File 029963

Images

Text

From: Steven Sinofsk
Sent: 11/22/2013 3:48:56 PM
To: Jeffrey Epstein [jeevacation@gmail.com]
Subject: Bitcoin and DC
Importance: High
http://www.washi ngtonpost.com/blogs/the-switch/wp/2013/11/21/heres-how-bitcoin-cha rmed-washington/
I'm up 50% on my BTC investment!
Here's how Bitcoin charmed Washington
BY TIMOTHY B. LEE
• November 21 at 2:52 pm
The Bitcoin Foundation's Patrick Murck testifies before the Senate Homeland Security and Government Affairs Committee. (U.S.
Senate)
The pair of Bitcoin hearings held this week by Senate committees could have been a disaster for the
Bitcoin community. After all, Bitcoin first came to mainstream attention in 2011 when
Gawker reported on Silk Road, an anonymous online marketplace that allowed users to purchase a wide
variety of illegal drugs with Bitcoin. Sen. Chuck Schumer (D-N.Y.) denounced the site and suggested
that Bitcoin was "an online form of money laundering." A few months ago, it would have been easy to
HOUSE OVERSIGHT 029963
imagine the first congressional hearings on Bitcoin being a prelude to a federal crackdown on the
decentralized financial network.
But that's not what happened. Instead, the hearings were lovefests. All three Obama administration
officials who testified this week stressed that Bitcoin has legitimate uses and argued that no new
regulations were needed to police illicit uses of the network. Most of the other witnesses echoed those
sentiments.
That wasn't a coincidence. The cordial atmosphere of this week's hearings was the culmination of
months of careful diplomacy by Bitcoin advocates. Since the spring, leaders of the Bitcoin community
and sympathetic policy advocates have been engaging with federal regulators, lawmakers and other
influential figures inside the beltway. The result: a near-unanimous consensus that the federal
government needs to be careful to avoid hampering the growth of the world's first completely
decentralized payment network.
A tough crowd
On the morning of June 13, several dozen well-dressed Washingtonians filed into the Carlucci
Auditorium at the stately headquarters of the United States Institute of Peace. For many of the
government officials in the room, this would be their first opportunity to meet senior figures in the
Bitcoin community in the flesh. Panelists included lead Bitcoin developer Gavin Andressen and
Patrick Murck, general counsel of the Bitcoin Foundation.
The way the event was framed didn't augur well for Bitcoin. One of the conference's two sponsors
(along with Thompson Reuters) was the International Centre for Missing and Exploited Children. A
major theme of the second panel was the use of bitcoins to purchase child pornography.
"Child pornography is like Bitcoin in some ways," said Andrew Oosterbaan, who prosecutes child
pornography cases for the Justice Department. "It has intrinsic value to people who want it. The more
valuable child pornography is the new child pornography. When you add an anonymous currency,
you've taken individuals who are already incentivized to produce, given them a far more meaningful
incentive to do so."
"Bitcoin is nothing like child pornography," a visibly angry Murck shot back. "If there was one
instance of a child being abused because of Bitcoin, that's one too many. I'm a father, I think there's a
special place in hell for people who do that."
But Murck also stressed that the Bitcoin community was willing to work with federal regulators to
ensure that Bitcoin-based businesses complied with applicable laws. "I want to craft a sane regulatory
environment," he said, urging federal regulators to "engage stakeholders. Don't have secret meetings.
Have public meetings. We're all happy to live with the consequences of whatever rulemaking is open
and transparent."
Murck would get his wish for engagement, though many of the meetings would be held behind closed
doors. "We always intended that conference to be a launching point," says Ernie Allen, the president
HOUSE OVERSIGHT 029964
of the International Centre for Missing and Exploited Children and an organizer of the June
conference. The gathering catalyzed the creation of a task force to consider how policymakers should
respond to Bitcoin's emergence. It is expected to issue its recommendations early next year.
Allen says that conversations among members of that task force have changed how he thinks about
the online payment network. Allen now believes that premature regulation would be
counterproductive.
"We are enthusiastic about the potential of virtual currencies and the digital economy," Allen said in
his Monday testimony before the Senate Committee on Homeland Security and Governmental Affairs.
Allen said he remained concerned about the use of the currency for exchanging child pornography,
but he warned that "draconian" regulations could push Bitcoin enterprises underground and
overseas, where it would be much harder to police for illicit uses.
The Senate studies Bitcoin
Staff on the Homeland Security Committee, which is chaired by Sen. Tom Carper (D-Del.), had been
preparing for their Bitcoin hearing for several months. Committee staffers began to study the topic in
