Over the past several weeks, there have been series of negative reports associated with Bitcoins – high profile arrests and platform shut downs. Could the excitement around Bitcoins be fading?
In April 2013, we published an article on the Bitcoin, which at the time was being touted as another option through which conduct electronic transactions. We even posed the question of whether it could solve the electronic payment challenge in the Caribbean.
At the time of our April article, Cyrus was experiencing its financial meltdown, and Bitcoins were being traded at over USD 250.00 per Bitcoin. Additionally, the currency was beginning to gain mainstream popularity, as more merchants and other organisations were beginning to accept Bitcoins as a form of payment.
Although the value of a Bitcoin reached as high as USD 1,000.00, it has been fluctuating wildly and has experienced a number of challenges, a few of which are outlined below, that arguably, might be signalling of its imminent demise.
Use for criminal activity
As currency that is created and traded outside formal financial systems, Bitcoins have been a welcomed medium by criminal elements for their illegal activities – such as the payment of goods and services and money laundering – as transactions using that currency can be difficult to trace. This association with criminal activity has hindered the appeal and acceptance of Bitcoins. More importantly, law enforcement appear to be becoming more aggressive on cracking down on these illicit activities
Bitcoin theft and illegal generation
As an electronic currency that is created and traded online, Bitcoins are also attracting thieves and other persons that are trying to generate them illegally. Bitcoin thefts occur most often during payment processing, at exchanges or from online wallets when the private keys to unlock those wallets are stolen.
In a completely difference vein, Bitcoins can also be susceptible to fraudulent activities, such as illegal minting of the currency. Recently in Germany, two persons were accused of illegally generating nearly $1 million worth of Bitcoins, whilst online video game company, E-Sports Entertainment, was accused of infecting over 14,000 of customers’ computers to order to illegally mint Bitcoins (Source: CNET).
Law enforcement is getting more savvy
Due to the perception of anonymity associated with Bitcoin transactions, they may be an attractive option to facilitate a broad range of illicit activities as outlined above. However, a recent study, by the University of California at San Diego and George Mason University, found that it is possible to de-anonymise the transactions and eventually trace them back to individuals (Source: PC World).
Additionally, in some jurisdictions, Bitcoins have either been recognized as a currency for which standard financial rules apply, such as Canada, Australia and Finland, or separate regulator rules have been established, such as in the United States (Source: Wikipedia). Hence additional channels and resources are becoming increasingly available to law enforcement official through which track Bitcoin dealings.
Unchecked price volatility
Since their creation in 2009, the value of the Bitcoins has swung dramatically over the past five years, from as low as USD 0.02 to well over USD 1,000.00. The currency is still experiencing considerable price volatility, which according to economists and other financial experts affects its long term value and potentially its viability as a currency (Source: Wikipedia).
Is there still Bitcoin-euphoria?
In summary, Bitcoins might still be popular and is gaining interest in different quarters, especially from current and potential investors. However, its association with illegal activity, along with the high profile arrests of key players and shut down of various Bitcoin exchanges, payment processors, and online platforms, such as Silk Road, have no doubt tarnished the currency.
Having said this, it could be argued that the current efforts of regulators and law enforcement to “clean up” this Bitcoin environment will lead to a more robust and safer currency in the long run. It is not yet clear whether the Bitcoin, as currently designed, known and transacted, will remain unchanged into the foreseeable future. However, the experiences and learning through its existence and use will, without question, improve the quality and reliability of other digital currencies that might eventually be created.
Image credit: antanacoins (flickr)
___________
As an early adopter and supporter of Bitcoins my position will be biased towards the currency. With that said I don’t think it’s any less safe than our current financial institutions. Our current organizations are backed by folks who believe in the value of their paper product. It’s a belief. “Money generally has no intrinsic value. It’s a consensus hallucination.” Naval Ravikant Co-founder AngelList
The notion that Bitcoins are inherently Used for criminal activity is a false argument. Everyday monies or what we give value to is used in the criminal world. Just because criminals use it does not make it a criminal currency. Criminals use the internet, that does not delegitimize the medium.
The current state of the price volatility is very true, I see this as growing pains and once stabilized Bitcoins will rival the current financial institutions.
As with any new product that shakes the foundation of the current non progressive system
there will be doubters naturally.
“Businesses need to make a choice. They can rise to the challenge of a new Internet-driven marketplace—and benefit from the expand- ed capabilities and higher growth rates that many companies are already achieving. The alternative is to follow in the footsteps of such industries as music and publishing, which held on to outdated business models for too long and are now dealing with competitive environments that have been re-
shaped around them.” The Connected World Greasing the Wheels of the Internet Economy
I am in total agreement with the comments above. I have been a doubter of this sort of currency, mainly for its fluidity and intangibility. But previous discussions on this site, including this particular one and other information, have led me to begin to see it in a different light.
With the advent of the Internet, business models are changing. The incumbent currency will continue to fail to find footprints in the new cyber-based marketplace. It is time for a rightful player.