Despite lingering uncertainty over its stability and security, the virtual currency Bitcoin continues to make strides toward mainstream legitimacy. This week, Boston-based Circle, what the Guardian calls a "Bitcoin bank," opened to the public after extensive development. "The service ... is one of the most aggressive attempts so far to take Bitcoin payments mainstream. … Users can transfer cash in using a bank account or debit card, which is then converted into Bitcoin by Circle, and they can spend their Bitcoins online or in physical shops with ease." The new service intends to compete directly with online payment giants like PayPal. Whether this can be accomplished given Bitcoin's numerous security and legal liabilities remains to be seen.
What's important to remember is that Bitcoins exist on a peer-to-peer network. They are only virtual, a finite number that is traded through virtual wallets. To cash out your Bitcoins in the real world, you've got to convert this virtual currency to some other kind of currency. This is done through a Bitcoin transfer service, in much the same way American dollars are changed to Canadian coins and back again at border exchange sites. Bitcoin is the world's first truly digital currency. Unlike, say, the gold coins in your World of Warcraft account, or the Linden Dollars you might once have amassed in Second Life, Bitcoins aren't simply tied to some other medium of exchange. They ARE the medium of exchange, and if you lose the computer that contains your digital wallet, your Bitcoins don't exist anywhere else. Once they're gone, they're gone.
"In Bitcoin's case, its algorithm is interesting," writes David Gewirtz. "Each Bitcoin comes to life once enough challenging CPU-intensive calculations have been made. Each Bitcoin requires computational work to be expended in order to exist. This computational work is called 'mining' because you have to grind and grind and grind processors to generate the numbers that become a Bitcoin."
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As explained previously in WND, the growing popularity of this anonymous, decentralized, digital currency has prompted legitimate concerns about how it may be misused and whether investors can expect their money to be lost. Since its inception in 2009, the online payment system (the term "Bitcoin" refers both to the system and to the virtual units of currency users transfer through that system) now accounts for between $100,000-$500,000 worth of online transactions per day. Allegedly created by programmer Satoshi Nakamoto, Bitcoin makes it possible to send money quickly to any point in the world with Internet access, and at no additional cost. It is accepted by websites such as Wikileaks, the Internet Archive and the Free Software Foundation. In the case of Wikileaks specifically, Bitcoin was one of the few options left to the controversial site after it became persona non grata with the commercial banking industry.
"Opponents of Bitcoin, including governments, both federal and state here in the U.S. and national governments elsewhere, face a dilemma," explains Martin Tillier. "They disparage the crypto-currency by claiming that it is not a currency at all, just some artificial creation without worth, but this assertion presents them with a problem. If Bitcoin is not a currency and has no intrinsic value, how do you regulate it and, more tellingly, how do you enforce those regulations?"
Serious problems with Bitcoin became apparent in February of this year, when the world's largest Bitcoin exchange, "Mt. Gox," suddenly stopped working. Based in Tokyo, the transfer service closed its doors, ceased all operations and closed its website. Quite possibly more than $300 million worth of Bitcoin disappeared with the closure of the website, and at the time, nobody seemed to understand what, exactly, triggered the collapse. The uncertainty over the future of Bitcoin (already troubled by an outright ban in Russia, law enforcement scrutiny in the United States, rejection by Apple's AppStore and the arrest of a Bitcoin exchange CEO on money-laundering charges) triggered a sell-off. The controversy over Mt. Gox was a major blow to Bitcoin's push for widespread acceptance.
Martin Tillier, however, sees crypto-currencies as the future of commerce, despite their significant growing pains. "The financial world is littered with examples of fraud and theft, and governments have a duty to protect, so some legally enshrined protection is probably warranted. That protection can only come, though, once governments make it clear that Bitcoin is a currency, not some crazy speculative game. To be fair, most countries around the world seem to be doing just that. Most of the published verdicts of governments around the world take the form that they do not regard Bitcoin as legal tender, but they recognize its status as a currency. Incidentally, the whole "legal tender" thing can be misleading to some. That a currency is not legal tender doesn't make it worthless; it simply means that merchants are not obliged to accept it in payment."
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Tillier goes on to assert that attempts to ban Bitcoin are not just misguided, but futile. "[G]reater acceptance for Bitcoin is inevitable. ... [O]ne of the first steps toward that is the general recognition that it is a currency just like any other. Now that it is clear that people can be defrauded of it (and the fraudsters punished) and that governments, bankers and insurance companies can all get in on the action, that recognition is looking closer every day."
Fundamentally transforming the way we conduct commerce, or "virtualizing" the currency we use for buying and selling, naturally carries concomitant concerns. If and when Bitcoin achieves mainstream, day-to-day acceptance, it will not be without problems. Some of these are specific to crypto-currencies and some of these stem from human nature – but all of them will likely beg bureaucratic oversight. The love of money may be the root of all evil ... but that bureaucratic oversight invariably causes more problems than it solves, robs more people than it serves and perpetuates the very financial industries that crypto-currencies were devised to defy. It is simply ironic that Bitcoin's proponents are fighting so hard to achieve acceptance amidst the establishment that Bitcoin was created to challenge.
Media wishing to interview Phil Elmore, please contact [email protected].