Controversy arises as new Blockchain Alliance engages with US law enforcement

The Blockchain Alliance is a new, nonprofit organization founded by bitcoin advocacy groups the Chamber of Digital Commerce and Coin Center. It aims to serve as a “public-private forum,” where members speak over a shared email group, in order to discuss bitcoin and blockchain related criminal activities, such as the dreaded Cryptolocker extortion scam.

“Today we announced the formation of the Blockchain Alliance, a forum for law enforcement and regulators to ask questions of each other and to share information, and for law enforcement and regulators to get technical assistance from industry on understanding the blockchain.”
— – Jerry Brito, Coin Center Executive Director

Advising the alliance is Dr. James Newsome, former chair of the CFTC, and legal counsel Steptoe & Johnson, LLP. Participants include a range of 16 bitcoin services.

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• CoinBase
• BitPay
• Xapo
• Circle
• BitFinex
• BitStamp
• ItBit
• Kraken

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• BitGo
• Blockchain
• BitFury
• Bloq
• Bitnet
• CoinX
• Noble Markets
• MIT Media Lab’s Digital Currency Initiative

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"The companies participating in this initiative are not only good companies, but they are also good corporate citizens. For the blockchain to thrive, the industry must work together to correct the misperception of bitcoin as the ‘currency of criminals’."
— – Jason Weinstein, Blockchain Alliance Director and Partner at Steptoe & Johnson LLP

An obvious hurdle in the path of Bitcoin’s mass adoption is the misconceived association of bitcoins with crime. It’s of little mystery why so many upstanding pillars of the bitcoin community would want to create an organization that helps bury those associations.

"Like the Internet 20 years ago, blockchain is a technological phenomenon that opens many possibilities. Just like with the Internet, some have used this innovative technology in illegal ways. We fully understand the importance of combating the criminal activity around bitcoin blockchain. The Blockchain Alliance is an important initiative that will add transparency and help improve public perception of bitcoin blockchain."
— – Valery Vavilov, BitFury CEO

Across the table, the Blockchain Alliance is engaged with seven U.S. agencies.

• The U.S. Department of Justice (DoJ)
• The U.S. Department of Homeland Security Investigations (DHS)
• The U.S. Federal Bureau of Investigation (FBI)
• The U.S. Secret Service (SS)
• The U.S. Department of Immigration and Customs Enforcement (ICE)
• The U.S. Marshals Service (USMS)
• The U.S. Commodity Futures Trading Commission (CFTC)

There are also plans to engage with other U.S. and foreign agencies in the future. "It’s no secret that Bitcoin has perception issues, which is a roadblock to mainstream adoption. Having an open dialogue with law enforcement and policymakers will help reduce anxiety about this transformative technology," states Perianne Boring, Chamber of Digital Commerce President.

With so many U.S. law enforcement departments, many of which have a history with the Bitcoin community, it should be no surprise that opinions are divided about the new alliance, in the libertarian-leaning bitcoin community.

Perhaps the most vocal opponent, Bruce Fenton, is the current Executive Director of the Bitcoin Foundation and Founder of Atlantic Financial. Fenton has been posting across a range of social media outlets, detailing his disappointment in the move.

“I pointed it out when the Lawsky fiasco began and my message was not heard widely enough. I’m telling you again: this will be a bad thing for Bitcoin”
— – Bruce Fenton

Fenton laid out his concerns for the Blockchain Alliance, stating “I can see that this will also be a massive train wreck that will again harm the industry I care so much about.”

“Today’s Blockchain Alliance announcement is one of the most sad and discouraging things I’ve seen in ‪#‎Bitcoin‬ — an alliance of tech companies with the DHS/ TSA, ICE and the same FBI who seeks Snowden ….all led by the DOJ prosecutor poster child for Fast & Furious? How could anyone think this is a good idea?”
— – Bruce Fenton

Jason Weinstein is the “poster child” Fenton referred to, he will serve as Director of the newly formed Blockchain Alliance, and is currently Partner at Steptoe & Johnson LLP. “Fast & Furious,” was a DOJ scandal where more than 2,000 US-purchased guns were sold to drug cartels by US agents.

Weinstein resigned when the Justice Department inspector general’s report on the operation was released. "[Deputy Assistant Attorney General Jason Weinstein] was the most senior person in the Department in April and May 2010 who was in a position to identify the similarity between the inappropriate tactics used in Operations Wide Receiver and Fast and Furious," states the report.

While believing in good engagement with law enforcement, Fenton was quick to point out that these particular are not lawmakers or regulators, just enforcers. “no amount of convincing will get them to relax, consider or change policy.”

“Meanwhile, derivatives scams, penny stock pumping schemes, dishonest bond underwriting, conflicts of interest, corrupt rating services, fraudulent marketing and outright frauds run rampant.”
— – Fenton

Although less vocal, one of the first venture capital investors in bitcoin, Roger Ver, appears to agree with Fentons opposition, stating that “regulators aren’t adept at catching bad actors, but are far more adept at creating hurdles for legitimate business.”

There have been many others weighing in on forums and social media, questioning the possibility of backdoors being built into bitcoin service provider platforms. Legally mandated backdoors for data access have been an ongoing topic of discussion in the US.

The Obama Administration recently said that it won’t support legislation forcing firms to decode encrypted messages. But this didn’t provide much solace for privacy advocates, the administration says it will pursue other means to get people’s data.

This means that the federal government won’t be forcing companies to build backdoor access into their services and devices any time soon, a measure that many intelligence agencies have been asking for.

Instead of pushing for formal legislation mandating backdoors, the administration has decided that it will continue its efforts to informally pressure companies into creating a way for the government to look at people’s data when they are under investigation.

“The administration has decided not to seek a legislative remedy now, but it makes sense to continue the conversations with industry.”
— – FBI Director James B. Comey

Jerry Brito reiterated this point, “The Blockchain Alliance is not a backdoor for the government to get information about companies or their customers.”

“The protection of privacy and civil liberties is paramount. The discussions between industry and government through the Blockchain Alliance will not be about particular investigations or targets. Rather, they will be higher-level discussions about typologies, trends, and technical issues. The participating companies would not share information about their customers/users except as required by law.”
— – Brito

Ver disagrees, “It’s also important to remember that the biggest danger in this world isn’t from evil people. It is from good people who blindly obey the orders of evil people because they imagine them to have "authority." Hitler, Stalin, Mao, and other evil people wouldn’t have been able to accomplish anything if it wasn’t for the basically good people who blindly followed their orders.”

Core Developer Gavin Andresen, who is the Bitcoin Foundation’s Chief Scientist, doesn’t agree with Ver in this case, and believes that engaging with law enforcement will help bitcoin grow. “I still think engaging is the best strategy.”

“Yes, there will be more failures like the BitLicense, but overall I think every positive interaction with law enforcement or regulators helps move opinions from ‘Bitcoin is Evil and must be eliminated’ towards ‘Bitcoin is an innovative technology that should be allowed to grow’."
— – Gavin Andresen

No one appears to doubt that the Alliance members’ intentions are sincere, but it is clear that experts in the bitcoin space are divided on whether the endeavour will be useful or damaging. Perhaps Andreas Antonopoulos provided the most persuasive argument, when he stated the alliance is a “terrible idea.”

“Spend money fighting poverty, not phantom threats used as excuses to fund war and surveillance… If you want to help law enforcement, blow the whistle on a fat cat banker."
— – Andreas Antonopoulos