Sep 29

Should Bitcoins Become Illegal Digital Currency?

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How does bitcoin digital currency work?

Bitcoin digital currency differs from traditional currencies and has become an increasingly prominent method of payment in the world of internet commerce.

Traditional currencies are regulated by governments, but Bitcoin digital currency is only regulated by its value to users and its expected value in the future. This allows Bitcoin digital currency users to feel somewhat secure since no government can arbitrarily reduce the value of the currency. Bitcoin digital currency receives further praise from users as transactions with Bitcoin digital currency can be made with more anonymity than traditional currencies afford.

Why do some legislators want to make Bitcoin digital currency illegal?

Some legislators have commented that the anonymity that Bitcoin digital currency users enjoy has been abused. According to these legislators, online services such as ‘Silk Road’ require the use of Bitcoin digital currency for all online transactions. To legislators, this requirement by ‘Silk Road’ and similar services provides a truly anonymous marketplace in which contraband can be transferred.

Though ‘Silk Road’ warns users not to abuse the anonymous marketplace for the transfer of truly dangerous materials, some in government fear that ‘Silk Road’ and related sites have used Bitcoin digital currency technology for nefarious purposes. These legislators claim that Bitcoin digital currency has enabled ‘Silk Road’ to establish an online mega marketplace where drug traffickers cannot be easily traced or stopped. Legislators fear that unless Bitcoin digital currency is banned, drug trafficking will become as easy as shopping at internet retail sites, like

What efforts have been taken to curb the usage of Bitcoin digital currency?

Having read about sites like ‘Silk Road’ and the potential abuse posed by Bitcoin digital currency, Democratic Senators Charles Schumer and Joe Manchin wrote the US Attorney General, warning him about anonymous drug trafficking over the internet. Though no legislative efforts have yet been undertaken to restrict or ban the usage of Bitcoin digital currency, the United States will perhaps soon see efforts made to stop illegal drug trafficking through placing impediments on the usage of Bitcoin digital currency.

Proponents of Bitcoin digital currency argue, however, that drug trafficking could be stopped without having to place limitations or restrictions on the usage of Bitcoins. Instead, they argue, law enforcement officials could use available technology to track down individuals abusing Bitcoin digital currency, and prosecute them accordingly. Bitcoin proponents concede that while identities of all Bitcoin parties are anonymous, there are many ways in which law enforcement would be able to target offenders through analysis and research of individual habits on the internet.

  1. Dan 29 Sep 2011 |

    You can’t stop bitcoin with legislation. How do the American Government legislate against a company registered in Japan that has a Hong Kong bank account (mtgox, the biggest bitcoin exchange), or against a company that is registered in the Dominican republic, or Panama? It doesn;t matter what America does. Bitcoin is like bittorrent. It doesn’t have a border. This isn’t an American phenomena. The only way they can stop it is if they ban all international bank transfers, and every company that facilitates the movement of money online

    • Internet Lawyer 29 Sep 2011 |

      The U.S. government legislates against activities beyond its borders all of the time. Whether it should do so is another matter.

      Digital currencies will become more popular as time goes by. They also pose a threat to governments beyond national security issues involving terrorism, money laundering for drug traffickers, etc.

      The power to coin money, like the power to tax, is a potent weapon in any nation’s arsenal for controlling its citizens. Even when it is centralized (like the Euro), participating states cede some of their sovereignty.

      When there’s a digital currency that’s backed by precious metals (like gold reserves), it will have the potential to displace the fiat currency being printed by central banks to prop up bankrupt governments. That type of digital currency has the potential to trigger military intervention to prevent it from becoming viable given the threat that it poses to printed pieces of paper that are not backed by assets.

  2. Chris 2 Oct 2011 |


    Precedent is not 100% applicable here. We are talking about a decentralized, peer to peer network. Government do not have the ability to take such networks down, they are too vast and too widely distributed.

    Bitcoin is not backed by gold and should not be compared with the likes of e-gold, pecunix, liberty reserve etc. Bitcoins are as different to those virtual currencies as they are to greenbacks.

    You mention that because bitcoins could be a large threat, that government will be prepared to act. But please tell me how they can act. It doesn’t matter how strong their desire is, it is simply impossible to take down a decentralised peer to peer network. It has never been done before and there is no reason to think that it could ever be possible.

    The only way I can think of is if somehow the US government forced Cisco and other major router manufacturers to modify their operating systems. However, this would be tantamount to surveillance on all world citizens and it will never happen.

    • Internet Lawyer 3 Oct 2011 |

      Discussion of this topic gets one treading into interesting territory given how much is done these days by the federal government in the name of “national security,” the “war on terror,” and the “war against drugs.”
      With notable exceptions for certain regimes in the Middle East, China, and a handful of former Soviet bloc countries, there has been remarkable cooperation on these fronts. I’d contend there’s very little out there today online that can’t be suspended, controlled, or outright banned should the U.S. federal government make it a high priority.
      Bitcoins won’t need to be be banned worldwide. Simply making it illegal to use in countries with the most ecommerce will be enough.
      Once again, I’m not recommending that this occur.

      But the federal government’s track record on unmonitored transfer of funds (e.g. online gambling) makes it a safe bet (pun intended) that when digital currency substantively threatens fiat currency issued by governments or otherwise dilutes political power, there will be an effort to stamp it out using some other basis as the excuse for doing so (stopping funding to drug traffickers, etc.).
      If you want a flavor for it old school, take a look at what happened post-9/11 to those offshore money gurus. They had books sitting on the shelves in major bookstore chains while they sat in jail in the interest of national security. After the attacks, it became a high priority to track international transfers of funds and the motivations for such transfers.
      The prominent three-letter agencies in D.C. these days like to hire techies, forensic accountants, and lawyers.
      It’s a game of “follow the money” and see to where and who it leads. Can’t imagine a scenario where digital currency will get a free pass from such scrutiny.
      Best wishes,