As the bitcoin community continues to work to gain mainstream acceptance, it's been hit with the news that one of its proponents and cheerleaders has been arrested.
Charlie Shrem, chief executive of bitcoin exchange BitInstant, was arrested Sunday and charged with money laundering after the U.S. Department of Justice alleged that he and another man "schemed" to exchange bitcoins so people could make illegal drug purchases on the online marketplace Silk Road.
"Hiding behind their computers," Shrem and co-defendant Robert Faiella, a Silk Road user who operated under the name BTCKing, allegedly exchanged more than $1 million in bitcoins "for the benefit of Silk Road users, so that the users could, in turn, make illegal purchases on Silk Road," according to a news release from the U.S. Attorney's Office for the Southern District of New York.
Shrem was arrested at John F. Kennedy International Airport in New York, according to the release. Authorities say he knew some of the bitcoins he was selling were being used for drugs, but did not alert authorities.
"Truly innovative business models don't need to resort to old-fashioned law-breaking, and when bitcoins, like any traditional currency, are laundered and used to fuel criminal activity, law enforcement has no choice but to act," Manhattan U.S. Attorney Preet Bharara said in a prepared statement. "We will aggressively pursue those who would co-opt new forms of currency for illicit purposes."
Shrem's arrest surprised the bitcoin community and provided another reminder to consumers about the cryptocurrency's history with illegal activities.
The Silk Road was an online black market people used to anonymously buy and sell illegal products and activities, and its payment method was the bitcoin. When the FBI shut down the Silk Road in October, it seized millions of dollars' worth in bitcoins, becoming the holder of the largest single bitcoin wallet.
Bitcoin proponents have been working to distance the cryptocurrency from its association with the Silk Road and have been trying instead to tout the benefits of the technology. Shrem was among the leaders of that movement. He was even called a "Bitcoin evangelist" by The Wall Street Journal. In addition to his company, BitInstant (which counts the Winklevoss twins among its investors), Shrem is also vice chairman of the Bitcoin Foundation and is part owner of the EVR restaurant in Manhattan that accepts bitcoins.
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