To grow, Bitcoin may need to shed its world of intrigue

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A chain of block erupters used for Bitcoin mining is pictured at the Plug and Play Tech Center in Sunnyvale, California. (Reuters) A chain of block erupters used for Bitcoin mining is pictured at the Plug and Play Tech Center in Sunnyvale, California. (Reuters)
SummaryThe loss of much of the anonymity of Bitcoin trading may diminish its appeal.

Bitcoin enthusiasts were buzzing about the arrest of a high-profile promoter of the digital currency at Monday night's weekly Bitcoin trading session in Manhattan's financial district.

Charlie Shrem's detention on money laundering charges the day before shocked New York's Bitcoin community, which meets in a small conference room to trade the currency. It is contemplating the end of a world of intrigue away from the watchful eyes of police and regulators.

"Charlie's a good kid, and he serves good drinks," said Jacob Dienelt, who trades Bitcoins himself.

Shrem, 24, partly owns a bar in Manhattan that accepts Bitcoins as payment.

Dienelt was acting as an unofficial spokesman for a community that has come under intense scrutiny as authorities crack down on illegal activity carried out using the currency.

Dienelt said he wanted the world to know Shrem, who was charged on Monday with conspiracy to commit money laundering and operating a money changing business without a license, was not a bad person. Shrem, who resigned as vice chairman of the Bitcoin Foundation after his arrest, is presumed innocent, his lawyer Keith Miller said on Monday.

One thing is clear, though, after a week that included not only Shrem's arrest but also two days of testimony about Bitcoin regulation to a panel of financial regulators in New York: Bitcoin users are finding that their freewheeling ways are no longer acceptable. Tighter controls will undermine the anonymity that had been a major attraction of the digital currency.

The pressure is on promoters of Bitcoins, which are not backed by a government or central bank and whose value fluctuates according to demand, to either comply with the demands of the police and regulators or face prosecution.

The authorities are not only swooping down when they suspect criminal activity but regulators also want to set rules for Bitcoin entrepreneurs in the same way they police banks and others in the traditional financial system. In particular, they are demanding reporting of any suspicious transactions. New York's top financial regulator on Tuesday even raised the idea of creating a "BitLicense" - rather like a banking license - for those who provide marketplaces where Bitcoins can be exchanged for dollars and other currencies.

SILK ROAD

The old Bitcoin world spawned people such as 29-year-old Ross Ulbricht, who was charged in October with counts relating to drug trafficking, money laundering and computer hacking. Prosecutors accused Ulbricht of involvement in the anonymous Internet marketplace Silk Road, which they said

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