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December 16, 2013

Digital Currency Creating Interest and Controversy

by George Putic

People who want to buy goods, pay for services, or transfer money anywhere in the world bypassing all the banks, credit cards and other financial services, even the governments, increasingly use virtual money called Bitcoin. Devised in 2009 by a secretive software developer, whose real name nobody knows, the digital currency is generating a lot of interest - and controversy.

About 1,700 businesses around the word now accept Bitcoins. The encrypted electronic money is sold, bought and transferred like traditional currencies through trading companies. Transactions are done without involvement or regulation by third parties or governments.

That makes Bitcoin the world’s first, completely decentralized digital currency, says technology policy analyst Jerry Brito. “Bitcoin basically solved a computer science problem that, for the first time, allows just two people to transact online, so it’s decentralized. There’s no Bitcoin company, there’s no government, it’s kind of like email.”

That makes it attractive to criminals who want to transfer money secretly. But U.S. law enforcement agencies recently shut down an online black market based on the system.

As the chairman of Bitcoin Foundation’s Regulatory Affairs Committee, Marco Santori, points out, all Bitcoin transactions can be seen by all other computers.

“Absolutely. Bitcoin is in fact heavily regulated. It is very heavily regulated. Those who exchange Bitcoins for other digital currencies or exchange Bitcoins for dollars are money transmitters under the Bank Secrecy Act,” said Santori.

The reliability of the system is based on the fact that the amount of bitcoins in the entire system must always be accounted for. Users' computers that constantly monitor and approve transactions are rewarded with new bitcoins, which is how additional funds are added to the system, said Brito.

“Every 10 minutes there are 25.5 bitcoins introduced into the economy and it is given to one of the miners, kind of at random as it were, who are contributing the computer capacity,” said Brito.

The United States, Germany, and many other governments accept the use of the digital currency, although some officials have called for greater oversight. China recently banned its banks, but not its businesses, from trading in Bitcoin.

Santori said that sending money now across the globe has become much easier and cheaper. “They don’t always have to send dollars or some derivative of a dollar. They can send Bitcoin.”

Since its introduction in 2009, the value of a Bitcoin has fluctuated from mere pennies to close to 1,000 U.S. dollars. And as more and more companies accept it for goods and services, and more and more consumers use it, the virtual currency is becoming a real fixture on the global financial scene.