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World’s largest Bitcoin exchange stops some anonymous operations

bitcoin1-1By Lorenzo Franceschi-Bicchierai, Mashable

Anonymity, one of Bitcoin’s supposed biggest advantages over regular currencies, is all but gone on Mt. Gox, the world’s largest Bitcoin exchange and trading website.

The Japanese-based Mt.Gox announced on Thursday that users who want to exchange currencies into Bitcoin will need to have a verified account, providing a photo ID and a document proving his or her legal residence.

“The Bitcoin market continues to evolve, as do regulations and conditions of compliance for Mt. Gox to continue bringing secure services to our customers,” read Mt. Gox’s press release announcing the change. “It is our responsibility to provide a trusted and legal exchange, and that includes making sure that we are operating within strict anti-money laundering rules and preventing other malicious activity.”

The change comes just two days after the feds shut down Liberty Reserve, a largely unregulated online payment system accused of being a money-laundering “PayPal for criminals.”

Mt. Gox, which controls the vast majority of Bitcoin-Dollars exchanges, specified in its announcement that the change only applies to users who want to make withdrawals and deposits in fiat currencies (Dollars, Euros, etc.), but the verification requirements don’t apply to deposits or withdrawals in Bitcoin.

However, this change might be seen as the beginning of the end for Bitcoin and anonymity.

The virtual currency attracts users who want to remain anonymous while making payments online, becoming the go-to payment system on a virtual black-market Silk Road. However, Bitcoin’s anonymity features are often misunderstood. In fact, by its own nature, every transaction in Bitcoin is traceable, even years after it’s done. But many Bitcoin exchange services like Mt. Gox or U.S. based CoinLab and Coinbase didn’t require any identity verification when opening an account.

84c42b9986b8cecdea81ed6abb66c108_MIt’s unclear why Mt. Gox decided to enact this dramatic change — the press release doesn’t offer details about the decision-making process. Mashable attempted to contact Mt. Gox for further comment, and we will update the story as soon as we have more information.

The move is not, however, surprising. Mt. Gox chief executive Mark Karpeles told Forbes earlier this year that “if you try to enforce Bitcoin as an anonymous currency, it’s only going to bring more issues.”

“I believe Bitcoin can be anonymous. But it’s too early to go this way. Government entities aren’t ready, and we’re working with banks that want everything to be done correctly,” he told Forbes reporter Andy Greenberg.

This is the latest in a recent series of clashes between the Bitcoin world and legal authorities. On May 14, the U.S. Department of Homeland Security banned users of Dwolla, a money-moving service, from transferring money to and from Mt. Gox. And U.S. financial regulators have long been mulling setting rules for Bitcoin.

Image via George Frey/Getty Images

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Bitcoin is sacrificing its soul to survive

It’s been a wild couple months for digital currencies. This past week saw the  bust of Liberty Reserve for its alleged role in billions of dollars of illicit  transactions, and two days later the largest bitcoin exchange said it would now  require all accounts to be verified.

For the digital currency to survive, must it sacrifice its soul? Can it  thrive if it does?

To be sure, there are important differences between bitcoin and Liberty  Reserve. Where Liberty was effectively a black box for transactions, controlled  by a single entity, bitcoins are traded on a peer-to-peer network independent of  any central authority. (Bitcoin did have its own law-enforcement episode on May  17, when the Department of Homeland Security froze the accounts of two  U.S.-based bitcoin processors. The alleged misdeed: failing to properly  register.)

In the Liberty Reserve case, the illegalities were brash, according to U.S.  officials. One million users across the world—one-fifth of them Americans—made  55 million transactions over seven years to the tune of $6 billion, with few  questions asked while Costa Rica-based Liberty collected 1 percent,  investigators said. The network is thought to have been employed in the $45  million ATM heist for which eight people were arrested in May.

Chicago-based investment fraud attorney Andrew Stoltmann said bitcoin holders  should be spooked, because the digital exchanges have been used by criminals for  money laundering as well.

But Peter Vessenes, chairman and executive director of the Bitcoin  Foundation, was unfazed by the Liberty Reserve crackdown.

“The U.S. put out guidance recently through the Financial Crimes Enforcement  Network, and we’ve been following up on that guidance and crushing bad actors,”  he said in an interview with CNBC Asia. “We’re  seeing a bit of a sweep right now,” he said.

“There’s nothing to indicate that good players  who are working hard to stay regulated have anything to worry about.”

And there’s the rub: The techno-libertarian fantasy of an unfettered digital  currency is losing its veil of anonymity and is dependent upon ensuring the  appeasement of government regulators. It’s enough to make a cryptotarian  anarchist blanch.

(Read More: Feds in NY: Costa Rica Money Biz a Hub for  Crooks)

However, bitcoin holders also seem to have taken the Liberty Reserve bust  mostly in stride; trading volume surged significantly on the news, but nowhere  near the mid-April levels when bitcoin exchange rates swung by hundreds of  dollars in a few hours, after the Cyprus financial crisis shook faith in banking  institutions and made bitcoin an overnight sensation. The exchange rate, while  volatile by currency standards, has steadied between $100 and $140 for most of  the time since that dust settled, and was around $128 Friday, just 6 percent off  May highs, according to data on

“The $64 billion question is: Are these new safeguards window dressing, or  will they effectively handle the problems?” asked Stoltmann. “It’s such a new  phenomenon, we just don’t know.”

A truly transparent bitcoin market, with a spotlight on the identity of all  transactors, would seemingly be of little interest to criminals. But then, who  does want that? At a time when people are increasingly wary of stores  and websites collecting their personal information, Vessenes says it’s on the  consumer to scrutinize the party on the other end of a transaction, and to be  suspicious if they don’t want to pry.

“As a consumer, I stay away from companies that have questionable  know-your-customer policies,” he said. “They’re suspiciously light on how much  information they want about you.”

So if anonymity is gone and a hypervigilance about identity sharing is  required or advisable, what is bitcoin’s remaining appeal?

For one, as a currency of limited quantity—about half of the 22 million  bitcoins that can ultimately be “mined” through complicated computer data  crunching are currently on the market—it is appealing as a hedge against  inflation, said Tyler Moore, a Southern Methodist University computer science  professor who has studied bitcoin exchanges. On the other hand, when holders  become convinced that value is bound to rise, they tend to hoard their  treasure.

Moore, who has studied hacker breaches of bitcoin accounts, notes that a  downside of the digital currency is that having no central governing authority  for a currency means having no recourse when one’s account is raided.

He sees a regulated bitcoin as a feasible, if ironic, solution to keeping the  currency viable, given the exchanges cooperate. And then, he says, “criminals  will shift to a currency the authorities aren’t keeping a close eye on.”



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