How Was Liberty Reserve Different from Bitcoin?

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How Was Liberty Reserve Different from Bitcoin?
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3 hours agoFri Sep 17 2021 09:00:56

How-Was-Liberty-Reserve-Different-from-Bitcoin

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  • Bitcoin is sometimes compared to Liberty Reserve, the anonymous and illegal bank that closed in 2013
  • Liberty Reserve is well known for facilitating criminal activity, as Bitcoin has been accused of
  • What are the differences between the two platforms?

Bitcoin has sometimes been compared to Liberty Reserve, the illegal bank that operated between 2006 and 2013 and facilitated billions of dollars worth of money laundering. While Bitcoin has quite rightly been accused of doing the same, there are crucial differences that need exploring so Bitcoin is not associated with an intentionally illegal empire like Liberty Reserve.

Liberty Exchange Had its Own Currencies

Liberty Reserve had its roots in ‘Gold Age’, a digital currency exchange founded by Arthur Budovsky and Vladimir Kats, which was shuttered when the pair were convicted of operating an illegal financial business. Budovsky fled to Costa Rica where he established Liberty Reserve in 2006 as a “a private currency exchange system for import/export businesses”.

Liberty Reserve allowed users to register and transfer money to other users with just a name, e-mail address, and birth date with no other efforts made to identify users, making it an attractive payment processor for criminals. Deposits could be made through third parties using a credit card or bankwire, among other deposit options with deposited funds were then “converted” into Liberty Reserve Dollars or Liberty Reserve Euros, tied to their relevant currency, or to ounces of gold.

Secrecy was paramount within Liberty Reserve, with employees bound to strict codes of conduct to ensure that no knowledge of the true operation never leaked.

Investigated and Shut Down

Costa Rican authorities took an interest in 2011 and it was denied a money transmitting license, but continued operating anyway, operating as a money laundering outlet for large scale criminal operations as well as legitimate users. BSV founder Craig Wright claims that he had $30 million in Liberty Reserve from his online gambling work, illegal in the U.S. at the time, which he converted to Bitcoin in February 2011.

Liberty Exchange was investigated by U.S. authorities in 2013, with Budovsky arrested at Madrid’s Barajas International Airport as he attempted to return to Costa Rica. He was indicted on several charges of money laundering, as were several of his lieutenants, with some $6 billion said to have been laundered through Liberty Reserve from illegal enterprises.

Budovsky was sentenced to 20 years in prison in the U.S. on May 6, 2016, ironically one day after Wright abandoned his attempts to be anointed as Satoshi Nakamoto through his signing sessions.

Bitcoin is Not the Same

There are, then, crucial differences between Bitcoin and Liberty Reserve. First, Liberty Reserve was a centralized bank that used its own currency whereas Bitcoin is just a currency, and a decentralized one with no owner. You couldn’t use Liberty dollars for anything other than sending to other users on the platform, whereas Bitcoin can be used and spent in the real world.

Secondly, Liberty Reserve had a clearly identified founder and CEO who knowingly operated a money laundering operation, whereas Bitcoin has no public founder and certainly has no CEO driving things. Yes it is used by criminals, but it is no more responsible for their actions as the federal reserve is for the criminal use of dollar bills.

As we can see, there are clear differences between Bitcoin and Liberty Reserve, and anyone who conflates the two haven’t done their research.

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