Tag Archives: Senator Tom Carper

Senate Committee Listens to Bitcoin Experts, Expresses Open-Mindedness

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Expert Witnesses Ask Government to Enable Innovation

Today, a select group of U.S. officials and expert witnesses convened in Washington to discuss the current challenges facing law enforcement and regulatory agencies before the U.S. Senate Committee on Homeland Security and Governmental Affairs, in a hearing called “Beyond Silk Road: Potential Risks, Threats, and Promises of Virtual Currencies”.

Senator Tom Carper, a Democrat from Delaware and Chairman of the Homeland Security and Governmental Affairs Committee, presided over the hearing.

 Senate Committee Hearing Patrick Murck Bitcoin Foundation

Bitcoin Like the Early Internet

Senator Carper opened his first question by comparing Bitcoin and digital currencies to the early days of the Internet. When the Internet was first growing in popularity, a lot of people jumped to concerns about cyber crimes, consumer protection, and privacy. But no one, at the time, could have imagined some of the achievements, from Google search to YouTube videos to connecting the world through social networks. Sen. Carper asked the first panel to comment on this comparison.

The panel, composed of representatives from FinCEN, the Attorney General, and the Secret Service, called the comparison relevant. There is a lot of innovation that can come from digital currencies. Governmental bodies need to stop crimes without stifling progress.

“We want to operate in a way that does not hinder innovation,” said Jennifer Shasky Calvery, Director of FinCEN, It’s important to “strike a balance,” she said.

Mythili Raman, Assistant Attorney General for the Criminal Division, added “virtual currency services in and of themselves are not illegal, so long as they obey laws.” She said that her group recognizes that there are legitimate uses of digital currency services.


Who Moves Faster? Criminals or Law Enforcement

Senator Carper also asked the panel how equipped and capable they felt in chasing digital currency criminals. “How confident are you that we will be able to deal with the potential criminal behavior in virtual currencies?” he asked. And, “What role does the legislative body have to play to make sure you have the resources you need?”

Edward Lowery of the Secret Service explained that law enforcement agencies have been successful in stopping virtual currency related crime. The Secret Service, in particular, has investigated many first-of-their-kind criminal activities.

Liberty reserve was called out as the largest money laundering case ever. Silk Road was mentioned as well.

Lowery made an important clarification that, although Bitcoin is in the spotlight, the predominant Eastern European cyber-criminals have not gravitated toward Bitcoin, but rather toward digital currency in locales with less aggressive laws.

Raman also asserted confidence. “We’re nimble and aggressive enough to keep up with the threat,” she said. But added that they are not ignorant to the challenges such as anonymity, working with other countries who have differing degrees of the law, and so on.

Bitcoin for Good

With so much emphasis on financial crimes, Sen. Carper asked for examples where digital currency has worked for the good?

Some of the examples provided included serving the unbanked or underbanked in our society through structures like stored value cards. Also online banking was called out as a way to make business more efficient and therefore better for the consumer.

Raman stated that there is “plenty of opportunity for virtual currency to operate within existing laws.” With respect to addressing financial crimes, we just need to “keep pace” and “remain vigilant.”

Bitcoin Experts Encourage Government to Build Supportive Environment for Innovation

In the second panel, Bitcoin experts from the Bitcoin Foundation, Circle, and George Mason University commented on what was needed to encourage innovation and consumer protectionism.

Patrick Murck, General Counsel for the Bitcoin Foundation, gave an overview of Bitcoin in his opening statement, calling it “like email for money” and “programmable cash.” He emphasized that while we think about Bitcoin as solely a currency now, it could have wide-spread benefits to non-financial services applications like identity verification and property management.

Murck said that Bitcoin can reduce exploitation of underbanked people, even in the U.S. where financial exclusion is a problem. “Access to financial services directly correlates to increases in dignity and self-liberation,” said Murck. Bitcoin can help move people from being unconnected to connected via the digital economy.

Law enforcement may need to develop new methodologies, Murck said while at the same time complimenting the examples of success in adapting to increasingly digital and connected world.

