After Hacks and Claims of Money Laundering, Bitcoin Returns to Life
On March 6, 2014, a gray-haired Japanese-American man in wire-rimmed glasses swept past a swarm of television crews that had been staking out his home. He jumped into a car and led a chase through Los Angeles, the likes of which had not been seen since O.J. Simpson's white Bronco hit the freeways. That morning, Newsweek had reported in a cover story that this man was the elusive inventor of bitcoin, the notorious online currency whose price has seesawed for years between pennies and thousands of dollars apiece.
But the man, Dorian Satoshi Nakamoto, eventually gave in and told the media the Newsweek report was false. The then-64-year-old, California-trained engineer said, "I did not create, invent, or otherwise work on bitcoin. I unconditionally deny the Newsweek report." Added his lawyer, Ethan Kirschner: "Newsweek terrorized Mr. Nakamoto. [The magazine] scared his elderly mother, obtained his email address by deception, and misquoted or invented quotes from both him and his brothers."
The chase and its aftermath were perhaps the most dramatic part of an insane year for the cryptocurrency, which has drawn worldwide attention and will be discussed this weekend at the fourth North American bitcoin conference at the Fillmore Miami Beach.
Bitcoin was designed to be a digital form of money -- balances are tracked only online; there are no bills or coins you can hold in your hand. It can be used almost anonymously, transferred around the world instantaneously, and moved free from the prying eyes of bankers, regulators, and law enforcement. It's been used for good -- sending funds to farmers in remote Africa via cell phone, for instance -- and evil, like money laundering and buying drugs online.
Thanks in large part to media hype that had been building around it, bitcoin peaked in November 2013 at $1,216.73, just a few weeks before last year's Miami conference was getting underway. But after a year in which several hacks, huge thefts, and bitcoin-related crimes illuminated the risks, the price of a bitcoin has fallen to $300. This year's conference takes place as two Miami men await trial for bitcoin-related money laundering and just days after a large Slovenian bitcoin exchange was hacked and $5 million worth of the currency stolen.
Still, Moe Levin, a geek-chic 26-year-old in black-frame Buddy Holly eyeglasses who organizes the Miami conference, says all of these problems have only made "bitcoin superstrong and resilient."
Born into an Orthodox Jewish family in Toronto, Levin was sent to study in Israel at age 18. That led to a scholarship in Austria, where he met a Dutch girl, whom he followed to his current home, Amsterdam. He says he's a clinical psychologist in Austria and speaks German, Dutch, Hebrew, and Arabic.
"Years ago," he explains, as though it has been eons, he got a job organizing supply-chain conferences in Europe. Execs from big companies like Starbucks would attend to scope out new technologies that might save them money.
To make something as simple as a paper cup, he explains, required multiple vendors. "Money was changing hands six or seven times, and at every step, the check or wire transfer had to clear. It was especially a problem in countries with shaky banking systems." At conferences, attendees began to talk about bitcoin as a way to speed things up. When Levin began researching it, he found there was "actually a huge community" of people using the currency.
He discovered that someone named Satoshi Nakamoto (but whose real identity remains uncertain) had proposed the idea of bitcoin in 2008 in an online technology forum. It was designed with open-source software, and all transactions were recorded online. Money was kept in online "wallets" like a SkyMiles account.
Among the first purchases came in 2010, when a programmer named Laszlo Hanyecz from Jacksonville, Florida, wanted to see if he could buy goods with bitcoin. He offered 10,000 of them in exchange for two pizzas. A computer user in England agreed, accepted the bitcoin, and had Papa John's deliver the pizzas to Hanyecz.
Levin read about all this and started organizing bitcoin conferences in Amsterdam, Chicago, and Miami. (Not because South Florida has a great tech scene but because "Miami in January is not a hard sell for most people in the world," and it's a gateway to lots of countries with "shaky regulatory or banking environments.")
The conference attendees, businesses that hoped to profit from the currency and entrepreneurs, exchanged knowledge and tips. It grew increasingly popular and drew visitors from as far away as Australia.
Photo by Isokivi via Wikipedia Commons
Then, in 2013, federal agents arrested Ross Ulbricht, the alleged founder of a murky site called Silk Road that had been used for drug purchases and other criminal activity. They seized 144,336 bitcoins worth millions of dollars. (His trial was scheduled to begin this week in Manhattan.)
Locally, the currency has also been involved in alleged crimes. On December 5, 2013, an undercover Miami Beach Police detective searching for criminals using a website called localbitcoins.com met then-30-year-old Mitchell Espinoza at Nespresso on Lincoln Road, police reports show. Espinoza sold the cop a fraction of a bitcoin for $500, thus making an $83.67 profit, prosecutors say. The detective hinted that he planned to use the bitcoin for illicit purposes.
The men met a second time, at Häagen-Dazs on South Pointe Drive. A police report shows the detective told Espinoza he needed bitcoin so he could buy "stolen credit card numbers from Russian sellers... He told Espinoza that he would be willing to trade Espinoza credit card numbers for bitcoin."
Espinoza said he "would think about it."
The agent bought one bitcoin for $1,000 in cash. Espinoza made $167.56 on the deal and was promptly charged with crimes including money laundering.
The Secret Service, which investigates financial crimes, was orchestrating a sting around the same time. On December 10, a special agent met with a man named Pascal Reid at a Starbucks in Sunny Isles Beach. Reid made about $200 selling the agent bitcoins but declined to trade the currency for stolen credit card numbers.
Last January 25, they met at the Miami Beach bitcoin conference, and the agent said he wanted to deal in quantity. Reid eventually agreed to sell the agent more bitcoins, which would have earned him a $5,000 profit. He was taken into custody on the spot and charged with money laundering.
Reid's lawyer, Ron Lowy, has argued that the money-laundering charges must be dismissed because the IRS has ruled bitcoin is not currency. The cases, which are among the first of their type, are still pending.
Other, more global problems have alarmed investors. In February 2014, a Japanese company called Mt. Gox was robbed of 850,000 bitcoins, then worth about $500 million. Last week, in Slovenia, hackers made off with $5 million in bitcoins from an exchange called Bitstamp; however, the exchange was back in business four days after the hack.
Levin, however, says using bitcoin is just as secure as online banking. And criminals are by far the exception, not the rule. Companies like Dell, Expedia, TigerDirect, and Microsoft all began to accept bitcoin in 2014 using middlemen to convert bitcoin sales into dollars. Moreover, security has recently been increased, he adds.
In Florida, the currency is rare. Kevin Alburquerque, manager of Latin House Grill in Kendall, says a year ago customers paid in bitcoin four or five times a month, but he hasn't seen a charge in a month or two. Jeremy Bufford, a Tampa entrepreneur who leads seminars about the medical marijuana business, says no one has paid with the currency for nine months or so.
So is it worth investing? At the Miami conference, a cofounder of Bitcoin magazine, an attorney who specializes in emerging technologies, and even a performance artist will speak. There's a discount if you pay with bitcoins.
One person who likely won't attend is Dorian Satoshi Nakamoto, the man who evaded the media in L.A. He briefly reappeared in the spotlight when he started a crowdfunding site, NewsweekLied, to raise money for a legal battle against the magazine, but that site has gone dark.
Get the This Week's Top Stories Newsletter
Every week we collect the latest news, music and arts stories — along with film and food reviews and the best things to do this week — so that you'll never miss New Times Broward-Palm Beach's biggest stories.