A key part of making Bitcoin more respectable is making it harder to use the crypto-currency for money laundering – one of the main things financial regulators care about. And since Bitcoin’s use is inherently anonymous, that leaves the purchase and sale of Bitcoins as the only point of control.
We’ve already seen the Tokyo-based Bitcoin exchange Mt. Gox introduce ID checks for sales and purchases, and now we’re seeing a similar move from Union Square Ventures-backed Coinbase — sort of. Coinbase already has a degree of ID verification for all its roughly 180,000 users, in that Coinbase accounts need to be linked with normal bank accounts in order for purchases and sales to take place. Users are also supposed to give their real name and phone number when they open an account.
Coinbase’s new system, introduced on Thursday, introduces more hurdles for those wanting to buy relatively large volumes of Bitcoin at high speed. Normal “level 1” users can buy up to 10 bitcoins a day and sell up to 50 without needing to give up more personal details, but they’ll have to wait 4 business days for the transaction to go through. Or they can submit to an ID check and become a “level 2” user, in which case their buy limit gets bumped up to 50 bitcoins and all transactions go through instantly.
Coinbase co-founder Fred Ehrsam confirmed that this was an anti-money-laundering move, and explained that the extra ID information level 2 users would need to submit include date of birth, address and last four digits of social security number. They also need to answer questions based on information in the public record, such as the color of their last car. This is the same kind of verification procedure attached to opening a new brokerage account or lifting the limits on a PayPal account, he noted.
I can see where Coinbase is coming from here, but the split between the two levels of user does seem a bit arbitrary. At the time of writing, one bitcoin is worth just shy of $100, so the daily limit for level 1 users is just under $1,000 – not what I’d call chump change. (That said, some would-be money launderers might prefer an intermediate currency less volatile than Bitcoin.)
Ehrsam admitted that the limits for both level 1 and 2 users were quite “finger in the air” at the moment. That remains a pretty good assessment for the Bitcoin scene in general, I suspect.