 So one of the questions on the last panel was what are the use cases for Bitcoin that cash That you can't use cash for currently and that's basically as Catherine said our our panel one of the big use cases for for Bitcoin that really helped propel it into Kind of like public sphere and gave it value was its use on Silk Road a A online marketplace for buying Whatever kind of a drug you could imagine I think that's how Gauker Described it when they first introduced the wider world to it. It also had Kind of hacking exploits that you could buy there So Bitcoin has been you know, it's useful for for buying drugs most recently more recently after the target credit cards were hacked The stolen credit card information was available on marketplaces for Bitcoin and Litecoin As well as the Western Union money transfers So our panel is going to talk about the the dark side of Bitcoin. We have kind of two people on the legal Former policy side and then two people that are technologists Matt is very very much Technologist on the end from Johns Hopkins Then we have Chip and we have Jim who were with the Department of Treasury you know fighting fighting financial crimes and Creating policy to help present prevent it and then we have Jason who's with Thompson Reuters and Is doing a lot of reports on these kinds of tools So hopefully we can shed some light on the dark side of Bitcoin and cryptocurrencies. So I wanted to start by saying, you know Silk Road got taken down. We're hearing all the time right now about Bitcoin crimes that are being prosecuted some High-volume Bitcoin exchangers in Florida who are allegedly violating anti-money laundering laws in the state The instant CEO and a silk road money exchanger was taken down is the dark web as scary as it's been presented or you know our Is law enforcement on top of it and chip I'm gonna or Jim. I'm gonna have you start with that one That's not an easy one to start with but I guess in in context the very aspect of what we're hearing and in terms of law enforcement investigations and instances of illicit activity Are in part a representative of the fact that more people are using Bitcoin any way that you can move funds or Intermediate value is something that can be abused by criminals and it is a struggle by law enforcement to Keep on top of much less get ahead of those types of usage of any means of value Intermediation but some of the aspects that Really tie into Bitcoin impose additional challenges are of course first the aspect and Commerce moving into the internet age Right were it not for the fact that more people are shopping online. You wouldn't have as much demand as you have for ways to move funds Online it's moved away from the physical connection between people So all the kinds of ways that you can move money in electronic form are more attractive than ever before But but some of the the fundamental characteristics of Bitcoin also pose challenge one of course is that it's not bound by a jurisdiction The other is that it's not Run through traditionally very Heavily regulated financial institutions financial industry is one of the most closely regulated many different components In a fundamental aspect of that is being a gatekeeper, right? That's why there there's so much focus on entities like Mt. Gox if Bitcoin ever has success It has to build from more of a niche the same way that your metro card Only operates in a very limited Circle in other places like Hong Kong the Oyster card has opened up to all kinds of local Commerce within Hong Kong, but that's because it is accepted in other arenas. There's ways to get funds in and out That's why the exchangers are so important there But again one of the other fundamental characteristics of Bitcoin the fact that there's no name associated with the payment That's actually a fundamental premise of what is required and has been a major push in financial regulation Efforts to fight money laundering in particular terrorism that you must include the name of the originator and the beneficiary of that payment Something that's very different when we talk about anonymity in that context is very different from the concept of traceability But that's a big difference for law enforcement and following the money It seems like a lot of the exchanges have kind of it seems like they are scared of regulators exchanges have started asking for identification Mt. Gox did after they After department of Homeland Security cracked down on them here. I mean, is it still a big? Is that still a big problem? Are we starting to solve that that gateway issue and are people becoming identified as they're coming into the Bitcoin in Into the Bitcoin world. It's still somewhat ad hoc, right? We don't have Significant gatekeepers here. We don't have exchangers here in the United States subject to that same framework We do have them evolving in some more established jurisdictions But we still have significant reliance on those in jurisdictions in which there really is no oversight So how do we know that there's consistency comfort the way that? Supervisory expectations would be for any other provider of financial services. That's not yet developed into a modern way with Bitcoin I Lost my my thing Beyond that so there's the the problem of just people getting into Bitcoin, and we don't know who they are What about once you're in Bitcoin? What can you do to further anonymize your activity? So this is this is an interesting question because You know before the advent of digital currency real advent of decentralized digital currencies and This idea of Anonymizing software like tour. I never knew