On Liberty Reserve And Virtual Currencies

Welcome to PYMNTS.com’s VC Voices: a weekly column where we bring you commentary from the best of the best around the world of payments investment. Want to know what the biggest backers of our industry’s innovators and disrupters think? We give our VCs 500 words of unedited space to do with as they please, so you’ve come to the right place.

In our inaugural edition, we heard from Dan Rosen, general partner at Commerce Ventures, about his experiences at FinovateSpring 2013.

In last week’s edition, we heard Matt Witheiler, principal at Flybridge Capital Partners, give us the inside scoop on what VCs think about Bitcoin.

This week, we’re joined by Matt Harris, managing director at Bain Capital Ventures, who shares his opinions on the Liberty Reserve shutdown and what it means for virtual currencies. 

On Liberty: By Matt Harris, Managing Director, Bain Capital Ventures

“The boisterous sea of liberty is never without a wave.”
-Thomas Jefferson

Big news this week from the world of criminal money transmission: Liberty Reserve, technically an online currency exchange, was shut down by the U.S. government, and its principal owners arrested. The charges stemmed from the anonymous nature of the transactions on Liberty, which drew a devoted customer base of hackers, pornographers, criminals and terrorists. Twitter was quickly abuzz with the obvious follow up question to these events: whence Bitcoin?

In the VC community, the news triggered either defensiveness or schadenfreude (two apps that come pre-installed in every VC’s psyche), largely depending on whether the individual involved had made a Bitcoin investment or not. For the true believers, neither the Liberty shut down, nor the FinCEN guidance that participants in the Bitcoin economy must be registered as money services businesses, nor presumably any future proclamations or events of any type, take anything away from the inevitability of Bitcoin’s global domination. [There is a charm to this unique brand of unsupportable bravado, to a point, and it’s very cool when it works. Point: the Internet. Counterpoint: the Segway.] For the skeptics, L’Affair Liberty is just the opening salvo in the US government’s incipient War on Bitcoin.

Both positions largely miss the point. Liberty Reserve has nothing to do with Bitcoin, or alternative currencies. Liberty is to traditional currency as Coinbase or BitInstant is to Bitcoin (or OpenCoin is to Ripple). There’s the thing itself (currency), and then there’s the means of transport; what happened here is that the US government saw an inappropriate and dangerous means of transport, and shut it down. It is not new or surprising that anyone transporting value of any type cross-border is going to have to comply with ever more onerous U.S. regulations, and it doesn’t represent a change in policy: in fact, there have been 12 such actions since 9/11. The U.S. government is concerned about a) funding terrorism and b) financial crimes. There is no c) maintaining the hegemony of the U.S. Dollar relative to crypto-currencies, and the folks who are getting paranoid about this are starting to sound like members of the tinfoil hat club.

If there is any takeaway here for the Bitcoin crowd, it’s that the notion that Bitcoin will be used for untraceable transactions is going the way of the Dodo. If you were into Bitcoin because of its anonymity, those days are over. You’ll have to return to the true last refuge of the scoundrel: U.S. Dollars, the kind that fold.

About the author:

Matt Harris is a Managing Director at Bain Capital Ventures, focusing on financial services investments. His personal blog is www.mattftw.com.

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