Home' Policy Magazine : Policy Vol 29 - No 4 Contents 11
POLICY • Vol. 29 No. 4 • Summer 2013–2014
JERRY BRITO AND ANDREA CASTILLO
ese properties combine to create a payment
system that could lower transactions costs in
business and remittances, alleviate poverty, provide
an escape from capital controls and monetary
mismanagement, allow for legitimate fnancial
privacy online, and spur new fnancial innovations.
On the other hand, as ‘digital cash,’ Bitcoin can
be used for money laundering and illicit trade.
Banning Bitcoin is not the solution to ending
money laundering and illicit trade, just as banning
cash is not a solution to these same ills.
Bitcoin could ultimately fail as an experimental
digital currency and payment system. An
unanticipated problem could arise and undermine
the bitcoin economy. A superior cryptocurrency
could outcompete and replace Bitcoin. It could
simply zzle out as a fad. e possibilities for
failure are endless, but one reason for failure should
not be that policymakers did not understand
its workings and potential. We are ultimately
advocating not for Bitcoin but for innovation.
It is important that policymakers allow this
experimentation to continue. Policymakers should
work to clarify how Bitcoin is regulated and
to normalise its regulation so that we have the
opportunity to learn just how innovative Bitcoin
1 David Chaum, ‘Achieving Electronic Privacy,’ Scienti c
American (August 1992), 96–101.
2 ‘Markets,’ Bitcoincharts, http://bitcoincharts.com/markets/.
3 Christof Paar, Jan Pelzl, and Bart Preneel, ‘Introduction to
Public-Key Cryptography,’ in Christof Paar and Jan Pelzl
(eds), Understanding Cryptography: A Textbook for Students
and Practitioners (New York: Springer, 2010), Chapter 6.
Sample available at http://wiki.crypto.rub.de/Buch/
4 Miners tend to be ordinary computer enthusiasts, but
as mining becomes more difficult and expensive, the
activity will likely become somewhat professionalised.
For more information, see Alec Liu, ‘A Guide to Bitcoin
Mining,’ Motherboard (22 March 2013).
5 Ken Tindell, ‘Geeks Love the Bitcoin Phenomenon
Like Tey Loved the Internet in 1995,’ Business Insider
(5 April 2013).
6 Note that this might be a boon to economic researchers.
7 Bitcoin wiki, s.v. ‘Address,’ https://en.bitcoin.it/
8 Elli Androulaki, et al. ‘Evaluating User Privacy in Bitcoin,’
IACR Cryptology ePrint Archive 596 (2012).
9 Fergal Reid and Martin Harrigan, ‘An Analysis of
Anonymity in the Bitcoin System,’ in Yaniv Altshuler, et
al. (eds) Security and Privacy in Social Networks (New York:
Springer, 2013), http://arxiv.org/pdf/1107.4524v2.pdf.
10 Dorit Ron and Adi Shamir, ‘Quantitative Analysis of
the Full Bitcoin Transaction Graph,’ IACR Cryptology
ePrint Archive 584 (2012).
11 Entity merging is the process of observing two or more
public keys used as an input to one transaction at the
same time. In this way, even if a user has several diferent
public keys, an observer can gradually link them
together and remove the ostensible anonymity that
multiple public keys is thought to provide.
12 Micha Ober, Stefan Katzenbeisser, and Kay Hamacher,
'Structure and Anonymity of the Bitcoin Transaction
Graph,’ Future Internet 5:2 (2013).
13 Tom Simonite, ‘Bitcoin Hits the Big Time, to the
Regret of Some Early Boosters,’ MIT Technology Review
(22 May 2013).
14 Gabrielle Karol, ‘Small Business Owners Say Bitcoins
Better an Credit Cards,’ FOX Business, Small Business
Center (12 April 2013).
15 Bailey Reutzel, ‘Why Some Merchants Accept Bitcoin
Despite the Risks,’ Payments Source (21 May 2013).
16 Emily Maltby, ‘Chargebacks create business headaches,’
e Wall Street Journal (10 February 2011). One such
scam involves Alice sending Bob a PayPal payment for a
laptop that Bob has listed on Craigslist. Alice comes by
Bob’s house, picks up the laptop, and soon thereafter
initiates a ‘charge-back’ (i.e. reverses the payment).
PayPal generally requires proof of shipment before
reversing a charge-back, so Bob is out of luck.
17 Vitalik Buterin, ‘Bitcoin Store Opens: All Your
Electronics Cheaper with Bitcoins,’ Bitcoin Magazine
(5 November 2012).
18 Amazon listing for a Samsung Galaxy Note tablet,
19 Bitcoin store listing for a Samsung Galaxy Note tablet,
Products on the Bitcoin store are priced in both bitcoins
and US dollars. At the point of purchase, Bitpay, a Bitcoin
payment processing company, determines the currency
conversion rate and holds that price for 15 minutes.
See the Bitcoin Store FAQ, www.bitcoinstore.com/faq.
20 World Bank Payment Systems Development Group,
Remittance Prices Worldwide: An Analysis of Trends in
the Average Total Cost of Migrant Remittance Services
(Washington, DC: World Bank, 2013).
21 As above.
22 Jessica Silver-Greenberg, ‘New rules for money transfers,
but few limits,’ e New York Times (1 June 2012).
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