of the International Centre for Missing and Exploited Children and an organizer of the June conference. The gathering catalyzed the creation of a task force to consider how policymakers should respond to Bitcoin's emergence. It is expected to issue its recommendations early next year.
Allen says that conversations among members of that task force have changed how he thinks about the online payment network. Allen now believes that premature regulation would be counterproductive.
"We are enthusiastic about the potential of virtual currencies and the digital economy,” Allen said in his Monday testimony before the Senate Committee on Homeland Security and Governmental Affairs. Allen said he remained concerned about the use of the currency for exchanging child pornography, but he warned that "draconian" regulations could push Bitcoin enterprises underground and overseas, where it would be much harder to police for illicit uses.
The Senate studies Bitcoin
Staff on the Homeland Security Committee, which is chaired by Sen. Tom Carper (D-Del.), had been preparing for their Bitcoin hearing for several months. Committee staffers began to study the topic in earnest in April, when the value of one bitcoin spiked to $266, generating a wave of media attention. Over the summer, committee staff interviewed around 50 experts in industry, government, academic and nonprofit organizations to learn how the Bitcoin network worked and how it might affect the economy and law enforcement. Committee staffers talked to government agencies, bankers, and technologists. They also talked extensively to representatives of the Bitcoin Foundation.
The committee consulted with Dan Kaminsky, a well-known security expert who conducted
an influential security analysis of the Bitcoin software in 2011. Staffers talked to Sarah Meiklejohn, a computer scientist at the University of California, San Diego, about whether Bitcoin is truly anonymous (it isn't). And they talked to Jerry Brito, a researcher at the Mercatus Center, a libertarian think tank. Brito testified at Monday's hearing.
In August, the committee sent a series of letters to federal agencies seeking their views on Bitcoin and other virtual currencies. Letters were sent to the Department of Homeland Security, the Treasury Department, the Federal Reserve, the Justice Department and other agencies with regulatory authority related to financial markets or online crime. The letters asked the agencies to provide details of any inquiries they had conducted into the virtual currencies, and to describe whether they had plans to regulate the currency in the future.
Meanwhile, representatives from the Bitcoin Foundation met with a number of executive branch
officials at a closed-door meeting in August. "What the Bitcoin Foundation tried to stress is that Bitcoin is less useful for [illicit] purposes than other centralized virtual currencies," said Brito, who attended the meeting. Bitcoin advocates also stressed that excessive regulation in the United States would merely push more of the Bitcoin economy overseas, where U.S. regulators might not be able to
reach it at all.
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