Senators Want an Investigation into Bitcoins

Since its inception, enthusiasts and watchers of virtual P2P currency Bitcoin have wondered aloud whether the government would tolerate a decentralized, difficult-to-track cryptocurrency which could in theory — and in some cases even in practice — be used to pay for illegal drugs and prostitution. As of this week, this question has become a less hypothetical one, with Senators Charles Schumer and Joe Manchin writing a letter addressed to U.S. Attorney General Eric Holder and DEA head Michele Leonhart expressing their concerns about Bitcoin.

The senators’ letter comes on the heels of a Gawker report on Silk Road, an online marketplace whose users can exchange Bitcoins for “any drug imaginable.”

Reuters:

“The only method of payment for these illegal purchases is an untraceable peer-to-peer currency known as Bitcoins. After purchasing Bitcoins through an exchange, a user can create an account on Silk Road and start purchasing illegal drugs from individuals around the world and have them delivered to their homes within days,” the senators’ letter states. “We urge you to take immediate action and shut down the Silk Road network.”

The DEA is “absolutely” concerned about Bitcoins and other anonymous digital currencies, agency spokeswoman Dawn Dearden said when asked for a response to the senators’ concerns.

“The DEA is constantly evaluating and analyzing new technologies and schemes perpetrated by drug trafficking networks. While we won’t confirm or deny the existence of specific investigations, DEA is well aware of these emerging threats and we will act accordingly,” she said.

While the senators notably do not appear to be advocating for a shutdown of Bitcoins themselves (should such a thing indeed be possible), Bitcoin users have expressed concern that a crackdown on Bitcoin exchanges with bank accounts — the chokepoints where users trade cash for Bitcoins — could be on the horizon.

But government action isn’t the only reason would-be early adopters should be cautious about Bitcoin: For a good general critique, see Adam Cohen’s on Quora.

(Reuters via Techmeme)