As the new virtual currency of the moment, Bitcoin, has great appeal. Free from the regulation of national politics, this new form of exchange has Libertarians and geeks alike very enthused. Yet, is Bitcoin viable? In just the latest of disasters befalling this new currency of the future it has become clear that, because of its lack of regulation, it has become appealing to the worst element of society.
As noted by ZDNet, Bitcoin’s allure lies in the fact that it is “anonymous, untraceable and unregulated.” While that makes it appealing to entrepreneurs and market speculators, it also has experienced widespread use by criminal types, including in ZDNet’s words, “drug traffickers, terrorists and anyone wanting to circumvent currency or tax regulations.”
Bitcoin and Silk Road
If any event is likely to take Bitcoin down in flames, it would be a story like Silk Road, an underworld marketplace run on the currency where people could buy guns or drugs or even take out a contracted hit on someone. The Internet site was shut down by the government, leaving the currency in question. If Bitcoin is the currency of the future, just what does that future look like? Perhaps Grand Theft Auto?
Currency backing makes it vulnerable
With the facilitation of such criminal activity by Bitcoin, currency regulators have been hot on its trail, and it’s uncertain if the currency can ultimately survive. In the end, what the Silk Road incident exposed was Bitcoin’s most vulnerable factor; that, as a currency, there’s nothing supporting it. Money has value because of the underlying support it receives. The dollar rests of the good faith of the United States government, its economy and its people.
Stateless, Bitcoin becomes defenseless against the tides of the open market. This may make it attractive to the speculator, but not so appealing to the average Joe. Where there is volatility, there can also be great loss and a lack of predictability. Liquidity is not guaranteed. Imagine going to the ATM and discovering your $200 was now worth $12 in the time it took you to drive there.
Then there is the matter of how Central Banks view the currency. What country is willing to back a nation-less form of money whose value cannot be assured from minute to minute? While its separation from government is what makes Bitcoin appealing to so many, just how will it work in the real world? How long will nation-states allow it to continue unregulated?
The other side of the Bitcoin
Those who champion Bitcoin, however, need only point to its continuing successful evolution. According to Forbes magazine “To date the Bitcoin aggregate network has seen more than 15 million transactions with more than 50,000 senders and receivers transacting in a given day.” Hardly mainstream as currencides go, but impressive all the same for a rogue monetary concept.
Furthermore, Bitpay (a company that allows companies to accept Bitcoin as payment for legitimate goods and services) now has some 10,000 customers, with a tenfold increase in just the past six months, according to Forbes. More and more of those merchants are registering with the US government’s Financial Crimes Enforcement Network Agency to avoid situations like Silk Road’s. They have agreed to abide by anti-money-laundering processes, just as major US banks do.
While the jury on Bitcoin’s success or failure may still be out, what is clear is that the development of this virtual money is a sea change in technological thinking. It has taken the ideas of Internet commerce in the future up a notch. In the words of Forbes, it’s a “profound paradigm shift in how we think about the future of money,” virtual or otherwise.