SHARING AMERICA'S TECH NEWS FROM THE VALLEY TO THE ALLEY
On paper, the popular virtual currency Bitcoin is the type of entity that traditionally would hire a powerful K Street lobbying firm to protect its interests in Washington, especially in the cutthroat world of financial regulations.
But Bitcoin doesn’t exist on paper
With no public founder or organization behind it, Bitcoin isn’t in a strong position to defend itself from government scrutiny or lobby Congress on critical issues including privacy.
As a fully decentralized network, the closest thing Bitcoin has to formal representatives are exchanges that facilitate the buying and selling of Bitcoins against other currency, and trade associations that represent them. Those groups are just learning the ropes.
“For most of us, the concept of lobbying and the Washington machine is a little bit daunting,” said Stan Stalnaker, founding member of the Digital Asset Transfer Authority, or DATA, a new trade association of digital currencies and the businesses interested in them.
“Most of these people are Silicon Valley technologists, and we kind of live in the code,” Stalnaker said. “The concept of D.C.’s power structure, which is a little intangible, is a little bit hard to figure out from the outside.”
That power structure is clearly skeptical of Bitcoin.
Already, the Senate Homeland Security and Government Affairs Committee has asked how regulators and law enforcement officials plan to oversee Bitcoin. The Government Accountability Office is suggesting that the IRS develop guidance on the currency. New York Financial Services Superintendent Benjamin Lawsky sent subpoenas to 22 Bitcoin businesses. A California regulator sent the Bitcoin Foundation a letter to cease and desist conducting business. And the SEC is pursuing a Bitcoin Ponzi scheme.
The Senate letter expressed concern for possible criminal uses of virtual currencies saying that the “near anonymous and decentralized nature” had “attracted criminals who value few things more than being allowed to operate in the shadows.”
Lawsky cited similar worries. “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,” he said in a statement.
Like Napster, which faced angry artists and record labels, there’s an entrenched and powerful industry skeptical of the newcomer. “The concern within the Bitcoin community is that Bitcoin is seen as a threat by the existing financial system,” said Adam B. Levine, editor-in-chief of Let’s Talk Bitcoin!
Most experts in the Bitcoin community foresee early efforts focusing on education and attribute most of the skepticism to a lack of understanding of the currency.
“There is lobbying that’s just started up within the Bitcoin community itself, pushing toward a more nuanced understanding in the legislature,” Levine said.
That Bitcoin-related entities aren’t immediately storming Capitol Hill isn’t unusual. Young technology companies like Google, Facebook and Twitter waited several years before jumping into the D.C. lobbying world. But those companies were seen as welcome additions to Washington and the political universe.
Those companies also were able to immediately pour significant resources into their operations. Money, somewhat ironically for a currency, is a problem for Bitcoin advocates.
“Widespread relationship building will become very important to DATA, and clearly that would include lobbyists, but that requires funding, and all of these companies are very small,” Stalnaker said. “They’re mostly start-ups and the business model is still being developed.”
Put into perspective, finance and credit card companies spent more than $36 million on lobbying last year; Goldman Sachs alone spent about $3.5 million.
The Bitcoin Foundation, a nonprofit organization that represents the currency’s interests, does say it has plans to lobby in the future, but would not confirm having any lobbyists on staff. Charles Hoskinson, director of the Bitcoin Education Project and chairman of the Bitcoin Foundation’s education committee, said Bitcoin could look to some large companies to lobby on its behalf.
For instance, Bitcoin’s capability to allow payment by cellphone means anyone who controls cellphone eco systems, like Apple or Microsoft, could have an incentive for the technology of Bitcoin to be around.
“I anticipate Google will be invested in the next 24 months because they’ve already invested in Bitcoin,” Hoskinson said. “It looks like they’re trying to have Google wallet be a central hub where you can deposit dollars or Bitcoins or any currency you want, so Google has an incentive for the technology of Bitcoin to be the least regulated as possible.”
Financial and banking regulations are the most pressing policy problems Bitcoin faces. Money transmitter laws require that money transmission businesses register individually in almost every state, but small Bitcoin exchanges don’t necessarily have the resources to secure legal compliance in each state.
In addition, Know Your Customer regulation requires financial institutions to have extensive information about the customer they’re working with. This is also a problem for Bitcoin exchanges, because it would require individual exchanges to collect personal information from users.
Tax law, whether regulations or any congressional legislation, is likely to hit Bitcoin the next few years, Hoskinson said. Because there isn’t a middle man, Bitcoin presents challenges similar to cash. The government doesn’t know how much money is made off of transfers using it, making collecting income tax more difficult.
Privacy rights are another key issue. Bitcoin is a pseudo-anonymous currency, in that while transactions are documented, they are not tethered to a person’s identity. When money is digitized, the government knows about every purchase. Hoskinson says there is talk among lawmakers of requiring identities to be attached to the transactions, and while neither the Bitcoin Foundation nor DATA has taken a stance on anonymity, Hoskinson says no one in the Bitcoin community wants people to be forced to tether their identity to their Bitcoin transactions.
So the Bitcoin community may be on its own when it comes to privacy.
“[Google and cellphone companies] would probably be big proponents of allowing the technology to exist but not necessarily the biggest proponents in the world about the privacy rights,” Hoskinson said.
Thank you, TiA