Law enforcers in Australia are investigating the role of virtual currency bitcoin in organised crime, a senior official has said.
Executive director of the Australian Crime Commission Judy Lind revealed that investigators will monitor "misuse of virtual currencies to facilitate criminal activity" at a national and international level, under an operation named Project Longstrike.
The so-called 'cryptocurrency' allows users to make anonymous payments, which has raised concerns about criminals and hackers using it carry out illicit transactions, and Australia appears determined to crack down on bitcoin-related crime.
Last month it said it extradited the alleged primary moderator of Silk Road, a darknet site where people bought illegal drugs using bitcoins, to the USA, and in October, police seized Queensland state's first bitcoin ATM five months after it opened, amid reports that police suspected it was being used by a former motorcycle gang member to deal crystal methamphetamine.
"We know that virtual currencies including bitcoin are used as payment methods to facilitate illicit trade on the darknet," Lind told Reuters in a statement, referring to a hidden part of the Internet where information can be shared anonymously and without revealing the location of its source.
"Organised crime groups continue to make use of darknets to harbour trading in illicit commodities, including child exploitation material, illicit drugs and firearms, stolen credit card and identity data, and hacking techniques."
But the popularity of the cryptocurrency has surged around the world and even some financial regulators are beginning to embrace it, despite the collapse of the Mt. Gox bitcoin exchange, which filed for bankruptcy in Tokyo earlier this year after losing roughly 850,000 bitcoins (£200m) to hackers.
Japan is one of several countries, including the USA, that has allowed bitcoin trading to continue without establishing a full set of rules on its legal status. The UK is seen as a world leader because it has classified bitcoins as a currency.
Use of the currency is rising dramatically in Australia too – the country has an estimated 7 per cent of the £3bn worth of bitcoins now circulating – and authorities are also trying to facilitate legal use of the currency as online retailers, real-estate agents and even pubs begin accepting bitcoin payments.
The Australian Taxation Office has published a guide for bitcoin traders on how to declare their investments, and a parliamentary inquiry is trying to lay the groundwork for a broader regulatory approach to the digital currency.
Senator Sam Dastyari, who is running the parliamentary inquiry, said bitcoins offered a way to "shake up" Australia's "stale" banking industry. A regulatory system is needed that policed crime without restricting the currency, he said.
But David Glance, director of the University of Western Australia's Centre for Software Practice, said Australia appeared to be sending mixed messages.
"Politicians singularly fail to understand what (the digital economy) is all about. They latch onto trends and buzzwords," he said, referring to the tax office guidelines and parliamentary inquiry. "There still isn't a problem that bitcoin solves, other than buying drugs."
Darknet sites including Silk Road and its successor Silk Road 2.0 did about £1.5bn of turnover annually in the year to November, Glance said, equivalent to more than half the total bitcoins now in circulation.
However, Australia could soon see the world's first direct share market listing of a virtual currency exchange, with Melbourne-based start-up Bitcoin Group hoping to raise A$20m (£11m). CEO Sam Lee compared the currency to the early "wild, wild west" days of the Internet, and shrugged off concerns that it mainly served as a vehicle for illegal transactions.
"We've moved far beyond that now," he said. We expect (bitcoin currency) to clean itself up as more capital and more smart people flow into the ecosystem."