger. I'm just not smart enough to know if anyone can monitor the ledger at any time. I suspect they can if you're a programmer. But I don't know the answer.
In light of the
I thought you were going to ask, is there a concern that the government's going to have a back door into whatever system that ultimately does come out of this, and you have Big Brother watching over every little thing. And I don't know the answer to that so I'm glad you didn't ask it!
Is there room for anonymous transactions? I think I'll throw the question back to you. Can the existence of anonymous transactions be compatible with a robust [Bank Secrecy Act] AML system? In other words, if we all agree, and I don't think anyone disagrees, at least not around here, that it's important to make sure we're doing everything we can to have protections in place to prevent money laundering and all that comes with it, the question becomes, can you have that kind of system and also maintain some form of anonymity when you do these transactions to protect people's personal privacy?
It becomes a semantic question because you can have someone know your identity for purposes of BSA/AML, but not everybody know your identity. And so for all intents and purposes the consumer experience may feel, if we design it right, may feel anonymous. In other words, it would be nice if, when I go to Amazon and purchase whatever, I don't get 19 emails within five minutes that clearly prove to me that everything I do in terms of online purchases is being not only monitored closely but then the information is being sold to lots of other people online.
You can do a lot to protect people's financial privacy in that respect, in a way that doesn't compromise the need to have appropriate BSA/AML protections in place. So as I think it through, the two are probably compatible, though I don't think you could have a true BSA/AML rigorous program and not have at least, at some point in the chain, some real personal or identifying information being given. It's just the heart of know-your-customer.
What are your thoughts on the concept of
Good question. One of the questions I've wanted to ask in one of the panels and we may get to it today. I don't have an answer.
[Let's talk about] chargebacks. The fact that Bitcoin payments are
It has pluses and minuses. In a way it relates to the protection of people's data and I think people really like that part of it. But it can also be disruptive too. Certainly, on our lists of pros and cons I think [the inability to do] chargebacks can end up on both sides of the ledger. It depends who you ask in the chain.
Last question: Do you have any thoughts about the concept of a national platform shared among the states for licensing?
Like an
Yeah, but for money transmitters.
Not at the moment. We have to think that through. I think coordination between the states is great. It depends on how that platform is run and whether it's effective and has enough guardrails on it. It's not out of the question. I think we're a ways away from making those decisions.