Dear Mr. Senator:

I write today in response to your recent announcements regarding Silk Road, which as you stated is a web service allowing people to buy and sell drugs and other items anonymously. Many of these traders are located in the United States, making their activity unquestionably illegal.

I expect you will soon receive a deluge of angry letters challenging your stance on drug policy. This is not such a letter. The law is the law and will be enforced. This letter is concerned only with matters of fact, specifically those found in your recent statements on Silk Road and Bitcoin. Much of what you have said is misleading or inaccurate as it stands.

Firstly, there is no reason to believe that Silk Road is operated from within the United States (in fact I suspect it is not). Because of the way in which the Tor anonymity network operates, Silk Road doesn't have a fixed IP address or domain name---only a Tor “hidden service address” that is not actually issued by IANA or any other central authority, and cannot be linked with any location or identity. Incidentally, the Tor anonymity network was created not by rogue hackers but by the US Naval Research Laboratory. More information on how this network operates is available at .

More concerning is that you have mischaracterized Bitcoin, the payment system used at Silk Road, by calling it “an online form of money laundering.” It is possible you were referring only to this service's manner of using Bitcoin, rather than to Bitcoin itself. I hope this is the case, because otherwise you are sorely mistaken.

Bitcoin is a decentralized internet payment system, created in 2009, whose primary feature is that money can be exchanged directly between users without the need for payment processors like PayPal or Popmoney. Bitcoin transactions are mediated not via a central service, but via a distributed network with no single point of failure. This decentralization protects Bitcoin users' financial security and personal privacy. One's “wallet” is stored on one's own computer, rather than on a central server, so fiascos like the recent Epsilon credit card data breach are impossible. Users protect their own privacy instead of delegating that task to a mega-corporation whose interests are often at odds with its users'.

Because Bitcoin is an international network, transactions are not denominated in dollars but rather in “bitcoins,” a new unit of exchange. The value of a bitcoin is not pegged to that of the dollar or any other national currency: it is determined by market forces like the value of any other commodity. Since bitcoins are not issued by a central authority, there is no one to enforce such a peg anyway.

In many ways, Bitcoin is analogous to cash. Like cash, it is absolutely controlled by its holder. Like cash, it can be given and received without fees. Like cash, once spent it is gone---there are no chargebacks or stop-payments. Like cash, its owner is responsible for keeping it secure from thieves. And, like cash, it is difficult to trace. There is no “Bitcoin, Inc.” whose records can be subpoenaed, so tracing bitcoin transactions requires old-fashioned police work.

Because of these features, Bitcoin is now being used for illegal transactions online, just as cash is used for illegal transactions in person. However, demonizing Bitcoin is about as sensible as demonizing cash. Understand that Bitcoin is being used for all sorts of transactions, most of which are quite legitimate. At this very moment there are websites offering clothes, food, web hosting, custom design, market analysis, and real estate, all in exchange for bitcoins. Earlier this weekend I bought a pound of coffee at . By using bitcoins I've been able to get better prices, since merchants don't have to cover the costs of chargeback fraud or bank fees. The fact that some people also use it for illegal activity only shows that it is an effective and efficient medium of exchange.

Mr. Senator, the fact is that money laundering networks already exist. These networks offer protection only to criminals, while ordinary law-abiding citizens regularly have their identities stolen. Bitcoin, by contrast, extends this offer to everyone. The status quo disrupted by Bitcoin is one in which privacy is the sole privilege of outlaws. If you find that state of affairs desirable, by all means campaign for Bitcoin's destruction.

Respectfully,
Ian Maxwell