Bitcoin is Dead, Long Live Bitcoin

by Ben Jackson 0

Bitcoin is dead.

The much-hyped virtual currency has had its fundamental valueproposition of being an anonymous electronic currency called intoquestion by government activities in recent days. Without thatanonymity, it just becomes an inconvenient second currency asopposed to a new mode of transactions.

In March, FinCEN issued guidance around applying Bank Secrecy Actregulations to virtual currencies that said that companies whotransmit, buy, or sell virtual currencies are money transmittersunder the government’s regulations.

In late June, Mt. Gox announced that it had registered as a moneyservices business with the U.S. Treasury Department’s FinancialCrimes Enforcement Network. Mt. Gox claims it is the world’slargest bitcoin exchange. It also enables bitcoin acceptance. Thiscame shortly after the exchange suspended U.S. dollar withdrawalsfor two weeks because of processing issues.

Around the same time, news came out that the Drug EnforcementAdministration has seized bitcoins from a suspected drug dealer andput them in its own bitcoin wallet. While combating crime is a goodthing, the action shows that bitcoin is not truly anonymous nor isit beyond the reach of the government.

Because of that, then anyone looking for an anonymous electroniccurrency will need to rethink how well bitcoin fits that bill. Itcertainly seems be traceable and capable of being intercepted. Inthe context of recent revelations about the National SecurityAgency looking into everyone’s electronic activity, it would seemthat the anonymity of bitcoin is rapidly being eroded.

Without that personal privacy, what is bitcoin? It is a currencythat behaves more like a commodity with its price fluctuations andrestricted liquidity. Given all the other ways someone can completetransactions online, it seems that bitcoin simply becomes one witha barrier to entry since a user needs to buy them (or mine them ifthey are able to afford enough computing power to work on theincreasingly difficult algorithmic puzzles).

Technophiles may keep some momentum behind bitcoin. But it likelywill turn into “Technonerd coin” as players like Amazon offervirtual currencies that provide the same level of privacyprotection in easier-to-use (and easier-to-value) forms.