Cashing in on the Bitcoin boom

The value of the virtual currency Bitcoin has hit an all-time high. The financial crisis in Cyprus has driven many people to seek out alternative homes for their money.

“I think in many respects it’s a great system, it all depends on the state you live in … We can certainly argue that states do malign things with our money, [but] states also do good things with our money… They give us hospitals, they give us police forces, they give us stability. They provide us with property rights that won’t exist without states. Without property rights someone could come into our home and take our Bitcoins at gunpoint anyway. So I worry about a future … in which states have no power.” – Hugo Rifkind, a columnist for the Times and Spectator

Some investors in the Mediterranean island nation stand to lose up to 80 percent of their savings, as part of strict conditions attached to a $13bn bailout.

And there are fears other countries could suffer the same fate. It is shaking consumer confidence in traditional banks, and adding to a surge in trading in these so-called Bitcoins.

From just two dollars two years ago, the value of the cyber cash has hit a record high of almost $150. Bitcoins can be bought through online exchanges, using real currency.

A user account is set up, and Bitcoins are credited to an electronic, encrypted wallet.

Then there is what is known as mining. In short, your computer helps out the Bitcoin network with things like transactions and security.

The rewards for an indivIdual are slim. But groups can combine their computing power and share the profits.

You can also obtain Bitcoins as payment for goods and services.

The virtual currency has been around since 2009, launched by an anonymous online community.

“Is Bitcoin legal? Can it be enforced in any jurisdiction? Because no law anywhere in the world has been enacted which directly impacts Bitcoins, more significantly, in which jurisdiction will a dispute arise should there be a dispute pertaining to payments made to Bitcoin? And who is the legal authority that’s going to stand to show the guarantee that, should whatever happen, the inherited monetary value that’s intrinsically in the Bitcoin will ultimately stand transferred from one computer system to another computer system … at a time when Bitcoins itself are under tremendous attacks.“ – Pavan Duggal, a cyber crimes specialist

It is out of reach of any government or central bank, and because bitcoins are effectively stateless, they cannot be taxed, frozen or easily traced.

As a virtual currency, Bitcoins can, in theory at least, be used and exchanged anywhere in the world.

But there is concern too, about its use in activities such as drug dealing and gambling.

Then there’s the potential vulnerability to cyber-attack.

On Wednesday, online services and exchanges dealing with Bitcoin came under sustained cyber-attack. It led to the value of Bitcoin dropping by almost 20 percent.

It is thought the hackers may have been trying to manipulate prices – forcing them down, buying up cheaper coins and waiting for the value to climb back up again.

So, is Bitcoin a realistic substitute for hard cash, or is it a bubble about to burst?

To discuss this, Inside Story, with presenter Fauziah Ibrahim, is joined by guests: Amir Taaki a principal at the British Bitcoin exchange, Intersango;  Pavan Duggal, a technology expert and cyber crimes specialist; and Hugo Rifkind, a columnist for the Times and the Spectator.

“[Bitcoin is] for preserving your freedom of financial speech, it’s the first time that we have a currency which is not controlled by any central bank or any central party. The real criminals are not the people that are using bitcoin, the real criminals are the guys who are wearing suits and going around Wall Street and everyday scamming people.  You only see what’s happening now in Cyprus, were every account over a 100,000 euros, they are going take a haircut of 20 percent from the bank of Cyprus and use that to bailout the banks. That’s from normal people … and all the oligarchs and corporations have already moved their money out.”  – Amir Taaki, a principal at the British Bitcoin exchange Intersango