Technologically Clueless Grandstanding Senator Calls For US To Ban Bitcoin

from the because-you're-an-idiot dept

Nearly three years ago, Senator Chuck Schumer claimed that Bitcoin was money laundering — which is, of course, ridiculous. For years, though, there have been plenty of concerns within the Bitcoin community over when and how there would be some sort of moral panic concerning Bitcoin, leading to some sort of excessive regulation. In the past year or so, however, the government has been surprisingly restrained in dealing with Bitcoin, and really seemed to be trying hard to at least appear to understand the concept before running off half-cocked. However, when you’re dealing with politicians, it’s really only a matter of time until the insanity hits. And with all of this week’s attention on the Mt. Gox debacle (in case you’ve been under a rock, the site, which was an early popular Bitcoin exchange, shut down after more massive problems, including possible theft of huge amounts of Bitcoin, were revealed), it should hardly be a surprise that a politician would launch an almost totally clueless attack on Bitcoin.

To do the honors, I present Senator Joe Manchin, who (like plenty of Senators) does appear to get a fair bit of campaign money from financial services and banking institutions. He’s now calling for Bitcoin to be banned in the US with a letter to Treasury Secretary Jack Lew and Fed Chair Janet Yellen. But what’s incredible in his letter is how… simply wrong he is about nearly everything regarding the cryptocurrency.

I write today to express my concerns about Bitcoin. This virtual currency is currently unregulated and has allowed users to participate in illicit activity, while also being highly unstable and disruptive to our economy. For the reasons outlined below, I urge regulators to take appropriate action to limit the abilities of this highly unstable currency.

First off, Bitcoin is not unregulated. Today’s regulations concerning currency still apply to Bitcoin. Yes, there are elements that appear to be less regulated (or make it easier to skirt regulations) but to say it’s “unregulated” is simply wrong. The fact that it has allowed people to participate in illicit activity could easily apply to just about any financial instrument from cash to debt to equity to whatever the hell Wall Street is cooking up. The idea that it’s “disruptive to our economy” also seems… wrong. It has the potential to be disruptive in a good way (providing all sorts of benefits to today’s payment systems) but Bitcoin is still tiny. It has no real impact on the economy today.

Due to Bitcoin’s anonymity, the virtual market has been extremely susceptible to hackers and scam artists stealing millions from Bitcoins users.

Not even close to true. The “susceptible to hackers and scam artists” has nothing to do with the anonymity bit. For the most part, it’s had to do with very poorly run businesses (like Mt.Gox) that appeared to be somewhat clueless about how to securely handle Bitcoin. This has been detailed repeatedly. In fact, the death of Mt. Gox should actually be quite a good thing for the Bitcoin community and ecosystem, because getting rid of the weak players will increase the safety and confidence in Bitcoin.

Anonymity combined with Bitcoin’s ability to finalize transactions quickly, makes it very difficult, if not impossible, to reverse fraudulent transactions.

Replace Bitcoin with cash and… well, there you go.

Bitcoin has also become a haven for individuals to buy black market items.

The amount of US cash used to buy black market items makes Bitcoin barely a blip on the radar. But we don’t ban cash.

I am most concerned that as Bitcoin is inevitably banned in other countries, Americans will be left holding the bag on a valueless currency.

First of all, if this is a risk that believers in Bitcoin want to take, why should the US block that? Besides there are plenty of investments that turn out to be valueless. Does Senator Manchin wish to ban all of those as well? Does he want to ban companies going bankrupt? Sometimes investments don’t work out.

Two days ago, this exchange took its website down and is no longer even accessible. This was not a unique event; news of plummeting or skyrocketing Bitcoin prices is almost a weekly occurrence.

Actually, no, it’s not. Let’s look at the market price of Bitcoin for the past year or so, from Blockchain.info:

Is it somewhat volatile? Sure. Are prices “plummeting or skyrocketing” as an “almost weekly occurrence”? Not even close. I’m sure someone with more time could easily find stocks that show plenty of volatility as well. Why isn’t Manchin looking to ban such stocks as well?

In addition, its deflationary trends ensure that only speculators, such as so-called “Bitcoin miners,” will benefit from possessing the virtual currency.

This is a key point often raised against Bitcoin, but it seems to assume that pricing can’t compensate for that, and it’s not clear that’s the case. Yes, when something is volatile, speculators are going to prevail, but that doesn’t always need to be the case.

There is no doubt average American consumers stand to lose by transacting in Bitcoin. As of December 2013, the Consumer Price Index (CPI) shows 1.3% inflation, while a recent media report indicated Bitcoin CPI has 98% deflation. In other words, spending Bitcoin now will cost you many orders of wealth in the future. This flaw makes Bitcoin’s value to the U.S. economy suspect, if not outright detrimental.