Murck said that the Bitcoin Foundation is “looking beyond the Silk Road,” adding that the markets (the price of Bitcoin) expressed relief when the Silk Road owner and operator was arrested.

Related: The Fall of Silk Road


Who is Bitcoin?

There was some confusion expressed by Sen. Carper about who originally created Bitcoin and who manages it.

“It wasn’t Al Gore, was it?” joked Carper, to which Jerry Brito from the George Mason University Mercatus Center jested back, “he hasn’t denied it!”

Fundamentally, Sen. Carper wanted to know what the risk was in that the original author of Bitcoin, Satoshi Nakimoto, has remained anonymous.

Mr. Murck explained that the Bitcoin Foundation exists to serve the Bitcoin ecosystem, but there is no Bitcoin company.

Bitcoin is decentralized and therefore is inherently transparent, making it difficult for sustained illicit behavior.

While everyone is grateful for the work of Satoshi Nakimoto, said Mr. Murck, more than half of the original codebase has been rewritten. Mr. Brito added that because the protocol is open-source, some of the top technical minds have scrutinized it.

“At the moment, whoever Satoshi is seems largely irrelevant.” said Mr. Murck, adding that maybe that was by design.

Jeremy Allaire adds the Entrepreneur’s Perspective

Jeremy Allaire, veteran entrepreneur and CEO of the newly formed Circle Internet Financial, provided a perspective on the challenges of growing new Bitcoin businesses.

Senate Committee Hearing Jeremy Allaire Circle

Mr. Allaire confidently asserted that digital currency, and Bitcoin in particular has the potential to decrease business costs, decrease fraud risk, and increase consumer privacy. In short, it’s a game-changer.

He added, “it’s important that federal authorities understand how [Bitcoin] works.”

Mr. Allaire explained that the Internet had been at the center of global innovation in recent decades, especially thanks to open platforms, but financial services have been largely insulated until now. “The same level of advancement can be achieved with Bitcoin,” said Allaire.

For his part, Mr. Allaire’s new high profile startup, Circle, intends to fully comply with all applicable laws, has registered with FinCEN and is applying for licenses with states.

Read: Circle, A High Profile Bitcoin Startup, Raises $9M with Seasoned Team

Mr. Allaire suggested that there are risks of not moving fast enough as regulators. While US regulators and law enforncement are justifyable focused on bad actors, there is “also a risk if government doesn’t enable new startups to drive financial services innovation.” The US could fall behind on innovation, he said, explaining that the largest Bitcoin exchanges are now in China and Europe.

Regulatory Tools are Sufficient

It seemed like the areas of greatest agreement were three-fold.

First, everyone on the panel agreed that Bitcoin has the potential for incredible innovation. Second, regulatory bodies must understand the digital currency in a swift manner. And third, the existing regulatory tools are sufficient to govern the use of Bitcoin.

Mr. Murck gave an example of how businesses that even have the word “Bitcoin” in their description are getting bank account applications rejected due to fear and uncertainty about a currency that is only 4 years old.

Mr. Brito compared Bitcoin to 3D printing, saying that 3D printing can be used for good, but it can also be used to create illicit guns. We must understand that the positives outweigh the risks.

With respect to the financial services regulation as it exists, Mr. Allaire acknowledged that the “bar needs to be higher for financial services in the U.S.” He compared the creation of a Bitcoin exchange to a photo sharing app like Instagram. “It’s not appropriate for it to be as easy for financial services,” said Allaire, explaining that Circle raised the appropriate capital upon launch to secure licenses and hire experts.

Mr. Murck made reference to the reciprocity framework in the EU, offering that legislators could look at that as a model. This framework allows businesses to more swiftly get licensed in an EU country if they have been licensed by at least one EU country already.


Wrapping Up: Quoting Einstein and Mrs. Einstein

In closing the two-panel session, Senator Tom Carper quoted Albert Einstein and his wife

Einstein was known to have said, “in adversity lies opportunity,” which Sen. Carper felt was an apt analogy to the current state of Bitcoin.

With respect to his own understanding of the digital currency, he quoted Mrs. Einstein who, when asked of her familiarity with her husband’s work on relativity, responded, “I understand the words, but not the sentences.”

