STOCK MARKET WATCH -- Wednesday, 9 October 2013

[Demeter]

12. Could the Silk Road Closure be Good for Bitcoin?

http://www.newyorker.com/online/blogs/currency/2013/10/could-the-silk-road-closure-be-good-for-bitcoin.html?utm_source=tny&utm_medium=email&utm_campaign=weeklyemail&mbid=nl_Weekly%20%2812%29

By the time the F.B.I. shut down Silk Road—an online black market for illegal drugs, computer-hacking tools, and even contract killings earlier this week, the site had nearly a million registered users. The Web site refused all forms of payment except Bitcoin, a digital currency “designed to be as anonymous as cash,” according to a criminal complaint filed in the Southern District of New York against Ross Ulbricht, the site’s alleged creator and administrator. And at the time of the shutdown, Silk Road had processed sales totaling more than nine and a half million bitcoins—worth about 1.2 billion dollars at the time of the Ulbricht’s arrest in San Francisco on Tuesday, though the currency’s value has fluctuated widely.

Bitcoin first gained wide attention after a 2011 Gawker exposé of Silk Road named it as the drug bazaar’s currency of choice. That illicit association has dogged it ever since. In August, after the New York Department of Financial Services handed subpoenas to more than twenty Bitcoin companies, Benjamin Lawsky, state superintendent of financial services, wrote in a memo, “If virtual currencies remain a virtual Wild West for narcotraffickers and other criminals, that would not only threaten our country’s national security, but also the very existence of the virtual currency industry as a legitimate business enterprise.” The shutdown of Silk Road, then, and Ulbricht’s arrest, offer chance to move on. “It’s a watershed moment for Bitcoin,” Marco Santori, the chairman of the regulatory-affairs committee of the Bitcoin Foundation, a nonprofit advocacy group, told me. “Bitcoin’s P.R. problem, with which it has struggled for the last year or so, is being addressed in a very direct way.”

Bitcoin lacks a central authority. Indeed, the fact that it stands apart from governments and banks is one of its selling points for many users. And its user base is a hodgepodge of crypto-anarchist ideologues and pragmatic business owners, of hackers and investors whose reasons for using the currency often seem at cross purposes. In such an environment, all that is required for people to become representatives of the wider community “is for them simply to stand up and do it,” Adam Levine, editor-in-chief of Let’s Talk Bitcoin!, a podcast on the Bitcoin industry, told me recently. “And in the past, the people who have been doing it I’ve not been impressed by. I’ve felt like they have actually done damage.”

Increasingly, the Bitcoin Foundation serves as the respectable public face of the currency’s users. In August, Santori and other members met with representatives of several federal agencies in Washington, including high-level staffers from the F.D.I.C., the I.R.S., the Federal Reserve, the F.B.I., the Drug Enforcement Administration, and the Department of Homeland Security. At the meeting, the Bitcoin Foundation leaders hoped to assuage federal officials’s fears and doubts about Bitcoin’s nature and use.

For entrepreneurs and investors, the risks of Bitcoin are obvious. But so are the potential rewards of a digital currency that can serve as an easy-to-use payment system. Coinbase, a Bitcoin trading platform, has raised more than six million dollars in investments since its founding in June of last year; according to its Web site, it has two hundred and eighty-five thousand users and processes a hundred and eighty-three thousand transactions per month.

“It seems inevitable that regulation will be a part of mainstream legitimacy for Bitcoin,” Levine said. “The thought is, even if it changes it for the worse a little bit, it will gain much more in legitimacy.”

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