Are cracks beginning to show in bitcoin?
In spite of setbacks, Bitcoin start-up founder Jeremy Allaire remains confident currency has a viable future
Jeremy Allaire: “I have long-term savings in bitcoin, though not a huge amount of my assets. It is important that I have long term belief in the currency. I give my sons their allowance in bitcoin and I’ve bought everything from socks to food to electronics with it.” Photograph: Brenda Fitzsimons
It has been a difficult seven days for bitcoin. Last Friday the world’s largest bitcoin exchange Mt Gox halted withdrawals of the digital currency citing a software bug.
“A bug in the bitcoin software makes it possible for someone to use the bitcoin network to alter transaction details to make it seem like a sending of bitcoins to a bitcoin wallet did not occur when in fact it did occur,” the Tokyo-based exchange said in a statement.
“Since the transaction appears as if it has not proceeded correctly the bitcoins may be resent.”
By Monday, the price of the cryptocurrency had fallen to its lowest level in two months.
On Tuesday, Slovenia-based Bitstamp became the second major bitcoin exchange to halt customer withdrawals, blaming a denial-of-service attack, and Bulgaria-based BTC-E quickly followed suit.
Bitcoin was coming under pressure from hackers launching attacks across the currency’s eco-system, worsened by the fact that the currency is a decentralised digital system of value transfers not governed by any central bank, company or government.
‘Incredibly illiquid’
The currency’s price, which was more than $800 last Friday, plummeted as low as $102.
Even investment bank JP Morgan weighed in on the crisis, saying bitcoin was a “vastly inferior” currency and not a solid investment.
In the report called The Audacity of Bitcoin , John Norman, the company’s head of forex strategy, called the currency “incredibly illiquid” and “extremely volatile”.
“At the risk of sounding like a Luddite, bitcoin looks like an innovation worth limiting exposure to. As a medium of exchange, unit of account and store of value, it is vastly inferior to fiat currencies,” Norman said.
It’s not the first time the cryptocurrency has been the subject of problems.
It was implicated in a huge drug bust last year when the Federal Bureau of Investigation took down the Silk Road electronic exchange.
It experienced regulatory pressure from trading restrictions in China to a recent threat of a complete ban in Russia.
Earlier this month, the Russian authorities issued a warning against using bitcoin, saying Russian law stipulates that the rouble is the sole official currency and that introducing any other monetary units or substitutes was illegal.
The currency also absorbed a decision by Apple to remove all bitcoin-related software from its app store.
However, in the face of all this adversity, bitcoin entrepreneur Jeremy Allaire says he is confident the digital currency will survive.
Allaire, who founded the bitcoin payments company Circle, said the freeze on bitcoin withdrawals imposed by three major exchanges would not cause any long-term damage to the digital currency’s credibility.
“If anything, the recent attacks and response from the bitcoin community, both core developers and ecosystem participants, demonstrate the resiliency and agility of this platform.
“These challenges are driving a greater focus on platform stability, security and scalability, which are important focuses as we move from the early adopter phase into mainstream usage.”
Allaire is one of the people arguing that bitcoin companies should work with governments to establish regulations for the currency.
His bitcoin payments company raised $9 million in venture capital funding and is due to launch later this year, with international operations headquartered in Dublin.
Concerns
“There is no point in dismissing the whole digital currency idea because there are concerns,” he says.
To ensure widespread adoption of bitcoin, he says there needs to be rules around its use.
“There is a strong need to prevent money laundering and criminality with bitcoin. There needs to be rules if bitcoin is going to be big.
Post Source: http://www.irishtimes.com/business/sectors/financial-services/are-cracks-beginning-to-show-in-bitcoin-1.1690576
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