The Bitcoin has been around for five years. Like any other currency, the idea is that you buy the currency and can then use it in the way you would any other currency – to buy goods, to trade, or to exchange for other currencies. Unregulated and not backed by any guarantees or supported by any insurance, Bitcoins are a virtual currency that use cryptography to control the creation and transfer of money.
People buy them because they think they will, over the long haul, save money on bank fees and transaction costs. However, they are also taking a risk with the currency, especially since there is no lower-level fixed value for the coin.
Governments do not like them because they are unregulated, put consumers and users at risk, and the coin will have an impact on the economy, if its use significantly increases. They also do not like them because they enable crime. Criminal activities involving Bitcoin have largely centered around theft of the currency, money laundering, the use of botnets for mining, and the illicit use of Bitcoins in exchange for illegal items or services.
Two recent Bitcoin Bank failures – Mt.Gox and Alberta’s Flexcoin – do point to the challenges of launching a new global currency. One of these was poorly managed and lost some $550 million and the Alberta based business was attacked by hackers who stole 896 Bitcoins valued at $600,000 ($669 a coin). The apparent suicide of another Bitcoin executive – the CEO of First Meta Pte Ltd – also points to the vulnerability of virtual currency firms.
It will be interesting to see what happens to this currency over time. In the future, there will be increasing use of cyber-currencies and cyber transactions. Maybe a refined Bitcoin2 which is insured and regulated is what is needed. It is not a trivial matter – he total market capitalization of all Bitcoin is estimated at $8.3 billion – its a big deal. What is really interesting, from a futurist perspective, is how a virtual community can adopt a virtual currency without concern for the regulation of this currency. What does this tell us about the new reality of globalized economics?