Senator Carper said that he is trying to understand and wants to find solutions that minimize the bad while maximizing the good.

You can watch the 2.5 hour session in entirety on C-SPAN.

The price of Bitcoin rose sharply to $650 following the conclusion of this public hearing.

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Silk Road 2.0 Launches, Government Authorities and Users React

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Silk Road is Reborn With Stronger Security Measures, Senate Responds Immediately

A so-called Silk Road 2.0 has been launched, just one month after the original Silk Road was seized and its operator, Ross William Ulbricht, was arrested. Silk Road was an anonymous online marketplace that mainly enabled the buying and selling of drugs for Bitcoin. Over 2 years, the marketplace generated $1.2 billion in transaction revenue.

Read: The Fall of Silk Road

“It is with great joy that I announce the next chapter of our journey. Silk Road has risen from the ashes, and is now ready and waiting for you all to return home,” wrote a user in a launch announcement on Reddit. “Over the last 4 weeks, we have implemented a complete security overhaul. This overhaul marks the dawn of a brand new era for hidden services.”

In response to the unearthing of a new Senator Tom Carper (D-Del.), Chairman of the Senate Homeland Security and Governmental Affairs Committee, released a statement on the launch of the Silk Road 2.0:

This new website – launched barely a month after Federal agents shut down the original Silk Road — underscores the inescapable reality that technology is dynamic and ever-evolving and that government policy needs to adapt accordingly. Rather than play ‘whack-a-mole’ with the latest website,  currency, or other method criminals are using in an effort to evade the law, we need to develop thoughtful, nimble and sensible federal policies that protect the public without stifling innovation and economic growth. Our committee intends to have that conversation – among others – at our hearing this month on virtual currency.

Chairman Carper and Dr. Coburn’s committee on Homeland Security and Governmental Affairs began a formal inquiry into virtual currencies in April 2013. In August 2013 Chairman Carper and Dr. Coburn wrote to the Departments of Treasury, Homeland Security, and Justice, as well as the Securities and Exchange Commission, Commodities Futures Trading Commission, and the Federal Reserve.

Here’s a screenshot of the homepage. Note the tongue-and-cheek use of the Federal seizure notice.

Silk Road 2.0 Homepage

Silk Road 2.0 uses the Tor protocol to provide anonymous access to the site. That’s why you see the .onion at the end of the URL.

Reaction from Users: Excitement and Caution

The reaction for users of the original Silk Road is best understood by reading Reddit threads on the topic.

Immediately after the demise of the original Silk Road, users on Reddit began discussing the development of a Silk Road 2.0, one that would be more protected from the pitfalls that caused the collapse of the original marketplace. Users discussed having stricter requirements around using Tor, 2-factor authentication, and Bitcoin laundering.

With the launch of Silk Road, some users are jubilant. “DPR is dead, long live DPR!” wrote one Reddit user. DPR refers to the Dread Pirate Roberts, the alias used by Ulbricht during his reign over the original Silk Road.

Other users are cautious. “Does anyone know if it tumbles coins?” asked one user in a forum. Tumbling coins refers to the process of laundering Bitcoin. Since every Bitcoin transaction is stored in a public ledger, you have to run Bitcoin through a series of wallets before cashing them out to distance yourself from the original transaction. “This is important. Bitcoins can be tracked,” replied one user. Another added, “Bitcoinfog. Don’t trust others to tumble for you.” Bitcoinfog is a Bitcoin laundering service that takes a 1-3% fee.

Some users went right to conspiracy theory, suggesting that the new site was a honeypot, or trap set by the federal authorities. Here was one elaborate idea:

My prediction – Ulbricht was offered a deal where if he cooperated, he’d get a reduced sentence. Some # of the former admins were ID’d and flipped as well. The new PGP key addition is to be able to more closely tie a specific person to an online account making for easier convictions.

They’ll let this run for 1-2yrs, logging and tracking everything, maybe making incidental arrests where they can get away with it, without letting on that the site is compromised. At the end of the run, they’ll coordinate a massive global arrest of everyone involved to prevent tipoffs, then we’ll see a big news story after the fact bragging about the operation and how they pulled it off.

