Bitcoin's life-or-death moment


Like many, I am gripped by the concept of Bitcoin.

I am not talking about the value of the individual bits of the new virtual currency, which has had a somewhat volatile history and is currently spiralling down.

What excites is the development, by Bitcoin enthusiasts, known as miners, of a super-efficient money transmission network on the internet, that bypasses the official banking and money transmission systems - or at least it is a hermetically sealed monetary world until holders of the virtual currency want to buy a hamburger or motor car and endeavour to convert their Bitcoins into dollars, pounds or other forms of legal tender.

However, Bitcoin probably represents the first seriously existential threat to conventional banks, burdened with their massive running costs, in living memory.

In theory, at least, Bitcoin is their Amazon.

Bitcoin also poses something of an issue for central banks like the Bank of England or US Federal Reserve, which appear to have no ability to influence the value of Bitcoins. So Bitcoin represents a challenge to their duties of monetary stewardship.

And it is not at all clear whether the writ of financial regulators runs to the Bitcoin world.

So depending on your point of view, Bitcoin is either a wonderfully liberating new financial system, freed of the costs and poisonous history of the old banking and monetary world, or it is the dangerous and wacky Wild West, where law-abiding folk should fear to tread.

Which is it? Well we may be about to find out, following the disappearance from the internet of MtGox, one of the biggest Bitcoin exchanges - amidst rumours of all sorts of shenanigans and allegations that vast quantities of the currency have gone walkies.

The point is that Bitcoin's strength - that it has grown in an organic, slightly anarchic and devolved way, with no central oversight or control - is also its weakness.

There is no central authority to step in and give any kind of guidance to Mt Gox customers whether their money is safe or gone. And there's no compensation safety net.

Bitcoin has been set up on the basis of pure caveat emptor. If its participants take any losses in their stride, and learn the lessons, it can go from strength to strength.

If they are unable to develop any kind of governance system that provides confidence that Bitcoins are where they are supposed to be, then it will disintegrate into fringe territory for loons and wild-eyed monetary anarchists.

Robert Peston, economics editor Article written by Robert Peston Robert Peston Economics editor

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  • rate this

    Comment number 35.

    MichaelBinary " To keep them secure U need to use your own offline encrypted wallet."

    This requires people to be highly technical literate with computers,the public are not going to put extra mental load when they have other worries and issues, especially with today's society.

  • rate this

    Comment number 34.

    For a while now BBC online has enthusiastically been describing bitcoin as 'a new kind of currency' and now 'the first seriously existential threat to conventional banks'.

    Reality check: it's far too soon to tell, but the current data on bitcoin is equally consistent with the whole thing being nothing more than a bubble or the latest Ponzi scheme.

  • rate this

    Comment number 33.

    If BC was trusted, then it would sweep the World. No doubt about it.
    Because Banks today are now less trusted, as they are seen as public enemy number one.
    Banks are now oversized money making outfits, but not for the customers..the savers and borrowers.
    Unfortunately the virtual world cannot be trusted yet, as neither can the human operator.

  • rate this

    Comment number 32.

    If you keep BTC with an online exchange U are asking for problems. To keep them secure U need to use your own offline encrypted wallet. That way nobody can get at them unless they break in to your house & force U to reveal the decryption keys. Any sort of bank is only as trustworthy as the people who run it.

  • rate this

    Comment number 31.

    All that's really left to say to those dumb enough to leave these play tokens in this, or any other totally unregulated 'exchange' where the same events will probably unfold at some point due to incompetence or human greed, is hahaha hahahahaha hahahaha

  • rate this

    Comment number 30.

    Bitcoin gives users the freedom to store their money in a wallet or an exchange. In a wallet no one can access the funds except you. In an exchange you are putting your trust in someone else to look after your coins. The negative comments here should be aimed at a few bad exchanges, not at Bitcoin.

  • rate this

    Comment number 29.

    @hillbrad on Twitter: "Samsung Galaxy S 5 will allow fingerprint-enabled payments through PayPal. Hmm."
    this from BBC review of one new smartphone now with an heart monitor so one can actually see the physical effect when one's savings virtually 'disappear'...
    either in the next financial crash or the next online scam, whichever (inevitably) comes sooner.
    Technology,taxed and/or taxing..discuss

  • rate this

    Comment number 28.

