I virtually need a new currency, quick!

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The BitCoin conversation is still going on. The hacking is still going on. Disgruntled slavic businessmen are looking glum around Paphos after dark and rather than the Cypriot banking crisis being the cause, perhaps it’s people talking about the Cypriot crisis that’s got depositors looking at new, novel and accessible ways to keep their money safe. For some, privacy and untraceability are paramount. We asked  Charles Arthur the technology editor of The Guardian about using BitCoin for currency hedging by businesses, last weekend on NewsTalk’s Down To Business with Bobby Kerr. Charles, was skeptical regarding that idea given the roller-coaster fluctuation in BitCoin over the last 18 months, and wrote about that on Wednesday. His views as usual were prescient, as this week the value of a BitCoin has plunged dramatically following hacking attacks on Instawallet and the world’s biggest BitCoin exchange, Mt Gox.

As it happens, last weekend I found myself eating the best  possible home-made lime cheesecake at a friend’s house. But there was motive in my calorie bulking; as a former Head of Treasury at a European bank I was keen to see how she felt about virtual currencies given the mainstream attention they’ve been getting. Despite knowing each other for a decade or more, she found it hard not to look embarrassed. Embarrassed on my account that is. The point she couldn’t stress enough was that the lack of regulation and centralised control, whilst giving us in the technology business a feeling of romantic and vicarious one upmanshp, leaves the entire ecosystem surrounding a virtual currency liable to manipulation and exploitation. Not exploitation by professional institutional speculators, but by semi-professional and amateurs.  The BetFair crowd I’ve decided to call them – the same mentality as the man with a debit card who thinks he’s a bookie.

“Attackers wait until the price of Bitcoins reaches a certain value, sell, destabilize the exchange, wait for everybody to panic-sell their Bitcoins, wait for the price to drop to a certain amount, then stop the attack and start buying as much as they can. Repeat this two or three times like we saw over the past few days and they profit.”

— Mt Gox Press Release : TOKYO – JAPAN – April 04, 2013

Popularity and cultural awareness have contributed to making BitCoin ridiculously  volatile.  Currencies like BitCoin may well be limited as a commodity – the total number of coins is known – but it isn’t tied, or guaranteed by a government or central bank. It isn’t legal tender or guaranteed to be accepted. Yet, it’s getting attention. Fewer Bond-style villains hiding ill-gotten gains, and more opportunists and traders who see they can make a buck. Tonight , the weighted average value of BitCoin on theMt Gox exchange is $139 - yet I can bid on a BitCoin, a virtual coin, (not one of the lovely physical coins), in an auction at a popular online auction site, that has reached the equivalent of $181. This would be like me bidding 120 Euro or more for a current 100 Euro note. Ridiculous. speculative and to be expected? Yes, but I remain an optimist regarding the prospects for virtual currencies, howver it may well be the internet equivalent of central banks who succeed best. Amazon will launch Amazon Coins later this spring and Apple, with half a billion customers and an authenticated eco-system must be alikely player in  the Wallet Wars.

Since I  wrote on RedCert.com in January about the likely growth in the use of BitCoin, I think we’ve seen the most important development in the area of ‘e’ and virtual currencies for the last couple of years in the recent guidance from US Department of Treasury; BitCoin and other virtual currency handlers are now liable to the same legislation and procedures regarding money-laundering as ‘real-world’ financial firms.

So, BitCoin has captured the imagination for now – but are there others?  Yes, there are. Virtual and Digital Currency has been around long enough for some of them to have already disappeared. And some are not good stories, for instance e-gold which was digital gold currency operated by Gold & Silver Reserve Inc. under e-gold Ltd. that allowed the instant transfer of gold ownership between 1996 and 2009, when transfers were suspended.  In July 2008 the company and its three directors pled guilty to charges of “conspiracy to engage in money laundering” and the “operation of an unlicensed money transmitting business” in the U.S. District Court with fines of $3.5 Million imposed. Others have found it hard to gain traction – but there are a handful that are making an impression – some communities, some Peer to Peer and a couple of currencies. A good starting point is the PPCoin website which details the concepts and ideas behind much of this community, and the active players are listed below.

List of currently traded virtual & electronic currencies

Currency Founded Website
NovaCoin 2013 Forum Discussion
PPCoin 2012 Website
IXcoin 2011 Website
Litecoin 2011 Litecoin website
Ripple 2010 Ripple.com Website
Bitcoin 2009 BitCoin.org
Ven 2007 VenMoney.Net
Bitcoin image by Zach Copley.

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