Bitcoin may need to shed its world of intrigue to grow more

Bitcoin enthusiasts were buzzing about the arrest of a high-profile promoter of the digital currency at Monday night's weekly Bitcoin trading session in Manhattan's financial district.

Charlie Shrem's detention on money laundering charges the day before shocked New York's Bitcoin community, which meets in a small conference room to trade the currency. It is contemplating the end of a world of intrigue away from the watchful eyes of police and regulators.

One thing is clear, though, after a week that included not only Shrem's arrest but also two days of testimony about Bitcoin regulation to a panel of financial regulators in New York: Bitcoin users are finding that their freewheeling ways are no longer acceptable. Tighter controls will undermine the anonymity that had been a major attraction of the digital currency.

Now, Bitcoin exchanges will likely have to team up with traditional banks or at least imitate some of their anti-money laundering practices, keeping meticulous records of customer identities and report any suspicious activity to regulators. Law enforcement officials have already shown they can attach real names to the Bitcoin addresses of suspected criminals, which means the digital currency is no longer a cloak for some to hide behind.

The loss of much of the anonymity of Bitcoin trading may diminish its appeal before it has the chance to get traction with larger numbers of potential users, some experts say.