Cryptocurrencies, Such as Bitcoin, Do More Good Than Harm
CON (4 arguments)
On February 14th, 2014, about $2.5m of Bitcoin was apparently stolen from Silk Road 2.0, a website which is used to trade mainly illegal drugs. It has been reported that all of this money was used to buy illegal drugs and make them. According to a 2013 users' survey conducted by the International Business Market, 35 % of Bitcoin spending went toward narcotics and other illegal goods. Even A Bitcoin assasination market has popped up to target world leaders.
Companies which circulate cryptocurrencies, such as Mt. Gox, can easily steal money, due to the fact that transactions are irreversible. Karpeles said Friday that 750,000 bitcoins deposited by users and another 100,000 belonging to the company disappeared. That would amount to about $425 million at recent prices. $425 million dollars of consumer’s money being lost.
Bitcoin has been noted to be highly volatile since it was able to rapidly increase in value from about $100 in October 2013 to $1200 in December 2013. Surprisingly, it encountered a sharp decline back to $600 in January 2014. Also, the week of March 1, Bitcoin dropped over $5.13 billion dollars after a bug in the system invaded information. Since 2011 dozens of exchanges have been hacked, and some have been robbed of millions of dollars. Its price has crashed several times.
All but six of the 86 cryptocurrencies listed by CoinMarketCap have seen drops of between five and 40% over the last 24 hours of the past five days. Bitcoin saw substantial losses of around 20% on 7 February, before recovering to $700, down approximately 12% on the previous day. As is often the case, where bitcoin goes other currencies follow, and the top 36 all saw their value fall.
Also, many bugs have now been associated with cryptocurrency. “A bug in the bitcoin software [that] 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. Since transaction appears as if it has not proceeded correctly, the bitcoins may be resent.
Money laundering is the process whereby the proceeds of crime are transformed into legitimate money or other assets. In 2011, New York Sen. Chuck Schumer, set the gold standard for anti-bitcoin freakouts, calling bitcoin "an online form of money laundering used to disguise the source of money, and to disguise who's both selling and buying the drug.” On February 2, 2014, BitInstant CEO Charlie Shrem was charged with money laundering. It looks like Shrem was working with Robert Faiella, whom he knew only by his username BTCKing, to help customers convert dollars to bitcoins for use on Silk Road. According to the Financial Crimes Enforcement Network (FinCEN), BitInstant is a payment company, so it is legally required to record and report information about its customers, particularly potentially shady dealings. Shrem, who was also on the board of the semi-official spokesorganization for the ownerless cryptocurrency, the Bitcoin Foundation, did no such reporting. Mike Caldwell had a small online business producing physical coins engraved with a private key that could be used to unlock digital bitcoins. Late last year, he got an alarming letter from FinCEn, in charge of stopping money laundering, and ceased operations.
Because cryptocurrency transactions are anonymous and virtually untraceable, they have created a niche market for illegal transactions such as in illegal drugs. Because there is no central repository for the currency, neither law enforcement nor payment processors have jurisdiction to freeze users’ accounts. However, for supporters of cryptocurrency, this anonymity is one of the technology’s main strengths, despite its abuse for illicit purposes, because it allows for a power shift from institutions to individuals.
Contrary to what some Bitcoin supporters support, anonymous financial transactions are undeniably a tool of oppression. It should be no surprise that Russia and China, two of the biggest money laundering hubs in the world, are some of the fastest growing markets for Bitcoins.
At the heart of the FBI’s concerns over Bitcoin is that Bitcoin has no “centralized authority,” a body equivalent to the banks and payment processors that play such a crucial role in monitoring for and protecting against online financial crime and theft. For instance, the FBI report identifies “third-party Bitcoin services,” or businesses that exchange Bitcoins for traditional currency, as important players in this new defensive landscape since they may “require customers to submit valid identification or bank information to complete transactions.” But it remains to be seen how effective these services will prove at providing the security services that, for better or for worse, we have come to rely so heavily on banks and credit card companies to provide. If the wallet file is lost, then the bitcoins it contains are lost forever. Sure, the file can be backed up, but people rarely do that, so if anything happens to the computer, or if you just inadvertently delete the file, then the Bitcoin is gone. The public address still exists, but this can only be accessed by the private key, which has been deleted, so unless one breaks the very secure encryption built into the system, then it would not be possible to recover the lost coins. In fact, there are an estimated 5 million lost bitcoins out of the 11 million ever mined.