updated 11:29 pm EST, Fri February 7, 2014
Arrested for money-laundering, suspects intended to buy stolen credit cards
A recent set of arrests and raid in Miami involving a website that allowed buyers to purchase Bitcoins anonymously has exposed problems with the digital currency that may spell trouble in the long-term for Bitcoin users -- a tendency, like the shuttered Silk Road, to use the service for illegal ends. Three men have been arrested under Florida's anti-money laundering laws, using Bitcoin exchanges to move high-dollar amounts in and out of the system, intending to anonymously buy stolen credit card data.
A user of the website localbitcoins.com known as "Michaelhack," met with undercover agents and sold them a Bitcoin for $1,000 (considerably over the current value) and agreed to help them with a larger deal: converting $30,000 in cash into Bitcoins. Michaelhack (now identified as 30-year-old Michael Abner Espinoza of Miami Beach) had a history of dealing in large Bitcoin transactions (more than 150 Bitcoins at a time, currently worth $110,000). Police also seized computer systems and digital media from his residence. Espinoza had told undercover agents that he was planning to use the Bitcoins he had accumulated to buy stolen credit card numbers.
Another user, "proy33" (now identified as Pascal Reid, 29) also agreed to sell $30,000 worth of Bitcoins to undercover agents, and said he was planning to use the anonymous currency to buy credit card info stolen during the recent Target retail chain security breach. A third unnamed suspect was also apprehended in the undercover operations.
Authorities are likely to continue going after high-volume Bitcoin traders in much the same manner as they attacked drug dealers and other criminals using the Silk Road "dark market" for illicit purposes. Localbitcoins.com, while still operating, is one of the few remaining sites available to Americans that want to exchange cash and Bitcoins anonymously through face-to-face meetings or other transactions. Apple has adopted a policy of kicking out Bitcoin apps that facilitate transactions onto the App Store, though it continues to feature Bitcoin apps that let users monitor the exchange rate and other non-transactional functions.
Researcher Nicholas Weaver of the International Computer Science Institute at UC Berkeley said that the biggest problem Bitcoin faces in trying to become a legitimate currency is "actually self-imposed, because it is always hard to buy Bitcoins." Transactions involving Bitcoins, he said,are "irreversible" -- meaning nearly all transactions involve cash. "And that means you either have to wait several days for the wire transfer or bank transfer to go through, or if you want to buy them quickly, you pay with cash through a site like Localbitcoins. If you want a significant amount of anonymous Bitcoins, right now, this community is about the only mechanism still available."
A similar site, BitInstant, was forced to close last month, with the CEO of the company also arrested on money-laundering charges. He is facing allegations that he knowingly helped a Florida man convert around a million dollars' worth of Bitcoins in order to buy drugs and other illegal items on the now-closed Silk Road website.