    Technical issues at MtGox will not kill bitcoin, people will merely elect to use another exchange the same way one moves their money to another bank with a better record.

    There seems to be a lot of effort going into talk about how bitcoin will never work but the price is up, adoption by consumers and companies is up and the technology behind bitcoin remains sound.

  • rate this

    Comment number 27.

    Dal_Riata "in some way £$Yen etc are backed by, theoretically at least, gold and/or deposits of other precious commodities."

    Actually there are backed by the nation themselves. Backed by commodities isn't as good as some think, Gold for example hasn't prevented crises before and was actually the cause of Spanish Financial crises in the 16th Century.

  • rate this

    Comment number 26.

    Money as a means of exchange - bitcoin? But fictitious bitcoins are being created by the system for the services of handling bitcoins! This will get out of hand, because there will be malfeasance & someone will create a closed protected market by regulating it & that will lead to the corruption we have in the other money banking we already have.

    bitcoins are not a miracle cure for anything.

  • rate this

    Comment number 25.

    Potential investors really should read what Robert and the beeb has to say on the subject, then do the opposite.
    Since bitcoin (routinely described as dangerous) was first commented on back in 2011 the value has risen from about $15 to $558.

  • rate this

    Comment number 24.

    why has my comment been moderated? was it because i said HSBC was caught laundering drug money? Well you've reported it yourself BEEB! here's the link to your own website.

  • rate this

    Comment number 23.

    To become mainstream it needs to become safer and thus more regulated. However this will just turn it into yet another conventional currency.

    Do we need an unregulated currency? who would be/are its main users? how about taxes? how about illegal businesses?

  • rate this

    Comment number 22.

    Bitoin seems like emperors clothing to me. It's not backed by anything except belief. You could argue that other monetary systems are similar, true, but in some way £$Yen etc are backed by, theoretically at least, gold and/or deposits of other precious commodities. there is a lot of modern froth on top of this, true, but at base conventional currencies do have asset backed protection.

  • rate this

    Comment number 21.

    Money needs to be replaced, Youths need to be employed

    Money gives options
    but Government has no options for Youth employment

    If I was a Politician or Head of DWP I would not force free slave work for Tesco shelf stackers, leaving UK Kids wishing they were dead

    I'd invest in Kids futures not give Old School Boys Networks Tax Breaks & Cut Public Services. Its better to have morals than be Tory

  • rate this

    Comment number 20.

    Once bitcoined
    Twice shy.
    although if Scotland adopted internet money as the currency of choice, it could become the world depository of laundered ill-gotten gains rather than Monaco, Switzerland, City of London, British Virgin Islands etc....
    Hope the FCA and PRA have a suite of 17 year old computer hackers to investigate..
    However, isn't the problem now that all money is virtual.....discuss

  • rate this

    Comment number 19.

    I well remember the 'dot-com' boom and bubble of 15 years ago. This was based on virtual companies with no assets. This was followed by a major 'bust' and a collapse of dot-com companies and share prices. I didn't fall for the hype then and I'm not going too now. It's so easy to hack into sites, just how can your money be secure.

  • rate this

    Comment number 18.

    BobRocket - I'd feel safer with my money under my bed than within the current BitCoin world. It will happen, VCs will be the next logical step for a global currency/ecomony. But this is the first step. Big lessons need to be learnt and until there is stability and protection, underwriting etc I'll stick to what is already established.

  • rate this

    Comment number 17.

    Some more "food for thought"

    The so called "technical" hickups are could be joint internationally backed attacks by governments.

    Think, the currency is fixed as a piece of data, it cant be duplicated. This leaves that data in a vulnerable position, if the data is destroyed the x amount of bitcoin is GONE forever.

    So, what is best to remove bitcoins?

    Cyber warfare backed by the likes of GCHQ

  • rate this

    Comment number 16.

    Bitcoin and other cyrptocurrencies has the main fundamental problem where people are using it as an asset to make money off rather than a medium of exchange as you cannot have either as prices fluctuate too much to be used day to day purchases.

    Not defending dirty practices done in the Financial Sector but Bitcoin and other cyrptocurrencies as there are isn't the answer.


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