earnest in April, when the value of one bitcoin spiked to $266, generating a wave of media attention.
Over the summer, committee staff interviewed around 50 experts in industry, government, academic
and nonprofit organizations to learn how the Bitcoin network worked and how it might affect the
economy and law enforcement. Committee staffers talked to government agencies, bankers, and
technologists. They also talked extensively to representatives of the Bitcoin Foundation.
The committee consulted with Dan Kaminsky, a well-known security expert who conducted
an influential security analysis of the Bitcoin software in 2011. Staffers talked to Sarah Meiklejohn, a
computer scientist at the University of California, San Diego, about whether Bitcoin is truly
anonymous (it isn't). And they talked to Jerry Brito, a researcher at the Mercatus Center, a libertarian
think tank. Brito testified at Monday's hearing.
In August, the committee sent a series of letters to federal agencies seeking their views on Bitcoin and
other virtual currencies. Letters were sent to the Department of Homeland Security, the Treasury
Department, the Federal Reserve, the Justice Department and other agencies with regulatory
authority related to financial markets or online crime. The letters asked the agencies to provide details
of any inquiries they had conducted into the virtual currencies, and to describe whether they had
plans to regulate the currency in the future.
Meanwhile, representatives from the Bitcoin Foundation met with a number of executive branch
officials at a closed-door meeting in August. "What the Bitcoin Foundation tried to stress is that
Bitcoin is less useful for [illicit] purposes than other centralized virtual currencies," said Brito, who
attended the meeting. Bitcoin advocates also stressed that excessive regulation in the United States
would merely push more of the Bitcoin economy overseas, where U.S. regulators might not be able to
reach it at all.
HOUSE OVERSIGHT 029965
Those arguments seem to have made an impression, because government officials repeated many of
them at this week's hearings. The Homeland Security Committee invited representatives of three
federal agencies to testify before the committee this week. Jennifer Shasky Calvery represented the
Financial Crimes Enforcement Network, which enforces the nation's laws against money laundering.
Mythili Raman spoke on behalf of the Justice Department, whose enforcement activities have
included the shuttering the Bitcoin-based drug marketplace Silk Road. And Edward Lowery spoke for
the Secret Service, which (along with the Justice Department) was involved in shutting down e-Gold
and Liberty Reserve, two virtual currencies that the government alleged had become vast money-
laundering operations. Calvery also testified before the Senate Banking committee on Tuesday.
"Virtual currencies have yet to overtake more traditional methods to move funds internationally" for
"criminal purposes," Calvery said. She pointed out that the Bitcoin network has processed only about
$8 billion worth of transactions over the last year, compared to an estimated $1.6 trillion in "global
criminal proceeds" in 2009. Clearly, the vast majority of those transactions are using some other
financial network.
"We are attuned to the criminal use" of Bitcoin, Raman said. But "there are many legitimate uses.
These virtual currencies are not in and of themselves illegal."
Calvery agreed. "Innovation is a very important part of our economy," she said, cautioning that
premature regulation could stifle Bitcoin innovation.
The personal touch
Regulators are busy people. They're more likely to pay attention to flesh-and-blood advocates than to
anonymous Internet commenters. Murck and Andresen's trip to Washington proved to be crucial to
building productive relationships with policymakers.
Calvery was a keynote speaker at the June conference. Murck and Calvery met in the speakers' room
at the conference and had a conversation that would later lead to the closed-door August meeting
between regulators and Bitcoin advocates. The day after the June conference, Murck was introduced
to staffers on the Senate Homeland Security Committee, beginning a conversation that culminated in
this week's hearings.
Murck says that not everyone in the Bitcoin community was happy about his engagement with
Washington. The Bitcoin community has a strong libertarian streak, and many Bitcoin devotees
worried that conversations with federal regulators could help to legitimize and encourage regulation.
But to the surprise of many, the Bitcoin advocates' charm offensive actually changed the minds of
many D.C. insiders. Winning over Allen was a particular coup for the Bitcoin community. Allen's
warnings against the dangers of premature regulation were particularly effective coming from a long-
time activist against child pornography.
HOUSE OVERSIGHT 029966
"Part of the effort was not just to address these issues from a law enforcement perspective, but to
listen to the leaders of the Bitcoin movement," Allen said. And when he listened to them, he found
some of their arguments to be surprisingly persuasive.
HOUSE OVERSIGHT 029967