how to buy a kilo of cocaine before these things came about and I'm I literally entered the workforce right off the farm, and you know, I didn't have much of a exposure to you know drugs and that kind of stuff growing up and Welcome to DC, right? And So I get involved in some of this online activity and I look at at the time when I first started my career was IRC it was internet relay chat, which is kind of the internet underground at the time and You know that was kind of esoteric and and then all of a sudden I discovered tour and I discovered at the time Liberty Reserve it wasn't Bitcoin and The ability for me to then purchase illicit material, you know, you I read an article recently Written by a writer at the Daily Dot About the gentrification of crime and how it's moving from, you know Kind of off the streets and into our living rooms and it's being off crime is now kind of like software as a service it's kind of like crime as a service now and We can use Whatever the digital currency is it's Bitcoin at the moment, right? If you go to Silk Road It's Bitcoin if you go to other and by the way, there's a lot of focus on Silk Road, but there's a lot of other hidden marketplaces out on on dark net and You know, I've seen a lot of things for sale beyond just drugs, right? I've seen weapons Jerry talked earlier about, you know, the biggest Maybe potentially reputational risk to digital currencies if somebody buys a machine kind of goes out kill somebody You know, there are a lot of really hardcore things that are for sale in these hidden markets that you know Kind of get hidden organic kind of get talked about in these these conversations But we don't really spend a lot of time thinking about them, you know, I've seen I've seen major weapon systems for sale I've seen people, right? There's a child exploitation issue here that we need to think about Not always right, it's it's dependent. So sometimes you'll see perfect money will show up What's the one out of Russia web web web money? So it just depends on on what the particular activity is but the fact that I can do this with little I mean we talk about how it's technically complicated, but it really isn't and the fact that I can do this in my you know with little kind of expertise and how to Navigate the system means that we're probably going to see a Not to be sensationalist, but we're probably going to see an increase in These types of situations that present more complicated problems for law enforcement. I Don't know that I answered your question, but but I think at the end of the day We got problems and we got to figure out how to deal with them And that I'm going to hop over to you because you have something Bitcoin already has kind of these pseudonymus Properties, but you actually don't think that that goes far enough to protect people's privacy when they're when they're using it So so I became involved with Bitcoin maybe three years ago now It was kind of amazing to us as academics in the field of cryptography You know, we had been trying for years of our community to build something like this and nobody had succeeded And then this anonymous person comes along and builds Bitcoin and it works and it's amazing to us And we're just staggered by the fact that this does work But there's one place that it we kind of figure it doesn't work There was one corner that Satoshi Nakamoto whoever he is cut when he built the system and that was the privacy aspect Ultimately what Bitcoin is is a decentralized ledger of who gave what money to which other person This information is shared by everybody. There's no concept of a trusted bank It's not even a question of for example, you know, do I care that the bank or law enforcement can kept capture my records? It's can my neighbors see what I'm spending can my friends see the money I'm spending that Bitcoin does have this Pseudonymous property where you can essentially say well, I'm just a number. Nobody should be able to trace me But that doesn't work very well And the one last thing I'll say here is that even for Satoshi Nakamoto He's now or she is now the victim of his own success because he's worth maybe several hundred million dollars Which if he wants to stay anonymous, he can't touch So now there's this there's this problem, you know, how do we how do we fix this? How do we make the currency a little bit more private? So we came up with a system that uses more advanced cryptography to essentially take the Bitcoin ledger and add Very very strong untraceability to the currency. It's called zero coin We actually have a first paper that came out last year in a security conference another one that's coming out this year It really is Bitcoin just minus the fact that you can tell who's spending what and you can't tell who they're spending it Or how much they're spending Which brings us Nobody that would know that even zero count even people running zero coin couldn't see that part of it Exactly if I pay you money the only people who know anything at the end of that transaction are myself and you That leads us to a problem Which is that you know, we think this is a very important technology. We think it's a it's a good thing It can be built it should be built But then again, what are the consequences of building this and I'm talking about consequences here not just for the world But also for me, I'm a little bit afraid at any moment. Somebody's gonna come kick down my door when we released the software I don't know what the law is here. I don't know if this is, you know Something that's going to facilitate crime or if it's going to facilitate privacy I guess, you