By: Associate Technology and Public Relations Editor, Taylor Linkous
As bitcoin continues to rise in popularity and value and steadily establishes itself in the mainstream economy, it has simultaneously revealed its flaws and weaknesses. Will bitcoin successfully establish itself as a revolutionary technology that is here to stay or will its faults cause it to eventually fade out? Moreover, if it is here to stay, what should the government do with it?
First of all, bitcoin is a virtual form of currency that was created in 2009 by an anonymous programmer who goes by the code name, “Satoshi Nakamoto.” Bitcoin is not backed by any government or banks and actually exists only online. What makes it attractive yet dicey is that transactions are made directly between users with no middle men and buyers and sellers remain anonymous. Bitcoins are created through “mining.” Explained in those most basic terms, “mining” is when people solve very complex math puzzles on computers and are rewarded with bitcoins. Many businesses have already decided to accept bitcoins including a Subway sandwich shop in Pennsylvania, CheapAir.com, and even some law firms.
Bitcoin’s rise in popularity and value is evidenced by the steep increase in its value. As of December 2013, bitcoins were worth $1,100 each. Further, the first Bitcoin ATM was installed in a coffee shop in Vancouver, Canada and had 81 transactions on its first day. In fact, just recently, the first Bitcoin ATMs offering Bitcoins for cash in the United States opened up in Boston and Albuquerque and the first Bitcoin ATM Machine to dispense cash for Bitcoins is set to open in a bar in downtown Austin this week. These Bitcoin ATMs are predicted to encourage people to use the virtual currency in their everyday lives, bringing it out of the deep, complex tech world and into the “real world.”
However, despite bitcoin becoming increasingly recognized as legitimate, it is still unregulated and there are remaining concerns about its prevalent use for criminal activities because of the anonymity. Bitcoin was the currency used for Silk Road, a website that was shut down by the FBI last year for facilitating the purchase and sale of drugs and other illegal items such as guns and child pornography. Silk Road 2.0 was launched after the original website’s shutdown; however, a glitch in the website allowed hackers to steal $2.7 million from the customers who had their money in Silk Road’s accounts. Thus, not only are there concerns about bitcoin use for criminal activity, this incident with Silk Road 2.0 has called into question bitcoin’s credibility and hurt its chances of becoming more mainstream.
Regardless, the growing popularity and value did spark a conversation in the Senate Committee on Homeland Security and Government Affairs this past November. At the hearing, law enforcement officials expressed concerns about anonymity and their need for help in catching people who are using bitcoin for criminal activity. On the other side, bitcoin users and The Bitcoin Foundation stated the government should leave the virtual currency unregulated and allow it to continue to grow and thrive on its own.
Currently, even though users of bitcoin are not regulated, businesses acting as “money transmitters” are covered under current law. Other existing statutes, such as mail and wire fraud, could be used to prosecute some misuse of bitcoin. Other than that, regulators are having a hard time deciding how to deal with it. It is unclear whether bitcoin should even be treated as a legitimate currency. For example, Canada has taken the position that bitcoin is not considered currency and they will not regulate it. Germany is treating bitcoin like a foreign currency and Brazil passed a law in October 2013 specifically dealing with electronic currencies, such as bitcoin.
It will be interesting to see whether the introduction of the Bitcoin ATM’s will help bitcoin secure its spot as a legitimate currency or whether the Silk Road 2.0 incident will stunt bitcoin’s otherwise rising popularity. Even more importantly, if bitcoin is here to stay, will the government allow it to remain unregulated or recognize it as currency and step in to create a regulation?
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