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Bitcoin Pioneer Arrested

Officials have charged another Bitcoin entrepreneur with money laundering.

The future of Bitcoin is in question in part because of the currency’s shady past.

One of the pioneering entrepreneurs involved in the cryptocurrency Bitcoin was arrested today at New York’s John F. Kennedy airport and charged with money laundering.

Charlie Shrem, 24, whom we profiled last year as one of group of young Bitcoin millionaires playing a decisive role in shaping the electronic currency (see “Bitcoin Millionaires Become Investing Angels”), was arrested after an investigation by the Drug Enforcement Administration.

In its indictment, the government says Shrem and an accomplice used the electronic currency to launder drug money in connection with the website Silk Road, a site for purchasing narcotics and other illegal goods which at one time was responsible for about 5 percent of the trade in Bitcoin.

Silk Road was shut down by authorities in October (see “Silk Road Bust Could Slow Bitcoin Economy”).

Bitcoin has recently gone mainstream, attracting Silicon Valley investors like Marc Andreessen, who last week wrote a lengthy editorial in the New York Times, calling Bitcoin a “breakthrough in computer science” and a powerful force of modernization with “enormous promise.”

But the currency is dogged by its mysterious origins as well as how some early adopters used it for dodgy, or even criminal, ends.

Indeed, Shrem is vice chairman of the Bitcoin Foundation, a nonprofit organization set up to speed the currency’s move toward legitimacy. An official at the foundation gave a statement to MIT Technology Review: “We are surprised and shocked by the allegations, and we don’t condone the behavior described. But we will take a wait and see position for now.”

Shrem had invested his Bitcoin profits into a bar as well as the company BitInstant, of which he was CEO. Cameron and Tyler Winklevoss, heads of Winklevoss Capital, have been big investors in Bitcoin and were investors in BitInstant as well. Although BitInstant wasn’t named in the complain, Winklevoss Capital also released a statement distancing themselves from the prosecution.

Update, 1/28/2014: Shrem resigned his board position at the Bitcoin Foundation, effective immediately, according to a blog post by the organization.

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