know, I what we've learned this year is that maybe we don't have as much privacy as we thought we did and This is my way of doing something to repair that Jim I mean Matt is about to bring us something that makes Bitcoin even more obscure and harder to scrutinize How do you think policymakers are going to react to that? Great question. Thank you cashmere and let me let me just start by thanking you and Telling you and everybody how excited I am to be a part of this. I am without a doubt the most ignorant Bitcoin person in this room Which means I'm getting the most value out of this this afternoon because I'm learning a ton of of information about how Bitcoin works, but and I did have a heads up on this question site and I appreciate that I Where you get the test and in advance of the get the answers in advance of the test that always helps And but the answer has changed a bit as I've been here this afternoon and I think the right answer is that the policy perspective is essential and Thinking through what is the reaction going to be? So we've heard from different people just from the past hour that I've been here about the attributes of a Bitcoin which are undeniable and The economic development and the efficiency gains and the the value add that the technology brings Those are undeniable attributes of the technologies. I understand it and we've also heard The privacy concerns about well, what exactly are we putting out there and who can see it? Those are important questions Jim's outlined in a thumbnail that could take a much longer Discussion to really flesh out. What are the public policy interests from an illicit finance perspective? And that's so many respects the focus of the panel The good news is or I suppose that the tough news is that these interests are Challenging ones for all the reasons that people are raising and I would argue are ones that cannot be solved through a Unilateral approach for the very reasons that people are celebrating the universality of Bitcoin It's going to take a globalized approach to effectively deal with this But the good news is that we've had I think practice at this and we've had The ability to address these sorts of questions with different technologies that are that are treading on the same issues and in many respects Bitcoin is one form of a new payment mechanism in the way that it's being used now And that is to say the functionality of Bitcoin as a payment transfer mechanism is a functionality that policy makers across the spectrum of technology economic development and growth and Anti-money laundering and counterless of finance have seen and we've seen this with the mobile wallets associated with whether it's phones or Pre-pay cards or internet-based payment systems that don't necessarily include Virtual currencies because of course you can get on the internet to function as a medium for payment settlement with the occurrences So there's plenty of of I suppose precedent in thinking about these issues from a thematic perspective I think what's interesting about Bitcoin is that some of the the unique attributes of Bitcoin and being a virtual decentralized convertible currency that is gaining Real credibility very quickly puts in a little bit of a different basket than some of these other Phenomenons that we've seen in the past and it's going to raise some interesting questions in the payment transfer Field first and we've seen guidance from FinCEN last year that was very helpful in beginning to color that in I think the more interesting questions lie ahead of us both with respect to implementing those obligations How does that actually work in practice and then maybe most interestingly what other panelists have alluded to other? functionalities of Bitcoin which really are Endless right exactly and that's going to implicate yet another set of but but if Matt brings us a current You know a currency that allows me to send money to somebody else in a way That's not traceable in any way only that person knows and only that I know is Matt Going to get arrested What Jim do you have do you have thoughts on it? Usually they don't go after the developers Yeah, it might be the people that he hangs out with That could be kind of an issue but No, in a way, that's the wrong answer Trying to squelch thinking and development clearly part of the reason why there is so much interest in Bitcoin as people to have alluded to before is that the current payment system as it operates Doesn't serve the needs of the internet age today much less in the future So much more needs to be done in that area and in frankly that that's not a novel or cutting-edge Proposition even the Federal Reserve has said that and they put out an announcement just last week about how they they were Impleased with the way the banking system is developing some payments for the US for all the aspects where it's Cutting edge for us to send transfers the way we still rely on paper checks or cash Really is second well not quite third world, but but we're certainly far from cutting edge So that's something that we need to encourage development. We need to encourage Inclusive solutions and frankly, I think one of the best aspects is the competition among different developments I think that's one of the the premise we've heard here But certainly something I say to people with Bitcoin Bitcoin may achieve that Economy of scale and that successful aspects, but already when I'm talking about some others gone beyond Some of the aspects that people develop with Bitcoin and I would add to this conversation I think one of the things that we lack and we've not had a full