Sen. Joe Manchin's (D-W.Va.) anti-Bitcoin letter to federal regulators seems to be getting just the sort of response that supporters of the virtual currency are hoping for. Fed Chair Janet Yellen, one of the recipients of Manchin's letter, says the Federal Reserve doesn't actually have the authority to regulate or ban Bitcoin, much as Manchin might want it to.
"To the best of my knowledge, there's no intersection at all, in any way, between Bitcoin and banks the Federal Reserve has the ability to supervise or regulate," Yellen said before the Senate on Thursday. (Not yet, at any rate.)
Cryptocurrency defenders argue that by singling out Bitcoin as a target, Manchin reveals a lack of understanding about virtual currency more generally. Bitcoin is pretty much like digital cash: You keep it in a wallet, you can buy real-world goods and services with it, and transactions can be difficult to trace. Manchin finds the last of these qualities dangerous and objectionable. In a way, he's right to worry about how the currency could be used. But it's unfair to level the anonymity charge against Bitcoin when it's been a hallmark of a technology we've had since the dawn of the modern economy.
Replacing "Bitcoin" with "cash" changes very little about Manchin's warning against anonymity:
The very features that make cash attractive to some also attract criminals who are able to disguise their actions from law enforcement. Due to cash's anonymity, the physical market has been extremely susceptible to pickpockets and scam artists stealing millions from cash users. Anonymity combined with cash's ability to finalize transactions quickly, makes it very difficult, if not impossible, to reverse fraudulent transactions. Cash has also become a haven for individuals to buy black market items. Individuals are able to anonymously purchase items such as drugs and weapons illegally.
Now, it certainly is possible to trace some cash transactions. And Bitcoin's price volatility makes it a highly risky investment. But to say that we should fear Bitcoin because it enables illicit behavior is a poor argument.