Virtual Currencies; Bitcoin & What Now after Liberty Reserve, Silk Road, and Mt. Gox?

Abstract

During 2013, the U.S. Treasury Department evoked the first use of the 2001 Patriot Act to exclude virtual currency provider Liberty Reserve from the U.S. financial system. This article will discuss: the regulation of virtual currencies; cybercrimes and payment systems; darknets, Tor and the “deep web”; Bitcoin; Liberty Reserve; Silk Road and Mt. Gox. Virtual currencies have quickly become a reality, gaining significant traction in a very short period of time, and are evolving rapidly. Virtual currencies present particularly difficult law enforcement challenges because of their: ability to transcend national borders in the fraction of a second; unique jurisdictional issues; and anonymity due to encryption. Due primarily to their anonymous characteristic, virtual currencies have been linked to numerous types of crimes, including facilitating marketplaces for: assassins; attacks on businesses; child exploitation (including pornography); corporate espionage; counterfeit currencies; drugs; fake IDs and passports; high yield investment schemes (Ponzi schemes and other financial frauds); sexual exploitation; stolen credit cards and credit card numbers; and weapons. Innovation in the pace of development of new currencies and technologies continue to create ongoing challenges for responsible users of technology and regulators alike. While technological advances create great opportunities to improve the health, living conditions, and general wellbeing of mankind; new technologies also create great challenges for nation states.

Keywords: Bitcoin, child abuse, commercial law, computer crime, consumer protection, crypto-currency, cybercrime, e-commerce, electronic payments, internet payment, law and technology, Liberty Reserve, mobile wallet, money transmitter laws, payment systems, PayPal, Privacy, Silk Road, Tor, virtual currencies

JEL Classification: A10, B25, C99, D12, D23, D44, D63, D71, E40, G21, H26, K11, K14, K34, L82, L83, L86, M30, O34, P50