Bitcoin: The Future of Money

Bitcoin is a new internet-based currency that has grown exponentially in popularity in the last six months. The currency’s surge in value since January this year has propelled the coin out of obscurity and into the mainstream news. Is this just another web fad, or could Bitcoin really be the future of money?

The currency has risen in value by almost 700% in the last six months, with prices peaking in April at a high of $260 per Bitcoin. Since then, the market has stabilised at around $95, but still with significant day-to-day fluctuations in price.

This surge in value has been in part linked to the Eurozone crisis. Nick Colas, chief market strategist at ConvergEx Group, told Bloomberg Businessweek: “If you want to get a good sense of the stress European savers are feeling, just watch Bitcoin prices.”

What makes Bitcoin different to traditional money? Firstly, because transfers are made over the internet, it is possible to send and receive money anonymously. This has led to a crackdown on Bitcoin exchanges by the United States government, who fear that the currency could be used for money laundering.

Jennifer Shasky Calvery, director of the American financial crimes watchdog, FinCEN, told American Banker: "Any financial institution and any financial service could potentially pose an anti-money laundering threat. It depends on whether folks have the controls in place to deal with those money laundering threats and that they are meeting their AML reporting obligations."

This anonymity has also lead to the creation of an online black market website called The Silk Road. The site is only accessible via an anonymous network and offers a range of products – including illegal drugs, pornography and fireworks – which users can purchase using Bitcoins.

Secondly, because the network is run by volunteers, transactions can be made anywhere in the world for no fee. This has led some to call Bitcoin “the world’s first global currency.”

So how do you go about getting a Bitcoin? The biggest exchange at the moment is a Japanese company called Mt. Gox, who currently trade for 17 different currencies, including the Dollar, Euro and Pound.

Alternatively, you can buy from local traders, face-to-face, with cash. Graham Lally from Brighton has been offering to sell Bitcoins for pounds on a website called localbitcoins.com for over a year. His current rate of exchange is £71.19 to one Bitcoin.

Graham said: “I thought it would be great to support Bitcoin as a whole as I love the idea, but also wanted to link it into the existing networks in Brighton. It's gone through ups and downs, but I've met some fascinating people along the way.

“I was expecting to meet more computer geeks, but it's mostly been people with an interest in society, and alternatives to the Bank of England's policies.”

Local Brighton businesses have also recently shown an interest in the virtual currency. Popular bar and club, the Blind Tiger, recently asked their Facebook followers whether they should start accepting the currency.

The benefits of this could be huge. Customers at the bar could use an app on their phones to pay instantly in Bitcoins and with zero transaction fees, saving the company money in bank and card charges. In theory, this could result in making it cheaper to buy drinks with Bitcoins, rather than with pounds.

Graham Lally thinks there’s definitely some potential for the future of Bitcoins in Brighton.

He said: “I'd probably expect to see Bitcoins being used by more "fringe" organisations first - there are so many volunteer-based digital and arts projects which spring up in Brighton, and I can see them taking Bitcoins as donations first.

“Maybe that will get Bitcoins into the local area and kick off more local trading.”

With its incredible price fluctuations and sometimes untoward uses, it’s still uncertain as to whether Bitcoin will ever grow to rival normal currency. One thing’s for certain. In 2013 it’s the financial phenomenon on everybody’s minds.
 

By Nick Chowdrey
FACELESS MAGAZINE
E: NickC@FacelessMagazine.com
www.FacelessMagazine.com

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