Bitcoin drops anonymous promise for non-Bitcoin transactions

It appears the international raid on Liberty Reserve, a virtual currency allowing for anonymous transactions, has inspired Bitcoin's biggest exchange, Mt. Gox, to change a few rules around trading the increasingly popular virtual currency.

Specifically, Mt. Gox will now require all users to be verified, either through government identification or by utility bills, for currency exchanges between the Bitcoin and traditional currencies. That may, for the time being, put an end to most anonymous transactions.

"The Bitcoin market continues to evolve, as do regulations and conditions of compliance for Mt. Gox to continue bringing secure services to our customers," The Mt. Gox team stated in a blog post. "It [sic] our responsibility to provide a trusted and legal exchange, and that includes making sure that we are operating within strict anti-money laundering rules and preventing other malicious activity."

But Mt. Gox's announcement doesn't mean every user will have to pull out their identification cards quite yet: users depositing or withdrawing only Bitcoins don't have to be verified, though that could change over time.

One of the main reasons for Bitcoin's initial popularity - especially among the privacy oriented and libertarian crowds - was the virtual currency's ability to transfer funds semi-anonymously. While transactions can be traced and verified though records, the identity of an account holder would remain unknown. That feature, however, lent the currency to illegal transactions and could potentially allow criminal organizations to easily launder money and to allow users to purchase illegal drugs and goods.

Those criminal elements of Bitcoin, however, attracted the ire of law enforcement officials. The Department of Homeland Security, for example, recently launched an investigation into Mt. Gox over alleged illegal money transfers. In doing so, the agency cut off one of the easiest ways users could purchase Bitcoins with U.S. dollars through the mobile payment service, Dwolla.

And continued battles between criminal organizations and law enforcement over the virtual currency is something Mt. Gox wants to avoid entirely.

"If you try to enforce Bitcoin as an anonymous currency, it's only going to bring more issues," Bitcoin's Tokyo-based chief executive Mark Karpeles said in an interview with Forbes. "I believe Bitcoin can be anonymous. But it's too early to go this way. Government entities aren't ready, and we're working with banks that want everything to be done correctly."

And it isn't something the Bitcoin community seems too troubled with: the virtual currency's value is currently hovering around $129.80 as of this post.

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