The past few weeks have been a bit on the testing side for the bitcoin crypto-currency. What with the collapse of the MtGox bitcoin exchange following the theft of 744,000 bitcoins – about $350m (£210m) worth – due to a loophole in its security, the news that Japan’s government has said that Bitcoin is not a currency, the closure of Canada-based virtual currency exchange Flexcoin following the theft of bitcoins worth around 440,000 euros, and the very sad death of Autumn Radtke – the CEO of the First Meta bitcoin exchange in Singapore, it’s hard at the moment to imagine a successful future for the currency.
The current value of bitcoin is running at about half of its November value, so things are not looking too positive on that front. In order for the currency to survive, people need to have confidence in it – not just that its value isn’t going to fall through the floor, but also that any bitcoins you have in your bitcoin wallet aren’t going to be stolen. This is really, really important. I, for example, own 0.2 of a bitcoin – about £75 worth at the moment – and I would like to buy some more but I’m waiting to see how things stabilize over the next few weeks or months. If I’m typical of the average micro investor, this lack of activity isn’t going to do much for the price of bitcoin.
I like the idea of bitcoin because for me it offers ‘potentially’ an additional way to buy and sell goods on the Internet, which will be good for competition, and which in turn will be good for keeping transaction charges down to a minimum. I say ‘potentially’ because as of March 2014 I don’t think there are really that many places where you can actually use bitcoin to buy items. I also like the idea of bitcoin – I think it’s clever how the whole bitcoin network/system works and that should be applauded – even if only from a technological point of view.
And, of course, there’s the business of whether governments around the world allow bitcoin transactions to take place in their jurisdiction. Governments don’t like bitcoin because of the anonymity of the transactions…after all, it’s all well and good saying that you should pay tax on any profits you make from bitcoin investments, but if no-one knows about the profits are you going to declare them? … of course you are !! Still, I’m about 25% down at the moment on my investment so capital gains taxes are not really something I have to worry about just yet !
Ultimately – unfortunately – there might end up being just too many reasons why bitcoin can’t survive. I hope this doesn’t turn out to be the case, but I’m concerned at the moment that it might be.
If you want to know more about bitcoin, take a look at our beginner’s guide.