Inside a drab computer lab at Johns Hopkins University, a team of researchers is trying to build something that has never existed before: a digital currency that changes hands completely in secret. Its name is Zerocoin.
The untraceable currency is designed to compete with other virtual moneys such as Bitcoin, which are drawing attention as alternatives for businesses and individuals -- and drawing criticism from some who believe they enable money laundering and other criminal activity.
Advocates say such digital currencies, made possible by complex computer formulas, will eventually be widely embraced by users who want to exchange money instantly and directly, without a bank as middleman. Bitcoins are already being accepted as payment by a growing number of businesses large and small -- from Overstock.com to the D Casino Hotel in Las Vegas to the Baltimore bar Bad Decisions.
Matthew Green, the Hopkins assistant professor of computer science who is leading the Zerocoin project, says there is a legitimate need for anonymous financial transactions. If virtual currencies are going to exist, he and his team of graduate students say, there should be one that provides the same kind of privacy that people have when exchanging traditional forms of money.
"In our field, the probability that you're going to have an impact on the world is kind of low," Green said. "We want to make something that the world wants and can get use out of."
But some worry about the potential for misuse of unregulated virtual currencies, which are not backed by any government or a commodity like gold, but instead exist entirely as computer code.
Steve Hudak, a spokesman for the Financial Crimes Enforcement Network, a money-laundering-monitoring agency under the U.S. Treasury Department, said his agency is concerned about the risk of criminal use of virtual currencies.
"The anonymous transfer of significant wealth, instantly, any place in the world, is kind of an obvious money-laundering risk," he said, declining to comment specifically on Zerocoin.
Virtual currencies have drawn attention in recent months in large part because of the high-profile bust of Silk Road, a $1.2 billion online marketplace for illegal drugs. The secretive cryptocurrency Bitcoin was used to make purchases on Silk Road, according to federal prosecutors in Maryland and New York who charged the site's alleged founder, Ross William Ulbricht, with drug, money-laundering and computer hacking offenses, in addition to attempting to order the killing of an employee.
At the time of his arrest last year, federal authorities said, Ulbricht had 600,000 Bitcoins worth about $80 million. Ulbricht has pleaded not guilty and is being held pending trial. (continued...)
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