Last week, the Department of Justice shut down a private online currency service called "Liberty Reserve." I had never heard of it, but according to the government lawsuit, Liberty Reserve anonymously processed "more than 12 million financial transactions annually, with a combined value of more than $1.4 billion." Liberty Reserve promised to redeem their digital dollars for US dollars, Euros, or gold. Good for them! Many of us who fear government will inflate the currency so our savings are meaningless would like to have an alternative currency to protect against that.
However, the Department of Justice claims that "virtually all of Liberty Reserve's business is derived from suspected criminal activity" like:
-- traffickers of stolen credit card info
-- Ponzi scheme sites
-- computer hackers
-- unregulated gambling sites
-- drug-dealing websites
"Virtually all"? I doubt it.
I understand that governments want to monitor financial transactions to fight crime and tax evasion. Liberty Reserve did not report transactions to governments.
But private currencies also have legal uses: Aside from hedging inflation, and they let people avoid high bank fees. Liberty Reserve was used by financial day-traders in poor countries with underdeveloped banking systems.
The next question: Will government try to crush Bitcoin? (I hope not - I own some)
It would be harder for government to shut Bitcoin down because it is decentralized --not run by any one company. As of now, the regulatory guidance issued appears to say that digital currencies are fine as long as exchangers of the currency get licenses that require them to report buying and selling to the government.
We'll keep watching this.