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Could Bitcoin Go Legit?
Velcroman1 writes "On May 15, the Department of Homeland Security seized a digital bank account used by 'MtGox,' the world's largest exchange, where people buy and sell bitcoins. DHS alleged, and a judge agreed, that there is 'probable cause' that MtGox is an 'unlicensed money service business.' If proven, the penalty for operating such a business is a fine and up to 5 years in jail. FoxNews.com caught up with several bitcoin exchanges, including CampBX, MtGox, CoinLab and more, to ask them how they've navigated the regulatory waters — and how to go legit." In other shady bitcoin news, it appears the demise of Liberty Reserve has caused hackers to find a new alternative. twoheadedboy writes "Despite suggestions Bitcoin might be the ideal currency for dealers on the dark web, it appears Perfect Money, a Panama-based operation, is proving the most popular alternative to the now-defunct Liberty Reserve. A source working the underground forums told TechWeekEurope that, for now, fraudsters are rapidly migrating to Perfect Money. Many vendors have started accepting it, having previously primarily used Liberty Reserve, which was shut down following the arrest of its founder and four other members this past week. Internet fraudsters might be interested in Perfect Money as it has distanced itself from the U.S., cutting off all new American registrations. However, one forum user said he was turned down by Perfect Money as their 'type of activity is not welcome.' Other currencies may yet win out."
Bitcoin, whether you are a believer in government funny money or not, is a legitimate currency, like any other currency that is used as a substitution or a value representation for goods and services.
Also, the economic impact of Bitcoin is huge. People are spending millions developing ASICs to mine what bitcoins remain, even though more than half of them have already been awarded and it endeavors to be a scarce new resource. And, it's still barely profitable to mine with GPUs, so that is also a thriving industry.
I, for one, am waiting for the Bitcoin GPU bust when the ASICs come out in volume and used GPUs flood the market for cheap as people scramble to buy ASICs.
Like it or not, there are people who accept BTC as payment for goods and services, and there is a somewhat thriving market for them. That is legitimacy.
http://forum.feathercoin.com/index.php?topic=1059.0
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Looks like crypto-currencies are to be the new pyramid scheme/multi-level marketing. BitCoin has a chance because it was the first of it's kind, so people were all going to choice it. A million new crypto-currencies will never take off.
The main reason is that laws will keep moving to outlaw all companies behind it at all cost. The ones that control the law don't want anything looking like a currency outside their control.
"why is legitimacy necessary?"
Because money laundering operations, like drugs and other black market trade, is one of the ways terrorists fund their activities. That's the short answer. The longer answer is more complicated. The problem with draconian enforcement options like this is it drives things underground. Organized crime got its start in this country due to the Prohibition; By making a popular activity illegal and driving it underground, they forced people to turn to the underground. Cigarettes and other "sin products" are showing similar trends; Where I live, trucks are now arriving from Canada carrying nothing but cartons of cigarettes because the tax rates have become so high that some people have started turning to the black market to purchase them. The historical 'Boston tea party' incident was another such reaction to this -- while the mantra at the time was 'no taxation without representation,' what it was really about was an overly burdensome tax, and people started seeking out alternatives, as well as publicly venting their frustration. File sharing is another example -- the product has become so grossly-overpriced that it has fueled all kinds of technologies dedicated to getting around what could be termed the 'RIAA/MPAA tax'.
I forget the name, but in Macroeconomics, there's a theory that suggests that whenever you raise the tax rate, you get diminishing returns because more people look for ways to avoid the tax. Beyond a certain point, a higher tax rate actually results in less tax collected. To paraphrase a US Supreme Court Justice, "The power to tax is the power to destroy."
But what does all this have to do with Bitcoin and making it legitimate? When you have currencies not controlled by the government like Bitcoin, taxes aren't being collected. Yes, there may also be criminal activity associated with the currency, but that's only because criminal activity is like water -- it seeks the lowest point, the most efficient path. Government creates resistance in market forces for both legal and illegal, legitimate and illegitimate goods and services alike. In the 60s, numerous grass-roots efforts were made to create alternative currencies, and all of them were aggressively attacked by the FBI and Secret Service, for the same reasons Bitcoin is being hit today. There is an old saying; Don't believe what they tell you, follow the money.
Now, all that said, these government actions have the effect of driving things underground where they can't be tracked. The problem is though that the guy who wants to buy a dime sack of weed is not really a threat to anyone; but the guy who wants to buy shoulder-mounted missiles and bomb components is. But when you drive the hundreds of thousands of people who just want a dime sack underground, it gives the terrorists a place to hide. That's the problem with the black market: When it targets something that's popular, socially acceptable, or whatever, for political reasons rather than as a reflection of the people's will, you create an area for undesireable elements to flourish.
Take file sharing; All of this encryption and peer to peer networking would never have arisen if the government hadn't started punishing grandmas and college kids for doing it. The response was so disproportionate to the harm to society, and it was against commonly-held values by the general public, that it resulted in an immediate creation of a digital underground. And within a few years, the technologies developed to fend off the government found their way into the hands of "cyber" criminals; witness the rise of advanced persistent threats, botnets, and nation-funded espionage and sabotage, much of which uses the same technology created for a much less nefarious purpose: People just wanted to listen to music. Now our power grid, hospitals, dams, and other industrial infrastructure is at risk.
And now we have a real big problem. The government is correct: Bitcoin does attract the criminal element. In large numbers. What they
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