a more vigorous crackdown
on the industry.
The
hearing
itself
couldn’t help being colored
by
Charlie’s
arrest.
In
addition to the Winklevoss
twins, Barry Silbert, who had
wanted to invest in Charlie
back in 2012, was there to
testify, as was Fred Wilson,
the
respected
venture
capitalist who had a number
of run-ins with Charlie over
the years. The only panelist
with no tie to Charlie was
Jeremy Liew, the California-
based venture capitalist who
had put money into Bobby
Lee and BTC China.
The people who had been
invited to appear on the panel
showed that since the Senate
hearing three months earlier,
the center of influence within
the Bitcoin community had
shifted toward Silicon Valley
and away from the Bitcoin
Foundation that Charlie had
helped create.
When Lawsky, in his first
round of questions, asked
about Charlie’s arrest, none
of the panelists came to
Charlie’s
defense.
The
Winklevoss
twins
had
released a statement the
previous day suggesting that
they had been betrayed by
Charlie’s
behavior.
Both
Wilson and Liew emphasized
that Charlie was part of an
early Bitcoin community, in
which the seeming anonymity
of the technology was the
most attractive quality.
“It turns out that the
market of radical libertarians
is not very big,” Liew said in
his Australian accent.
The diminishing interest
in anonymity and central
banks did not mean that the
panelists
had
modest
ambitions for Bitcoin. They
talked about how this new
form of money—and the
ledger on which it ran—could
allow for new kinds of stock
exchanges and other things
that hadn’t even been thought
of yet.
“When you are offering
free,
radically
reduced
transactions costs, and when
you are offering the ability
for programmable money that
can put a lot of additional
functionality on money, then
you are talking about a
market size of everybody in
the world,” Liew said.
All
the
panelists
compared Bitcoin in its
current form to the Internet in
1992 or 1993, before the first
web browser. Back then,
there had been lots of
excitement in a small circle of
technologists about what the
Internet protocol could do,
but
the
programs
and
infrastructure did not yet exist
to make it accessible to
ordinary people. It had, at the
time, been dominated by
fringe communities willing to
try out untested technology.
In 2014, similarly, the Bitcoin
protocol wasn’t being used in
any particularly compelling
way, but that didn’t mean it
wouldn’t be in the future once
people discovered customer-
friendly ways to harness it.
“We are at the beginning
of an exciting time, not just
for investors but for all of
society,” Wilson said.
As the hearing went on, it
became increasingly clear
that Lawsky and the two
deputies who were helping
him ask questions were eager
to work with, rather than
against, their panelists.
“A lot of people initially
react to something new like
this
with
immediate
skepticism. All of us should
resist being overtaken by that
urge,” Lawsky said. “We
want to make sure we don’t
clip the wings of a fledgling
technology before it ever gets
off the ground. We want to
make certain that New York
remains
a
hub
for
innovation.”
Lawsky was a boyish
figure with big, attention-
grabbing ambitions. In late
2013 he had announced his
plans to create what he called
a BitLicense for virtual-
currency companies. At the
hearing he appeared less the
hard-edged interrogator and
more the slightly nerdy kid
trying to get in with the cool
tech kids. If nothing else, it
was evident that he thought
this
was
an
interesting
enough technology that he
did not want New York to be
left out as it developed.
“We
need
to
think
internally about how we can
be a more modern digital
regulator,” he said. “It’s not
simply what our rules are, it’s
also who we employ, how
quickly we act. There’s a lot
to do.”
WHILE
THE
BITCOIN
community seemed to have
made significant headway
with regulators, it was having
less success with the banks,
particularly after Charlie’s
arrest.
“Not good” was the
simple message that Patrick
Murck got, in an e-mail, on
the day that Charlie’s arrest
was
announced,
from
a
contact at Wells Fargo who
had been eager for the bank
to work with virtual-currency
companies.
Charlie resigned from his
position as vice chairman of
the Bitcoin Foundation on the
same day as the hearing in
New York, but that didn’t
help. Another executive at
Wells Fargo let Pete Briger
know that the bank would not
be able to move forward with
the joint project with Fortress.
Even before Charlie’s
arrest,
there
had
been
indications that the openness
that the banks had exhibited
toward Bitcoin, after the
Senate hearing in 2013, was
now coming to a close. Aside
from the reputational risks of
Bitcoin, the main hurdle that
most banks came up against,
internally, was concern about
money laundering. Regulators
expected banks to keep track
of the source and destination
of all transactions going in
and out, to ensure that the
banks
were
not
doing
business with terrorists and
mobsters. This was generally
not
hard
because
banks
around the world were forced
to keep records on all
accounts and all transactions.
But banks had faced billions
of dollars in fines in 2013 for
not adequately monitoring
transactions
coming
from
countries like Iran that faced
economic sanctions. Many
bank
compliance
officers
determined that it would be
all but impossible to know
where money flowing into
Bitcoin
companies
was
ending up. Customers at a
Bitcoin
exchange
could
convert their dollars into
virtual currency and then
transfer the virtual currency
to an unmarked address.
Jamie Dimon, the chief
executive of the nation’s
largest
bank,
JPMorgan
Chase, had told CNBC in late
January