The Buzz around Bitcoins

Keshav Sota, Contributing Writer

Bitcoins. To those who may not know much about it, bitcoins are a digital currency that is used for payment in layman’s terms.  People have used bitcoins as a form of payment at many enterprises, such as, and some restaurants. The beauty of the bitcoins is that you can pay small amounts of currency to people in other countries without having to pay for exchange rates of currency conversion fees. Say goodbye to Western Union. However, there are only certain amounts of bitcoins, 21 million to be exact, that are available in the universe. Like gold, to get more bitcoins, one has to digitally ‘mine’ them using several unorthodox tools. Many call bitcoin the future of banking and that it has revolutionized the world. The introduction of crypto-currencies eliminates the borders of the world and makes transactions simpler and efficient.

However, there are several inherent problems in bitcoins that makes its use dubious. The first aspect of bitcoins that detracts from its usefulness is its unregulated nature.  To many, the notion of an “unregulated” currency is quite appealing as it provides consumers more freedom. No having to deal with small fees. Just a simple transaction. The problem with unregulated currencies is however, that any exchanges remain completely clandestine. This promotes many people in using currencies such as bitcoin for illicit purposes. Drugs, weapons, and humans can be sold online knowing that the transaction will be completely safe and invisible. The government does not have access to records of the exchange as bitcoins are unregulated. In fact, the reason why bitcoins are used in Silk Road are based on this very reason. Vendors know that as long as exchanges are done in bitcoins, their  bank records or history can not be found.

Another problem with bitcoins is that the entire currency is based on speculation. According to Nicholas Colas, CEO of ConvergeX, 90% of  investors in the cryptocurrency are all speculators. That means, that any time, the value of the bitcoin can fluctuate sporadically. In fact, traces of this have already been present. Initially worth $1000 U.S. dollars, bitcoins fell to $750 after the Chinese government announced that the currency would not be accepted in China. This volatile speculation has caused many to rise to fortune and fame while others to the brink of poverty. In fact, a report by Boston University has found that bitcoin may fall as much as 99% by the next decade.  We as consumers can not trust a simply unreliable currency that is inconsistent.

Finally, the biggest problem of the bitcoin is that is an insecure currency. In the modern age of technology, hackers are able to exploit practically everything that is online. From nuclear reactors to companies such as Target, hackers have proved that there is no thing that can not be broken into. Bitcoins are no exception to such exploitation. The debacle of Magic: The Gathering (Mt. Gox) truly depicts how susceptible bitcoins are to hacks. Initially founded to exchange video game cards, the site slowly became a means for bitcoin exchange. However, things turned for the worse when 8.75 million bitcoins were stolen from the site. Using the current rate, 1 bitcoin is 614 dollars, so the founders of Mt. Gox lost over $5,374,000,000 dollars. In a single second, the website went from an immense success to a bust.  Unable to account for 750,000 bitcoins of its users and 100,000 bitcoins of its own ($474,000,000 USD), the company filed for bankruptcy.  Similarly, Silk Road 2.0, established after its first owner went to jail, was also hacked due to a bug in bitcoins known as “transaction malleability. Cryptocurrencies, although algorithmically insecure, are transitionally secure and do not have the appropriate level of security needed to become an official currency.  Due to the lack of regulation, the problems are amplified several fold. The government cannot regulate the transaction to ensure full security. Countries cannot depend on it as an official currency for its potential flaws may lead to catastrophic results.

Although I do see the potential that bitcoins harbors, it is still too early to officiate it as a currency. There are several drawbacks that could lead to immense mishaps; it simply is not the time for us to experiment with a new form of currency. However, bitcoins have paved a path for new precedents that could revolutionize the banking realm.