conversation about is Ethics and the ethics behind innovation and the ethics behind developing technologies that have consequences that we haven't anticipated and you see this in other industries you see this in the biomedical industry you see this in You know in a pharmaceutical industry industries where Just because we can do something doesn't necessarily mean that we should and I think from a technological perspective when we talk about Bitcoin and zero coin You know some of these other things, you know, have we thought through From a from a innovator perspective whether we should be innovating Is there is there a need to create a completely private? ecosystem that allows for the Anonymous transfer of money I don't know have the answer, but I know that there are consequences from it and one of them is you can move small or small or large amounts of money to places where people can blow things up and Also means that you know I can buy as much porn on porn.com as I want absolutely Absolutely, and I think that's the point right the point is As a culture we have to come to some conclusion as to what is the where are the boundaries if there are any and If there are who sets the guidelines who who creates the boundary? Can I respond to that if you don't mind catch me I am because I apologize I know I spoke a lot earlier on trying to lay out this framework of different policy interests as a former Policy person in a list of finance The good news is that that question has been resound resoundedly answered been asked and answered Where if you were to ask anybody who functionally is operating as a money transmitter over the past Really 30 years in the financial system. They have had evolving Expectations to what are now Fairly technical and detailed requirements that are designed to bring financial transparency to the financial system for purposes of Effectively protecting that system from illicit finance and turning what is an inherent Liability of the financial system prone to criminal abuse into an asset where the authorities that we rely upon to keep us safe can in effect Take the reliance of criminals on financial services and turn it into an information source and a disruption technique now that that policy Much as the earlier panel took a poll and said who knows anything about Bitcoin. I was hiding I was running for a corner if I took a poll and said how many people in the audience are familiar with AML or anti-money laundering for counter illicit finance regimes. Can I just just get a show of hands? Okay, so that's actually I'm surprised to be more because we're in a Bitcoin crowd I think that's healthy because these are communities of interest where there is There is without a doubt not only compatibility. There is inevitable Need to integrate all of the interest on the development side economically and financially with the Counter illicit finance community and that's been done when I was saying that there are models for that globally and with new payment methods that is a precedent that unless Something Disasterously different evolves over the short term That question has been resoundedly asked and answered so the real issue isn't whether regulation is coming or whether we should do this It's really how do we do this in a way that is workable and is not unnecessarily choke innovation at the same time consistent with our philosophy on financial Transparency we rely on for financial governance and to make sure that bad guys aren't exploiting it That's a how question not really a weather question actually just for clarification My weather question wasn't whether we should regulate my weather question was whether we should be building technologies that Because we know we can make it completely anonymous my weather question was whether we should do that You're basically saying you're not sure about Matt's your point Maybe don't release it. Yeah. Yeah, I know this is a question about Bitcoin Right, I mean you're developing zero coin because Bitcoin is very Transparent and traceable in many ways. I mean is Bitcoin actually a good tool for the dark web I Some people have speculated that you know who knows who Satoshi Nakamoto is if you look at the first letters of his two names You get NSA I've heard that rumor a few times So so I the answer to that a good way to look at the answer to that is there is a gentleman who is currently in jail right now Up in New York, and you all know he is he's the the dread Pirate Roberts or allegedly he is Ross Ulbricht I think is his his name He is currently in this weird position where he has had 29,000 Bitcoin seized He is asking for them back and simultaneously. He's saying that he didn't do anything illegal. He wasn't involved in silk growth So now there's early adopter Now the question is if we were to look at the history of those Bitcoins, where do they come from? Do they come from Silk Road or do they come from some early adopting? You know mining pool well right now I think what I've seen so far is the answer is they all seem to come from Silk Road now Where do they come from before that was where they just passed through Silk Road in some innocent way? But unfortunately, you know here We have a case where looking at the history of Bitcoin even a person who had a lot to gain from not having his money tied to Silk Road Doesn't seem to have necessarily done that very well if he is guilty So so it seems like yes It may be possible to use Bitcoin anonymously and safely if you're a criminal But it's not that easy and if you're using a large you know moving a large chunk of money This is going to be a problem for you