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Tuesday, January 28, 2014

Bitcoin Community Embattled After Arrest of High-Profile Entrepreneur

Posted By on Tue, Jan 28, 2014 at 4:00 PM

click to enlarge Charlie Shrem in happier times.
  • Charlie Shrem in happier times.

Just as Bitcoin was on the cusp of becoming a do-gooder currency -- or at least gaining mainstream acceptance -- one of its most eminent entrepreneurs has jerked the community back into an underworld of drugs and vice.

Bitcoin Foundation Vice Chairman Charlie Shrem was arrested Monday along with alleged underground exchanger Robert Faiella, on charges that they both supplied users of the Silk Road Internet black market with some $1million in Bitcoin. According to the federal indictment, both are accused of money laundering and operating an unlicensed money transmitting business.

While Shrem's arrest rattled the Bitcoin community at large, it didn't stop a panel of investors from entreating financial regulators in New York for a "safe harbor" policy that would exempt young start-ups from regulations, particularly as they try to amass capital.

In fact, U.S. regulators have made it exceedingly difficult for Bitcoin businesses to obtain bank accounts, says local Bitcoin evangelist and Internet Archive founder Brewster Kahle. Not to mention that anyone who opens a Bitcoin account has to face the uncertainty that it might be shut down. Even before the crackdown on Silk Road, the U.S. federal bank was admonishing other banks to stop trading in Bitcoin.

Kahle can speak to that firsthand: He says the Internet Archive had to block several Bitcoin companies from using its Internet Credit Union, owing to pressure from the feds.

"This uncertainty has a quelling effect on legitimate businesses or investors wanting to jump in," Kahle writes, via e-mail.

Many people in tech and finance share his concerns, including Cameron and Tyler Winklevoss, the twin Olympic rowers-turned-tech titans who funded Shrem's Bitcoin payment-processor start-up, BitInstant. (It's now apparently moribund.)

Both Winklevoss twins reportedly attended the hearing to stump for safe harbors. According to New York Times reporter Nathaniel Popper, the hearing quickly devolved into free-market philosophizing on the need to overthrow our current banking system. That's a line of thought many Bitcoin users embrace, though it's met controversy from traditional economists.

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About The Author

Rachel Swan

Rachel Swan

Rachel Swan has been a staff writer at SF Weekly since 2013. In previous lives she was a music editor, IP hack, and tutor of Cal athletes.


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