Bitcoin's Speedy Fall: EFF Halts Donations and Wikileaks Cashes Out
Faith in the virtual Bitcoin currency continues to drain following multiple heists and hacks of users' digital wallets. The latest bad news comes from the Electronic Frontier Foundation (EFF), a digital rights advocacy group, who stopped accepting Bitcoin donations on Monday citing "complex legal issues" that they didn't want to get into. The move at first glance seems odd for the San Francisco-based nonprofit, which champions the preservation of anonymity on the web and has supported peer-to-peer networks like LimeWire in the past.
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Heralded by some as the future of digital currency, Bitcoin dipped in value after hackers brought down Mt.Gov, the world's largest marketplace on Sunday--an indication that the experiment was in its death throes according to Forbes blogger Tim Worstall.
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Likewise, EFF sounds very skeptical of Bitcoin's future in explaining their reasons for halting Bitcoin donations:
1. We don't fully understand the complex legal issues involved with creating a new currency system. Bitcoin raises untested legal concerns related to securities law, the Stamp Payments Act, tax evasion, consumer protection and money laundering, among others. And that’s just in the U.S. …
2. We don't want to mislead our donors. When people make a donation to a nonprofit like EFF, they expect us to use their donation to support our work. Because the legal territory around exchanging Bitcoins into cash is still uncertain, we are not comfortable spending the many Bitcoins we have accumulated…
3. People were misconstruing our acceptance of Bitcoins as an endorsement of Bitcoin.We were concerned that some people may have participated in the Bitcoin project specifically because EFF accepted Bitcoins, and perhaps they therefore believed the investment in Bitcoins was secure and risk-free. While we’ve been following the Bitcoin movement with a great degree of interest, EFF has never endorsed Bitcoin. In fact, we generally don’t endorse any type of product or service – and Bitcoin is no exception.
On that last point: EFF had previously been one of the most prominent organizations to accept Bitcoin. In January, the 21-year-old non-profit called the virtual currency "a step toward censorship-resistant digital currency," and said that while it would face an uphill legal and technical battle, Bitcoin could fill the "need for decentralized [a] currency system." The previous month, EFF went so far as to include Bitcoin in a call to action against censorship, a declaration that named the virtual currency as a "corrective action" that digital activists could take in order to "improve the security and availability of the internet."
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Any mention of digital activism these days brings to mind WikiLeaks, another organization that has recently championed Bitcoin usage. A week ago, the online secret-sharing nonprofit invited supporters to make donations in Bitcoin form. Since the virtual currency protects the identities of users, it seems like a natural fit. But WikiLeaks doesn't appear to have much faith in the sustained value of the currency. A quick look at WikiLeaks' Bitcoin account history shows that days after receiving over 156 Bitcoins in donations--the equivalent of about $2752 according to the current exchange rate on Mt.Gov--the organization quickly sold off the store of Bitcoin. By Friday morning, just two days before the Mt.Gov hack, Wikileaks had zeroed out their account. A few days before that a Bitcoin user reported $500,000 worth of Bitcoins had been heisted from his computer's hard drive. (Like cash, when the Bitcoin code is stolen from a user's hard drive, it's gone for good.) Supporters have continued to make donations and the current balance is around 13 Bitcoins.
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Other prominent digital rights nonprofits like the Free Software Foundation (FSF) and the Freenet Project show similar patterns of emptying their Bitcoin accounts around the time of last week's hacking activity. FSF sold off the bulk of their Bitcoins in early May, and Freenet did the same in early June. While it's worth acknowledging that the nonprofits may simply have moved the Bitcoins to more secure accounts--WikiLeaks' supply is tied up in a single account--the announcement from EFF may influence future handling of donations. EFF said they were so uncomfortable holding onto their potentially illegal currency that they gave it all away using a service called Bitcoin Faucet, a service that supplied free Bitcoins in an attempt to develop more public support for the virtual currency. Possibly afraid of hackers, Faucet founder Gavin Andresen said in a forum post that he didn't know what to do with the donation:
I'll need to do a little bit of thinking about how to handle the EFF coins safely (just dumping them all into the Faucet's wallet is not a good idea; I would hate for them to get lost if somebody managed to hack the Faucet's web-facing code). Whatever I do, I will make sure the process of moving the coins from the EFF's donation address to the Faucet is absolutely transparent.
Other posters expressed an overwhelming sense of anxiety about the EFF's Bitcoin giveaway, and many suggested they sell it for cash while they still could.
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UPDATE (1:15 p.m.) - Before running this original post, we had reached out to WikiLeaks for comment on the whereabouts of their Bitcoins. Though they did not respond in time for publishing, they tweeted their optimistic take on Bitcoin Tuesday afternoon:
The Atlantic is opportunistically trying to spread fear, uncertainty and doubt about Bitcoin. We have spent our Bitcoins on our work, and not as a result of speculation.
WikiLeaks believes that Bitcoin is a very promising censorship resistant currency and that people should support it in practice and in principle. Bitcoin will eventually need to be augmented with a sub currency that has fixed time spend retractability if it is to be successful as a safe storage (as well as exchange) currency for the average person, but this is a minor criticism compared to Bitcoins many emancipating benefits.