Impact to Bitcoin

There was no noticeable negative impact to Bitcoin following this announcement. In fact, the price of Bitcoin continued to soar past $300 in all-time high this week.

But longer term, if Bitcoin is part and parcel to anonymous drug marketplaces and anti-government sentiment, the digital could come under further regulatory scrutiny.

Silk Road 2.0 Launch Announcement

In an extensive post, a user on Reddit announced the launch of Silk Road 2.0 with the title “We rise again” which we have syndicated here.

Dear Community

It is with great joy that I announce the next chapter of our journey. Silk Road has risen from the ashes, and is now ready and waiting for you all to return home: http://silkroad6ownowfk.onion

Welcome back to freedom.

Over the last 4 weeks, we have implemented a complete security overhaul. This overhaul marks the dawn of a brand new era for hidden services, and it would not have been possible without the patient support of this community. So for waiting patiently; for offering encouragement; for keeping the community spirit alive in Silk Road’s temporary absence; for all of this and more, each of you has my deepest and most sincere gratitude.

It took the FBI two and a half years to do what they did. Divide, conquer and eliminate was their strategy… but four weeks of temporary silence is all they got. And as our resilient community bounces back even stronger than ever before, never forget that they can only ever seize assets – they can never arrest our spirit, our ideas or our passion, unless we let them.

We will not let them.

Please enjoy the marketplace, but be aware – although the site is both functional and stable, we are still in the early phases of development. Despite us having worked through any major bugs that might prevent full-functionality or compromise security, you may notice minor bugs. Please bring these to our attention. More so, even though security has been our top priority over the last few weeks, we encourage you to continue reporting both theoretical and even proven exploits. You will be rewarded for doing so.

Please also be aware, that because we expect a large surge in Bitcoin deposits when we open up our transaction system, there may be delays with account withdrawals and deposits initially. These delays should become less as the marketplace settles, but at least for the earlier stages, please do not report coins as missing unless 12 hours or more have elapsed.

You might also notice that the re-launched marketplace lacks a number of features from the original marketplace – we will be working hard over the next few weeks to implement improvements, and we continue to study each and every post made in the Feature Requests forum. Your opinions matter to us, and we will not neglect the thoughts of the community.

We are proud to announce though, that our new security measures include emergency strategies to ensure that, in the event of Silk Road’s demise once more, no member will lose their coins. We have learned hard lessons from the unfortunate events of recent weeks, and the man hours that have gone into this new release are phenomenal. We look forward to helping Silk Road grow on the back of these lessons, and look forward to helping this community flourish even more beautifully than before.

We have already committed a large percentage of our revenues to good causes, charities, and organizations who support our cause or have similar interests. We are also contributing back to the Tor network with our relay fund.

But without a doubt, the re-launch of our beloved marketplace will create a ripple throughout the world’s various media channels, and not all of these channels will see our cause as positive. You don’t need telling that there are very powerful media outlets controlled by various world governments, who will seek to muddy our name and reputation. But it is up to us to embrace this newfound exposure in mainstream media, rather than hide from it – and for this reason, I have chosen to speak briefly with a number of journalists who I am confident will report this memorable day without the pull of governmental strings. I have also conducted an exclusive interview with Mashable. In light of the FBI’s recent ‘victory’, it would be impossible for Silk Road to stay off the radar – it is therefore our responsibility to make sure that our mark on the radar is the right one. So I would advise you all to prepare yourself for a spike in media attention, and to review your personal security measures to ensure your anonymity is protected.

We will be hiring staff to handle Silk Road’s marketing shortly – formal offers may be made to members who have already demonstrated their marketing prowess.

And it goes without saying that if you are in touch with anybody who may not be aware that Silk Road has risen once more, now is the time to spread the word. Open communication with your old suppliers and customers; let this wonderful news be taken to all corners of the Tor network and beyond.

Let us never forget this recent hurdle in our battle for freedom. But let us not allow it to stop our fight, either – it is now time to simply pick ourselves back up, dust ourselves off, and continue fighting this revolution like we’ve never fought it before.

I’m proud to have you all at my side.

Yours Loyally

Dread Pirate Roberts

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