now the other question that was what if you're somebody who is not a criminal? What if you're an activist what if you are somebody who's donating money to a cause that you don't want to be associated with I found Myself donating some Bitcoin to WikiLeaks this summer, which maybe among some circles is actually not a very good thing to do But I felt like it was an okay thing at the time Then I looked I was like oh my god. I've just linked to myself forever to WikiLeaks What if I want to get a security clearance someday? There there is a reason that we want to have some protection They're lost But you know there anyway, I'm not even sure what the question is, but I do have some I want to go back Is there really a website called porn.com and do they accept bitcoins? I don't know if it's porn.com, but I know there's one they might be porn hub or something Not that I would know You notice how no one else answered The real question I want to ask you guys is so which which dark websites are you saying? But no, but I mean how so there been these studies that say that Bitcoin is very traceable that you can see if you're linked to Silk Road I mean how how traceable is it right now really really traceable It's traceable absolutely and and it relies on somebody to mass point It relies on somebody to make a mistake Right so you have to acknowledge publicly that your name is associated with that wallet having said that though I can have 50 wallets right I can have 50 different different Bitcoin clients But you have to rely on somebody making a mistake to find it so it's very traceable It's the connection between the account the wallet to the person. That's the The key here and what in what match? With zero coin is saying well, let's just break that completely and that's the fundamental difference between virtually every other way you can move value in a regulated fashion that an Institution that is closely supervised has to make sure that they are linking the name to the payment And they do that on the basis of some type of ID that doesn't mean that there's fraud It doesn't mean that there's mistakes. It doesn't mean that there's errors But when you're talking about law enforcement who's got more than enough things to do on every day and say that well If I had the knowledge the computer power the capability in the time the math has an academic to do with this I could figure out with some degree of reliability some of these big players That's a big difference from the guy gave their name. There's driver's license number their social security number And they said here's my phone number call me when the money arrives And you know they're going to give a real number that's good So it's pretty easy to pick that person up That's a big difference and that's the standard that the chip's point has been the global standard applied the consensus Because it's just too important not to do it that way. That's how that's how far off we are That's a pretty big gap But just so that folks are and I fully agree with Jim on that But I also agree that you know The question of privacy is an interesting one because for those of us on the counter list of finance base We're sort of painted as as these these polar opposites or these zero-sum Game here and that's just not it's not really true. It's a little bit more sophisticated than that Which is that there are some interests that and I think public policy is recognized and legally are Are codified where privacy is is essential not only for all the sort of cultural reasons that we we tend to associate with that But for the security of an investigation or for information flows. So for that reason I'm clearly not a technology person But For that reason the information that we glean from the financial system is highly highly sensitive and protected and there's a lot Of good reasons for that. So so privacy is not an anathema to Regulation that puts information that we need in the hands of those that we rely on to use it effectively It's simply a question of what are the privacy interests and what are the compelling policy interests from a law Enforcement or a national security perspective And how do we intersect these in a way that the industry can understand because just as Jim said at law enforcement Investors have time to and probably not the skill set to begin to do what you do the industry doesn't have the time or the skill set to Sort of hash these out and in a literally case-by-case Implementation and execution of policy they need guidance direction clarity And I think we're at that point now where that sort of guidance and clarity is everyone's friend in this space at this point So one of the proposals Ben Lasky mentioned today is when they're thinking about who they'll give out bit licenses to Is that they would ban or restrict the use of tumblers within the Bitcoin system? And I was just curious for you guys's thoughts on how easy it would be to Detect that to ban that to keep Bitcoin from moving in in that direction I'm just curious about your thoughts on the difficulty of that Okay, so you might be a good one for this one. So tumblers are are in essence You know allow for the mixture of bitcoins in a big pool of bitcoins to obfuscate the Traceability right so go a bunch of Bitcoin technical description as I can whole bunch of bitcoins go to the same place get mixed up And then they go out to different places. Yeah, see that this went from this person Yeah, exactly, and and you would have to have some pretty good Computing power to trace it through but you could do it right because ultimately there is a public ledger and you could