A new report from the Government Accountability Office is highly critical of the current approach by federal agencies towards Bitcoin. After analyzing all the current operations and interagency working groups, the report concludes that federal agencies have failed to take action to protect ordinary Bitcoin consumers from scams, thefts and hacks.
The report concludes that despite the acknowledgment by all federal agencies of Bitcoin’s and other cryptocurrencies’ positive benefits in fostering economic growth, allowing cheaper and faster transactions, increasing financial privacy and increasing access to financial products for the unbanked, government agencies have nonetheless solely focused on its use for drug purchasing and money laundering and have failed to address consumer protection issues which may benefit ordinary users.
Failure to Investigate MT Gox
The report details a number of past operations related to Bitcoin, including Silk Road and the seizure of MT Gox’s accounts in May 2013 amounting to $5.1 million. Conspicuously missing is any investigation of the sudden closure of MT Gox in February 2014, which remains a mystery. Despite claims of losses of 850,000 Bitcoins, 200,000 of which were later puzzlingly claimed to have been “found,” MT Gox has presented no evidence of theft, loss, or disappearance.
The “disappearance” of almost a million Bitcoins has shocked the community, which recently expressed rage at the tweets of cat pictures by the CEO of MT Gox. What is more angering for many MT Gox creditors is the perceived silence from any government agency on any investigation of what many claim to have been fraud or an inconsistent and misleading account of events by Mark Karpeles.
The Government Accountability Office report further highlights this silence by failing to mention any action from any government agency towards MT Gox, strengthening the report’s conclusion that government agencies have failed to act to protect consumers.
Failure to Investigate Possible Fraud
Despite the closure of numerous exchanges in abrupt and suspicious circumstances, taking with them millions of dollars, such as Bitcoinica in 2012, WeExchange in November 2013, Poloniex, Flexicoin and Neo and Bee in March 2014, there have been no public statements from any government agency of any investigation of any of these incidents. Highlighting a complete disregard for the protection of consumers through deterring such actions by punishing fraudulent business practices.
Failure to Investigate Bitcoin Thefts
Another area highlighted is the failure of any government agency to take action against hackers to prevent, disrupt, or punish Bitcoin thieves. Despite numerous reports on reddit and other Bitcoin forums of hacks of varying amounts leading to loss of bitcoins, including the hacking of numerous exchanges, no public statement has been made by any government agency that they are investigating such incidents.
Almost five years after Bitcoin and other cryptocurrencies came to light, there remains no known instance of any Bitcoin thief being arrested or charged with stealing bitcoins from ordinary consumers or exchanges despite the estimates that such thefts amount to hundreds of millions of dollars at the current exchange rate.
The report argues that too much emphasis, and by implication funding, time and resources, have been dedicated to disrupting voluntary transactions of drug purchasing at the great expense of investigating real crimes such as instances of theft and fraud.
In a recent study, a law professor and a professor of criminal science concluded that the ability to purchase drugs on Silk Road directly led to a fall in violence. Further strengthening the argument that the war on drugs has been an abysmal failure, leading to gang warfare, the creation of ghettos in cities, and levels of violence in Mexico that amounts to almost a state of civil war.
Today’s report highlights another victim of the war on drugs. With resources necessarily limited, real crimes such as theft go uninvestigated and real criminals go unpunished, directly causing harm to businesses and ordinary consumers. The resources that would be used towards deterring theft and fraud are instead wasted on a war on drugs that is impossible to win with federal agencies chasing phantoms as each hydra head is replaced by ten more due to the artificially lucrative economic incentives of drug commerce.
Many argue that this misguided approach has cost digits off economic growth, has hampered innovation due to unpunished thefts, and is a direct cause of armed violence.
No Calls for Regulation
Today’s report further illustrates a fallacy in the argument that Bitcoin is unregulated. The report does not call for more regulations as federal agencies have the legal power, authority, expertise and resources to ensure compliance with current regulations which apply to Bitcoin, just as much as to fiat. The report instead implies that government agencies have failed to apply current regulations to protect ordinary consumers from financial theft or fraud, focusing instead solely on the war on drugs.
The report concludes by calling for higher emphasis on protecting consumers from theft or fraud and implicitly asks for the allocation of more resources towards investigating Bitcoin thefts and fraudulent business closures.