Bitcoin as free speech? Regulating cryptocurrency has …

Coming soon to a campaign treasury near you.

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On Feb. 11, Future Tensea partnership of Slate, the New America Foundation, and Arizona State Universitywill host an event on cryptocurrencies at the New America office in Washington, D.C. For more information and to watch the webcast, visit the New America website.

Charlie Shrem was an early adopter of bitcoin, a decentralized peer-to-peer virtual currency built around cryptography. By 2011 he co-founded BitInstant, a service through which users could exchange government-backed currency to bitcoin and vice versa. Considered one of the big faces of bitcoin, Shrem naturally became the vice president of the Bitcoin Foundation, the nonprofit organization that standardizes, protects, and promotes the use of Bitcoin.

Charlie Shrem was arrested on Jan. 26, but the wheels had already begun to turn on Jan. 24, when a sealed criminal complaint was filed in United States of America v. Robert M. Faiella, a/k/a BTCKing, and Charlie Shrem. The criminal complaint is centered around BTCKings activities on the Silk Road, a Tor-hidden online marketplace for drugs and other illicit goods that was shut down last year. Shrem, who allegedly helped BTCKing launder drug money, is no kingpin, not even if you take the government at its word. Yet the Department of Justice was oddly smug in its press release, taking pains to include the phrase Ceo of Bitcoin Exchange Company in the title. This arrest wasnt just about drugs. By arresting a vice president of the Bitcoin Foundation, the Department of Justice was firing a warning shot for the entire bitcoin community.

The criminal complaint in U.S. v. Ulbricht (otherwise known as the Dread Pirate Roberts case) had included this curious line: Bitcoins are not illegal in and of themselves and have known legitimate uses. That lineindeed, most of the description of bitcoinis repeated in the Shrem complaint. At the time of Ulbrichts arrest, it could have been understood as a sign that the government recognized that bitcoins Wild West days were over. After all, many of the exchanges had assented to regulation by the Financial Crimes Enforcement Network (a federal agency under the Department of the Treasury), thus launching the currency into mainstream respectability.

Now it seems that the government has merely shifted its focus. It is no longer concerned about whether bitcoin in itself is illegal: It is concerned with its capacity for anonymous, hidden payments. In other words, money laundering, as defined by 18 U.S.C. 1956a charge levied in both the Shrem and Ulbricht cases. It was also used to charge defendants in the Liberty Reserve case (which Ill describe further down), a case that might be a blueprint for things to come.

Transactional freedom is not synonymous with money laundering, no more than bitcoin should be synonymous with anonymity. (In fact, the open-ledger design of bitcoin doesnt guarantee privacy. In response to such concerns, innovations like Matthew Greens Zerocoin and Cody Wilson and Amir Taakis Dark Wallet have focused on preserving users privacy.) As the U.S. government ramps up its focus on money laundering through digital means, it is worth piercing through the concept of what money laundering actually is, and re-examining why we should care about anonymous payments.

In the wake of the diplomatic cables leak in 2010, members of the United States government convinced MasterCard, Visa, PayPal, and other payment processors to voluntarily block donations to WikiLeaks. Bitcoin had barely celebrated its one-year anniversary, but many early adopters had already spotted the potential to fund WikiLeaks through the decentralized, borderless currency. But bitcoins pseudonymous founder, Satoshi Nakamoto, vehemently opposed this use of bitcoin, because he was concerned that WikiLeaks controversy would rebound disastrously on bitcoin. WikiLeaks refrained from accepting bitcoin donations until Satoshi Nakamoto disappeared in the spring of 2011. Today WikiLeaks reports that the majority of its funding comes from bitcoin and other cryptocurrencies, even though the financial blockade has since partially lifted.

Cryptocurrency is an appealing choice for prospective WikiLeaks donors. Not only does it bypass the fees, restrictions, and potential seizures that third parties might impose on these transactions; it can also help obscure the donors connection to an organization that her own government may be hostile toward. Of course, anonymity has never been a prominent design feature of bitcoin, but mixing services allow users to anonymize payments, and therefore offer possibilities for individuals to materially support unpopular causes without fear of government reprisal.

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Bitcoin as free speech? Regulating cryptocurrency has ...