you could do So I think it It causes problems when we're when we're talking about Hiding the trail of money and it wouldn't be different than any other money laundering type of situation where folks are attempting to cover or obfuscate or complicate the transaction History in a normal cash based money laundering system So it would add complexity to Investigating agencies attempting to track the money, but it's not unsolvable And and I think that to the earlier discussion I think they're concerned that it would take too much time energy and effort to go through those tumblers Or to track bitcoins through those tumblers in an effort to trace the money I think we're at the 15 minute mark. So we want to take some questions from the audience We'll just start with Where is the the microphone right now? Is it near the front or near the back? Do we still have a microphone? Okay I'll just start with that we've got one here and then the second row and in the back Just a quick question John v. Snow from Brookings and UCLA is a question for Matt Um, is the computational burden of zero coin something that you anticipate would be an impediment to adoption or not? So it's pretty fast. The new version that we have is a little bit slower than Bitcoin itself So it's you know, Bitcoin's already having trouble scaling up to kind of visa loads So it might cause a problem there, but it's not that much slower Loomberg this points to a need for a Lesson in basic cryptography, which is something I've started in on we spoke about on the phone one of the things that was very revealing to me about my Initial under learning about cryptography was that when you come up with a new kind of protocol for encrypting something You don't actually start using it right away You sort of throw it out there and let other people smack it down and fiddle with it and see if they can break it Sort of like testing out a new lock To what how great is the certitude among professional cryptographers that The Bitcoin protocol and perhaps even your own zero-cone protocol have been sufficiently smacked around that we can we can have a High degree of confidence in them. This is something that I've It's things safe to say. I've never gotten an explanation in English. I've gotten an explanation So the easiest way to answer that question is what you do is you come up with a new protocol You take it you put it out there You get a bunch of crazy people to invest their own money in it until each Bitcoin is worth You know a thousand bucks or something insane like that and then you see if the protocol breaks And nobody has ever done that in the history of cryptography until this last several years And so if you'd asked me four or five years ago would Bitcoin work I would have laughed and I would have said ah, it's going to be totally broken But it hasn't it's been put to the probably the biggest pen test that any security system has ever been put through in History because there's so much money at stake if there's anything broken you will benefit hugely from breaking it And so I think right now the verdict is that this is a solution that works very well It's not the way I would choose to deploy every security system But this just happens to be a good way to do it and they do but they do find breaks, right? And they do occasionally this or that yeah, and there's this new thing about selfish mining possibly being a problem But these are kind of nobody's nobody's broken it in a very fundamental way yet We had a question in the very back Hi, my name is Joe back. I'm a lawyer and a Bitcoin enthusiast I've been paying attention a little bit to some of the stuff for the chief scientist Gavin Andresen is doing with the next I guess it would be the next version of the Bitcoin protocol or the next updated version And I've heard some stories saying that they might scrap the the Bitcoin addresses or the public key addresses to give an opportunity for it to be a little bit more I voluntarily Not anonymous per se and you're talking about zero coin. I just wonder if it had an interesting possibility for this sort of bifurcation of The way you look at anonymous coins versus more voluntary transactions that are less anonymous and What you guys might think about a situation where there was those two worlds I Think that you should go all the way I know that the Bitcoin people have been trying to I'll answer this very quickly trying to come up with patches to make Bitcoin more private But the Bitcoin Foundation has a lot of other incentives too. They're trying to be friendly to regulators They're trying to do you know so and so they're not doing everything they could to make the protocol private And I think that the motivations there are not entirely technical. I don't believe in these kind of half measures I think we should go all the way but it's definitely an improvement So I'm seeing two very different paradigms of the Bitcoin network coming out one that it's completely anonymous one that it is way too transparent it's like having your bank account on on view for everybody for the public to see and You know your reactions the regulatory reactions and the reactions the community Depending on which paradigm you believe are very different So if you believe that the trend network is transparent and your bank account is online Then it's absolutely critical that you break that chain so that not every member of the public can see your financial transactions And if you believe that it's completely anonymous system then time being able to have a real person on the end of that Transaction having some sort of regulated entity collecting