Bitcoin – The Dark Side of the Coin

Edited by Vani Rao

Bitcoin Foundation VC faces Federal charges for money laundering

Time and again, Bitcoin has managed to stay in the news for reaching new milestones, much to the chagrin of other alternative currencies as well as financial regulatory authorities looking to put the brakes to its speedy gain of popularity. And this time, Federal authorities did find a major chink, so to speak, which is expected to hit hard the adoption and usage of Bitcoin as a virtual currency.

shutterstock_90620953The dark side of the Bitcoin surfaced when Charlie Shrem, Vice Chairman of US-based Bitcoin Foundation, was charged by federal prosecutors on 26 January 2014 with conspiring to launder more than $1 million of Bitcoins for the illicit online bazaar Silk Road. This has dealt a huge blow to Bitcoin Foundation, which lobbies on behalf of the digital currency. What’s more, the federal charges have landed Shrem, who is also the CEO of BitInstant, a Bitcoin exchange company, in a major soup. One may recall that BitInstant attracted investments from the famous Winklevoss brothers, two of Bitcoin’s biggest backers. The recent development also acts as a major roadblock to BitInstant’s plans to widen the Bitcoin ownership while allowing people to buy the digital currency in over 700,000 locations.

Ironically, Bitcoin Foundation has been pushing for greater acceptance of the virtual currency in Washington. It has also testified before the Senate in 2013 to dispel myths that the currency is linked to organized crime.

Silk Road Connection

In a parallel development, Robert M. Faiella, an underground Bitcoin exchanger in the US who went by BTCKing, was accused last week of running an underground Bitcoin exchange on Silk Road from December 2011 to October 2013. Faiella was arrested for anonymously selling Bitcoins to drug buyers on the site. Both Faiella and Shrem could face prison for operating an unlicensed money transmitting business for earning substantial profits. Following the charges, Shrem has been asked to resign from Bitcoin Foundation.

Can Bitcoin’s Dented Image be Resurrected?

The arrest of Shrem and Faiella has resulted in Bitcoin’s value dropping by 6.4% at late evening on 27 January 2014, according to the CoinDesk Bitcoin Price Index. While Bitcoin’s linkage to organized crime has indeed dented its image, Bitcoin Foundation has shrugged off the issue and will continue to work towards standardizing the technological infrastructure for widespread adoption. In addition, the foundation will also work towards protecting the integrity of the Bitcoin protocol and promoting its social and economic benefits through public education and forums.

On a final note, since Bitcoin has no central issuing authority, and uses a public ledger to verify encrypted transactions, it has gained massive popularity with merchants in recent times. The New York Department of Financial Services is beginning an inquiry in the coming week to determine how to regulate virtual currencies. However, the governments of various nations are taking a cautious stance in the adoption of Bitcoin by the masses. After China’s central bank banned Bitcoin transactions, Russia’s top financial regulator is warning citizens against using crypto currencies, since they could be tied to money laundering and terrorist financing operations. On the other hand, there are many who believe that digital currencies are an important and valuable new technology that can help bring potentially valuable products to the marketplace.

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