In Praise of Bitcoin, With Little Regard for Banks

A hearing on the regulatory future of Bitcoin on Tuesday turned into a forum on the shortcomings of the traditional banking industry.

The hearing, called by New York State’s top financial regulator, Benjamin M. Lawsky, gave five Bitcoin advocates the chance to enumerate what they view as the advantages Bitcoin could provide over current systems of moving money around the world.

“Solutions don’t really come from the current industry,” said Cameron Winklevoss, who, with his twin brother, Tyler, has invested in Bitcoin companies. They were early players in Facebook.

Even Mr. Lawsky got in some digs when he complained that it takes three days for his bank to transfer money to pay a credit card bill at the same bank.

When Mr. Lawsky asked about efforts by banks to create their own Bitcoin alternatives, Fred Wilson, a leading venture capitalist at Union Square Ventures, said “no one is going to build on top of JPMorgan Chase’s Bitcoin.”

JPMorgan’s chief executive, Jamie Dimon, went on the record last week and played  down the potential of virtual currencies like Bitcoin, which have become so hot over the last year. Bitcoin aficionados argue that digital money could provide a way to circumvent the transaction fees and penalties charged by banks.

The hearing underscored just how ambitious Bitcoin advocates are in their desire to create a new payment system. For his part, Mr. Lawsky showed openness to regulations that would encourage the new technology.

“We need to think internally about how we can be a more modern, digital regulator,” he said. Mr. Lawsky has proposed the creation of a BitLicense for virtual currency firms, but the concept rarely came up on Tuesday.

Regulators have so far been reluctant to come up with specific rules for virtual currencies or even to specify who should be supervising them. Mr. Lawsky indicated on Tuesday that he hopes to make New York the first state to provide regulatory clarity.

The panel on Tuesday morning was the first of five during a two-day hearing, and some of the other testimony may provide a more critical look at Bitcoin. But even Tuesday morning’s panel was not entirely friendly. The panelists suggested they were suspicious of any regulations that would force virtual currency start-ups to follow the same money-laundering laws imposed on traditional banks.

“If that’s the condition of a company starting, than maybe we don’t do it in the United States,” said Jeremy Liew, a partner at Lightspeed Venture Partners, a firm that invests in Bitcoin companies.

But Mr. Lawsky and his colleagues said that the industry was going to need to find a way to operate under the same laws as other financial firms.

“If the choice for regulators is to permit money laundering on the one hand, or to permit innovation on the other, we are always going to choose squelching the money laundering first,” he said.

Hanging over the hearing was the criminal complaint unsealed on Monday against a leading Bitcoin entrepreneur, Charles Shrem, and a business partner, who were accused of helping people buy drugs online using virtual currencies.

During the hearing, the Bitcoin Foundation, where Mr. Shrem was vice chairman, put out a statement indicating that Mr. Shrem had resigned on Tuesday.

Mr. Lawsky said the arrest shows the possibility that virtual currencies could be used to smooth the way for illegal activity. But the people testifying said that Mr. Shrem’s arrest showed that current laws are enough to stop wrongdoing in the Bitcoin universe, particularly because all transactions are recorded on a public ledger.

In the end, the panelists did much more than defend Bitcoin â€" they spoke about it as an almost messianic force for good in the world.
“It’s about freedom, ultimately, and whether you want to live in a society that embraces innovation and free speech and freedom or not,” Mr. Wilson said.

A minute later, Tyler Winklevoss echoed that: “Back to what Fred said: Bitcoin is freedom. It’s very American.”