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Bitcoin Beyond the Reach of Government

When talking about the online currency Bitcoin – a currency backed not by any nation state, but instead a series of mathematical rules – coverage tends to focus either on the surging value of each coin (currently about $130 or £85) or the fact that Bitcoins are quite a handy way to buy drugs online, using the Silk Road website.

Both are of interest, but are roughly akin to focusing on how the aeroplane might disrupt the hot-air balloon industry: it's true, but drastically misses the true potential of an innovation to change the world – for good or for ill.

The real transformative power of Bitcoin, or something like it, lies not in a speculative bubble, but in its potential to put currency outside of the control of governments, or law enforcement agencies.

What that could mean has been brought to light by a massive international investigation into a different online currency, Liberty Reserve, which now stands accused of involvement in a $6bn money laundering scheme.

Liberty Reserve, which operated out of Costa Rica, was a centralised "gateway" currency, making transactions hard to trace. People needed to provide only minimal details – name, email, address and date of birth – to open an account, making it an easy way to make money traces disappear.

In pre-prepared remarks, Preet Bharara, the US attorney for the southern district of New York, described the site in damning terms.

"The only liberty that Liberty Reserve gave many of its users was the freedom to commit crimes, as it became a popular hub for fraudsters, hackers, and traffickers," he said. "And the global enforcement action we announce today is an important step towards reining in the wild west of illicit internet banking. As detailed in the indictment, Liberty Reserve was intentionally created and structured to facilitate criminal activity. It was essentially a black market bank."

Law enforcement has finally caught up to the weakest link in the maze of virtual back streets, false-facers and more: the trail of money. Trying to trace a hack is often almost impossible, but trying to follow where – say – stolen money goes is far more doable.

That's not an easy task – securing the Liberty Reserve indictment took 17 law enforcement agencies. But given the extensive record-keeping in traditional banking, regulations around moving money across borders, and more, chasing the cash is a far easier task than trying to follow sophisticated online operators with experience of covering their tracks.

Unless, of course, some unknown genius (or group of clever people) invents a currency that so far lies beyond such regulations, is to all intents and purposes untraceable, and doesn't require even the minimal information requested by Liberty Reserve.

Or, in other words, something exactly like Bitcoin.

Source: Guardian

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