The EFF loses confidence in Bitcoin

INTERNET RIGHTS GROUP the Electronic Frontier Foundation (EFF) has stopped accepting donations in the Bitcoin e-currency, citing its confusion over the legality and security of the digital currency.

The encrypted digital cash began grabbing headlines late last week after the theft of some Bitcoins was revealed in the user forums. Since then Mt. Gox, the affected Bitcoin trading web site, has closed its doors, temporarily, and the value of Bitcoins has dropped off considerably.

Although Mt. Gox has promised to raise the value of Bitcoins back to their previous levels, some confidence will have been lost in the service. This does not appear to have affected the EFF's decision though, as in its statement it explained that it has been considering the move for some time now.

"For several months, EFF has been following the movement around Bitcoin, an electronic payment system that touts itself as "the first decentralized digital currency. We helped inform our members about this unique project through our blog and we experimented with accepting Bitcoin donations for several months in an account that was started by others," wrote the group.

"However, we've recently removed the Bitcoin donation option from the Other Ways to Help page on the EFF website, and we have decided to not accept Bitcoins."

The EFF cited a few reasons for the decision, including the fact that it is confused about the legalities of the digital currency.

"Bitcoin raises untested legal concerns related to securities law, the Stamp Payments Act, tax evasion, consumer protection and money laundering, among others. And that's just in the U.S," it said.

"While EFF is often the defender of people ensnared in legal issues arising from new technologies, we try very hard to keep EFF from becoming the actual subject of those fights or issues. Since there is no caselaw on this topic, and the legal implications are still very unclear, we worry that our acceptance of Bitcoins may move us into the possible subject role."

The EFF also seems to be uncomfortable with its apparent backing of the exchange system, and is looking to distance itself from this perception. This will mean that it will not 'spend' any of its current Bitcoin 'funds' and will look to redistribute them back into the system.

"People were misconstruing our acceptance of Bitcoins as an endorsement of Bitcoin. We were concerned that some people may have participated in the Bitcoin project specifically because EFF accepted Bitcoins, and perhaps they therefore believed the investment in Bitcoins was secure and risk-free," explained the organisation, perhaps with an eye on the Bitcoin crash of the last few days.

"While we've been following the Bitcoin movement with a great degree of interest, EFF has never endorsed Bitcoin. In fact, we generally don't endorse any type of product or service - and Bitcoin is no exception." µ