In May 2013, Forbes editor Kashmir Hill undertook an experiment: to live on bitcoin, the cryptocurrency currently in vogue, for a week. Finding restaurants that accepted the digital coins as payment—and later, getting delivery through a service—was so time-consuming that she ended up losing five pounds.
But if she were to try that experiment again this year, she said this week, “It would be too easy.” In less than a year, bitcoin has entered the public consciousness. You can use it to pay for everything from coffee to tuition—at the University of Nicosia in Cyprus, at least—and to donate to the SPCA in British Columbia, Canada. (That’s in part because, as Hill noted, companies have realized that announcing that your business now accepts bitcoin is the “easiest and freest publicity ever.”) Sure, not everyone understands it, but most people have heard of it—and, it seems, have an opinion about it.
On Tuesday, Feb. 11, Future Tense—a partnership of Arizona State University, the New America Foundation, and Slate—convened a group of economists, technologists, government officials, and journalists at the New America office in Washington, D.C., to decrypt the biggest questions raised by digital currency: Will cryptocurrencies ever be accepted at Wal-Mart? How can we keep cryptocurrencies from facilitating black-market trade in weapons, child pornography, even people? How can the companies that are operating in good faith separate themselves from those who would tarnish the field? Bitcoin has had a bit of a rough week, with security problems and a diss from JP Morgan, which called it “vastly inferior” to fiat currency. But despite the cryptocurrency’s reputation for volatility, the community is taking the long view, and they are optimistic. At bitcoin conferences, “the kind of energy that exists in the room … is unbelievable. I have not seen it rivaled at any other type of conference,” said Carol R. Van Cleef, a partner at Manatt, Phelps & Phillips LLP.
While bitcoin received the most attention, most of the speakers agreed that in many ways, it was a stand-in for the broader conversation about cryptocurrency. For instance, Future Tense co-director Joel Garreau noted that bitcoin could be AltaVista—and the cryptocurrency equivalent of Google could be in its infancy or not even yet conceived. (Dogecoin: so potential?) Constance Choi, general counsel for Payward Inc., made a similar analogy: “We are where we were with the Internet in the early ‘90s.”
Just as key regulatory decisions and innovations in the early to mid-‘90s allowed people to hop online at 28.8 kbps, cryptocurrencies will require thoughtful incubation. Currently, relevant laws—especially about money laundering and money exchanges—are outdated and contradictory; policies vary between states and at the federal level. Some cryptocurrency advocates caution that the existing environment, and the slow pace of change, could rob the United States of the potential to be a leader in this nascent field. Van Cleef warned that taking too much time to create regulations will cost U.S. consumers financially as more exchanges move overseas.
Benjamin M. Lawsky, the superintendent of financial services for New York state, is heeding Cleef’s warning, trying to balance the need for regulation with the cryptocurrency field’s rapid growth. He and his team “are hoping that if we create a smart regulatory scheme,” they will be able to “separate the wheat from the chaff. The good firms who want to do this the right way, as opposed to those who want to do it the illicit way, will hopefully succeed.”
The “illicit way.” That comment illuminates bitcoin’s role as the bad boy in the popular imagination: it’s both alluring and frightening. “Before the advent of digital currencies … and this idea of anonymizing software like Tor, I never knew how to buy a kilo of cocaine,” said Jason Thomas, who is chief of innovation at Thomson Reuters Special Services. These negative associations about the purpose of bitcoin could hurt the currency not just with regulators, but with consumers.
Especially because some of the more potentially positive features—the anonymity of bitcoin, for instance—might be overstated. In fact, bitcoin is “more traceable than cash, theoretically,” said John Collins, a professional staff member at the Senate Homeland Security and Governmental Affairs Committee. That’s why Matthew D. Green of Johns Hopkins is working on ZeroCoin, which he hopes would be a completely anonymous cryptocurrency. That’s because anonymity isn’t just about crime: It would also allow people to donate to causes they may not want to be officially linked to, he said. (Sarah Jeong recently wrote about cryptocurrency and free speech for Future Tense.)
Beyond boosting charity donations, there could be other non-seedy purposes for bitcoin—even if they have slightly seedy origins. Barry Silbert, the founder of Bitcoin Investment Trust, pointed to the possible legalization of marijuana as one way of legitimizing cryptocurrency. If banks don’t want to deal with marijuana money, then bitcoin may be the answer for businesses taking part in the green rush.
But those positives aren’t enough to assuage the bitcoin skeptics. “You have to worry about protection of consumers. … and money laundering,” said Simon Johnson, a professor of management at MIT. (He was joined in his skepticism by fellow University of Michigan economist Justin Wolfers, who pronounced at one point that “bitcoin is backed by nothing but libertarian exuberance.”)
Later, Lawsky put the money laundering qualm into context: ” A lot more money has been laundered through large banks than through virtual currencies,” he said.
The last speaker of the day was Jennifer Shasky Calvery, the director of the Financial Crimes Enforcement Network at the Treasury Department. FinCEN, she says, must stay on top of money laundering – and she and her team have been working with several cryptocurrency-related companies to help them navigate current federal regulations. But ultimately, it’s up to the players in the system: Virtual currency exchanges must now decide whether they prefer “shadows, criminality, and the risk … of extinction” to a transparent system. She noted that she has received reports of suspicious activity from some cryptocurrency exchanges, which gives her hope.
“I think we can all agree that the stakes are too high for the industry and the government to allow cryptocurrencies to be used by bad actors,” she said.
To watch the full event or individual panels, visit the New America Foundation website. Also on Future Tense:
- “Are Bitcoins Making Money Laundering Easier? Bitcoins are sexy, but cash is still king,” by Katherine Mangu-Ward
- “The Paperless Economy: How bitcoin can and should beat governments at their own game,” by Miles Kimball
- “Financial Planning Site Mint Will Help You Keep Track of Your Bitcoins,” by Lily Hay Newman
- “Is Bitcoin Free Speech? Cryptocurrency can both enhance and undermine American democracy,” by Sarah Jeong
- “Give Me All Your Bitcoins: Credit card companies are one of our best defenses against financial crimes. But cryptocurrencies change everything,” by Josephine Wolff
- “Is Accepting Bitcoin Just a Publicity Stunt for Companies?” by Ariel Bogle