Tuesday, June 21, 2011

Bitcoin On The Brink?

Contemplating Cryptographic Currency Crooks

Have you heard about Bitcoin

Bitcoin is a new kind of currency without central control or management from a government. It’s an online, peer-to-peer currency that uses cryptography and processing power to control the creation and transfer of money. Bitcoin has a devoted following, especially in the “geek” community, and has been growing within that community as a payment system. 

Back in January, the Electronic Frontier Foundation (EFF) took an interest in Bitcoin. But on Monday of this past week, the EFF very clearly backed away from Bitcoin. It’s hard to blame them. In recent days thefts, hacks, fraud, and shady transactions have resulted in the loss or evaporation of the equivalent of millions of $US in Bitcoins.

In announcing its about-face, the EFF gave three reasons -
1.    We don't fully understand the complex legal issues involved with creating a new currency system.
2.    We don't want to mislead our donors.
3.    People were misconstruing our acceptance of Bitcoins as an endorsement of Bitcoin. 

As a concept, I find Bitcoin to be very interesting. I’m a big fan of experiments in new ways of doing things, and in leveraging the changing technical underpinnings of our economy. When I consider how online transactions are playing greater roles in driving economies, our increasingly global economy not wedded to a single currency system, and interest on the parts of some in re-claiming the anonymity that cash had generally provided, Bitcoin seems like an idea worth watching. It would be understandable, though, if some were to write off Bitcoin after the rough week it had.

Could this be the end of Bitcoin? Maybe, but I'd guess not.  Still, recent events have helped to make clear what economists have long known: Financial systems are complex and temperamental, and can have large reactions to even small events. And on a more basic level, if there are ways to lie, cheat and steal to make money, some people will find those ways.

Do you have thoughts on Bitcoin?  Please post here!

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