that information and and doing record keeping and reporting according to the BSA also equally important and and that would make that more of a pressing issue do you think that the regulators and the community have a sufficient understanding of the privacy issues at stake and and also the the the for example the DHS Comment at the Senate hearings was that actually most people most criminals know that you know Bitcoin is not anonymous And so you know it's really the bottom feeders that are still using it for a listed activity now Do you think that there's wait, which are we at let's just ask the question Yeah, so do you think that there's a sufficient understanding of the nuances between let's say a closed currency versus one that has a public ledger and To be able to address these these very cute key issues of ensuring that you know This is not used for a listed activity a very important policy goal and ensuring that people's financial lives are not taken online Why I can tell you the issue of protecting customer data Has been Arguably the the biggest single focus in the past year in the financial industry is not a post-target Issue at the beginning of this year really was the major regulatory pronouncement including by Ben Loskey looking at aspects of hacking loss of Data cybercrime is the term that they talked about a lot So that is something that again on a day-to-day basis Aspects of all kinds of procedures to make sure not only our regulated industry protecting people's assets Their funds and and that's one of the aspects where once you get into a tumbler situation You're moving away from an online Storage of an an algorithm to something more like well. I'll just give you all my cash And I'm not ever getting that dollar bill back. I'm just getting the equivalent. So actually I'm taking a credit risk On you that's fundamentally changing the way the intermediation of value has happened But that is a very critical aspect and fundamental one that is of the highest importance for the regulators. I Would just add to that that I do think that sophistication is perhaps better than those that Are not part of the regulatory AML counterlifts of finance policy community Understand and at the same time it's evolving, right? So I'm when I talked about prototypes and precedents and new payment methods particularly when we look at phones and prepaid cards and internet-based payment systems all of which preceded bit Bitcoin and address the functionality of Bitcoin as a unit of value transfer That expertise that was honed through that Experience is being applied and considered in the context of virtual currencies and I think the FinCEN guidance from last year demonstrates a Very good understanding of some of these challenges I also think they're going to evolve and point to two sort of pathways to watch one is the Implementation of that guidance from March of 2013. How is it that? Exchangers are going to start recognizing their responsibilities under the BSA as money transmitters and Their ability to win the confidence of the market and then secondly as the functionality of Bitcoin begins to Expand into some of the uses that we were hearing about on the other panels It will raise interesting regulatory questions that I don't think have had the same sort of precedents when you look at either functioning as an exchange or potentially an investment vehicle or A storage of value it starts to run into some some novel questions that we've seen in the terrestrial world But we haven't really seen so much in the virtual one and and that will be interesting I'll actually add to this too because I think it depends on your audience in terms of the nuances so my grant my father has no clue the difference between the two neither does my niece and Until you can get to a level of understanding at that particular granularity, I think Whatever the digital currency is whether it's Bitcoin or something else. I think you're always going to have problems moving forward and and Expecting acceptance of the currency because it's just not it's not easily explainable and The nuance between what's private and anonymous and pseudonymous It's lost on most people When I was living on Bitcoin all these restaurants would have a static QR code for scanning So I could pay them and they didn't realize that by using the same QR code every time They were making their Bitcoin sales public. All I had to do was go and search that address and I could see exactly How many people had paid them and how much and they were you know early adopters, but they didn't necessarily understand the technology Got a question over here The entire discussion and much of the previous panel was really focusing on Bitcoin Big big B Bitcoin the the means of payment You know the payment system they could be delivering dollars just as well as little B Bitcoin Do you think it makes a difference or why do you think it makes a difference to some people? That this interesting public ledger peer-to-peer technology Rather than being used to transmit an established currency like the dollar Why is it so much more exciting to have this? Fiat currency with no backing no anything Terribly volatile. What's the attraction of that? cool That's the answer. It's cool. I don't know that there's any other I mean it's In backup, I mean I think there are some the remittance conversation is a legitimate reason Why this why this is important? But I mean it's a new innovative way to Transact business and I think most of us expected to expect technology to help us in our lives Right to make things simpler faster cheaper And this is just a new way