Where to start? Again, I’m sure we could find a stock or other investment opportunity that has dropped in value over the last month. But picking a arbitrarily (and ridiculously short) time frame in which to make this argument is just… well, stupid. It makes no sense. We could easily point to the inflation of Bitcoin over the past year and suggest that based on Mahcnin’s own logic that Bitcoin is a good investment. Both arguments are equally stupid.

Before the U.S. gets too far behind the curve on this important topic, I urge the regulators to work together, act quickly, and prohibit this dangerous currency from harming hard-working Americans.

I’m curious. When Wall Street put the economy in real threat, including putting tons of “hard working Americans” at risk thanks to leveraging up the money supply to insane rates, did Joe Manchin (then a Governor) ask the US government to fix these issues and ban questionable banking practices? Hell no. Instead, he supported bailing out the banks. Yet, now, suddenly, he’s worried about this tiny little corner of a currency he doesn’t even understand?

Even more ridiculous, he’s now claiming that he’s only focused on Bitcoin, and his calls for regulation don’t even apply to other cryptocurrencies, despite having many of the same features which Manchin doesn’t even seem to understand in the first place.

This is nothing more than grandstanding anyway, but these issues are going to keep coming up, and it’s important to point out when the people making these claims appear to not even remotely understand what they’re talking about. Manchin’s full letter is posted below in case you want to dig in deeper on the nuttiness.

Dear Secretary Lew, Chairwoman Yellen, Commissioner Curry, Acting Chairman Wetjen, Chairman Gruenberg, Chairwoman White:

I write today to express my concerns about Bitcoin. This virtual currency is currently unregulated and has allowed users to participate in illicit activity, while also being highly unstable and disruptive to our economy. For the reasons outlined below, I urge regulators to take appropriate action to limit the abilities of this highly unstable currency.

By way of background, Bitcoin is a crypto-currency that has gained notoriety in recent months due to its rising exchange value and relation to illegal transactions.  Each Bitcoin is defined by a public address and a private key, thus Bitcoin is not only a token of value but also a method for transferring that value.  It also means that Bitcoin provides a unique digital fingerprint, which allows for anonymous and irreversible transactions.

The very features that make Bitcoin attractive to some also attract criminals who are able to disguise their actions from law enforcement. Due to Bitcoin’s anonymity, the virtual market has been extremely susceptible to hackers and scam artists stealing millions from Bitcoins users. Anonymity combined with Bitcoin’s ability to finalize transactions quickly, makes it very difficult, if not impossible, to reverse fraudulent transactions. 

Bitcoin has also become a haven for individuals to buy black market items. Individuals are able to anonymously purchase items such as drugs and weapons illegally. I have already written to regulators once on the now-closed Silkroad, which operated for years in supplying drugs and other black market items to criminals, thanks in large part to the creation of Bitcoin.

That is why more than a handful of countries, and their banking systems, have cautioned against the use of Bitcoin.  Indeed, it has been banned in two different countries—Thailand and China—and South Korea stated that it will not recognize Bitcoin as a legitimate currency.  Several other countries, including the European Union, have issued warnings to Bitcoin users as their respective governments consider options for regulating or banning its use entirely. While it is disappointing that the world leader and epicenter of the banking industry will only follow suit instead of making policy, it is high time that the United States heed our allies’ warnings. I am most concerned that as Bitcoin is inevitably banned in other countries, Americans will be left holding the bag on a valueless currency.

Our foreign counterparts have already understood the wide range of problems even with Bitcoin’s legitimate uses – from its significant price fluctuations to its deflationary nature. Just last week, Bitcoin prices plunged after the currency’s major exchange, Mt. Gox, experienced technical issues. Two days ago, this exchange took its website down and is no longer even accessible. This was not a unique event; news of plummeting or skyrocketing Bitcoin prices is almost a weekly occurrence. In addition, its deflationary trends ensure that only speculators, such as so-called “Bitcoin miners,” will benefit from possessing the virtual currency. There is no doubt average American consumers stand to lose by transacting in Bitcoin. As of December 2013, the Consumer Price Index (CPI) shows 1.3% inflation, while a recent media report indicated Bitcoin CPI has 98% deflation. In other words, spending Bitcoin now will cost you many orders of wealth in the future. This flaw makes Bitcoin’s value to the U.S. economy suspect, if not outright detrimental.

The clear ends of Bitcoin for either transacting in illegal goods and services or speculative gambling make me weary of its use.  The Senate Homeland Security and Governmental Affairs Committee issued a report just this month stating, “There is widespread concern about the Bitcoin system’s possible impact on national currencies, its potential for criminal misuse, and the implications of its use for taxation.” Before the U.S. gets too far behind the curve on this important topic, I urge the regulators to work together, act quickly, and prohibit this dangerous currency from harming hard-working Americans.

Sincerely,
U.S. Joe Manchin III
United States Senator

Filed Under: bitcoin, chuck schumer, regulation, treasury secretary
Companies: mt gox