to get at that to get at that Well, I think different audiences would answer your yeah, you know every panel would have a very different answer to that question You know it can be about transaction fees for merchants and it can be about you know not having to go through existing Payment methods like a you know wiki leaks accepted Bitcoin after paypal and visa and other credit cards Refused to process payments for them. So it's about kind of circumventing the existing financial system I think they're you know, we could have a whole panel on that But fundamental your point about why aren't they just interested in this as a transmission mechanism for dollars? What are we talking about? It's not a transition a transmission mechanism for dollars because the dollars is nothing other than as I said a minute ago You are claim on that guy to pay you Right, so you're taking credit risk on that entity. It's it's inevitable This is an easy prediction to make that some pseudo virtual currency Some product is going to go under and you're gonna see it was another Ponzi scheme the whole currency not just individuals in it and all these people who thought they had funds In a virtual wallet it just evaporates Into nothing the reason why consumers don't worry about that at dollars is because we have deposit insurance for banks going back to the great Depression right and a financial crisis in the wholesale realm people didn't rely on that doesn't exist For the interbank markets once you get into real money and people actually do care about the credit risk Behind it. That's where going from a niche product and when you talk about some larger merchants It's one thing to say that I'll accept currency in Bitcoin, but then they got to spend it somewhere They got to get that value out right if their employees take the currency That's good if they're just building up a marketplace and they're reliant on the exchangers Which as we said is one of the weak links in the system or a developing link in the system It's very different from saying oh, I'm attaching money and actually moving dollars that does not exist but it really depends on the functionality again because if it if it's being used as a Value transfer mechanism that in many respects those risks that Jim is talking about are are are minimized marginalized Or at least temporally very very restrained the minute that it becomes a unit of savings It's a very different issue And I think these are this these are the regulatory questions that are going to be interesting because we really haven't answered those in the new Payment space when you have basically a depository Alternative that is not called a banking product Well, it's function functioning as a banking product doesn't have FDIC insurance And it it doesn't have any of the sort of safety and soundness and supervision associated with that What do we do then that's an interesting question? And I think we'll we'll see some activism in that if Bitcoin moves down that road And you may see it in the States before you see it at a federal level So interesting one more short question back here Hi, one genu I'm curious to hear the panel's view on whether they continued use of bitcoins for illicit purposes and Perhaps an unforeseen technical vulnerability in bitcoins could potentially threaten the widespread adoption of bitcoins and perhaps the you know, I Guess future success of bitcoins There's no question you have some legitimate players who worry about the risk the reputational risk of dealing in in bitcoins But there's no question that that is a hampering aspect that doesn't impact all people But it certainly does impact the broad Acceptance I'll say I'll say I don't know about Bitcoin, but I'll certainly acknowledge that some digital currency will continue to pose problems It'll be something no I said that to the technical question, I think that Bitcoin really There could be a disaster, but some technology like Bitcoin will continue to be exit to exist and will continue to grow I think this is the future My only comment on that is that you while regulatory clarity is at this point constructive and in my view needed and The industry doesn't necessarily have to wait and leadership in the space from industry is essential so conferences like these that Begin to band together those that want to protect the reputation the credibility of the market in an emerging product like this These are essential events because if it's not as if the the the practice is that that the policymakers are looking for our Secret it's the Bank Secrecy Act. It's implementation of financial sanctions It's this is something you could you could hire You know we hire you back in your old job and get you to come in and advise on this But the industry to the extent that it waits on this is not taking the opportunity to define the space from a regulatory perspective in a way that makes lawmakers comfortable and you know, that's always a gamble right and You can see this debate in the banking space right now when it comes to issues whether it's the BSA or IEPA or a Prudential oversight, you know, you can wait on the back foot and let others try to figure it out But then you get what you get or you can take a more proactive approach as several in this room and in the industry are doing Which is to engage the lawmakers and the regulators and say these this is Educating you about the constructive functionality of the product and some of the safeguards that we think can work That's the right approach to take and obviously we're seeing it so Thank you guys. 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