Bitcoin Collapse

“The system has proved popular with online criminals, keen to keep their financial transactions secret, although it has a wider, legitimate, user base.” What an amazing phrase to use in a BBC news article, for those who don’t know, Bitcoin is where the internet and real money meet, but certainly not for the first time. Virtual Currencies have been with us, particularly “in-game” virtual currencies, for quite a while now. But a virtual distributed, and highly difficult to trace currency, for the sole purpose of real world item exchanges/trade?  To quote one of the designers themselves; “A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.”. Well, that’s perhaps not completely new, and there’s already some interesting thoughts on this here on SSRN by Reuben Grinberg and another interesting piece of work here by Constance Wells on the subject. But does it have criminal aspects? Well certainly some US Senators seem to think so in June 2011, though when you get behind that Reuters new story and actually read the real press release the US Senators actually made (always a good idea) you see they are actually wanting to stop The online marketplace Silk Road, which has been called the “Amazon.com of Drug Selling” and accepts Bitcoins as a major currency of exchange. (I’d use a few more authoritative sources normally I should add, but in these cases the sources are actually fairly good.). So this story actually has three main parts to it; (1) the existence of a peer-to-peer distributed currency with heavy encryption/cryptography which bypasses financial institutions and regulators, (2) the possible use of that currency on (reputedly) disreputable trading platforms involved in illegal activities and finally (3) the hacking/cracking of that currency and the subsequent fallout. While in-itself it isn’t a game based currency, the experience of Bitcoin, and I’m sure the regulatory actions and fallout, will throw a few question marks into the air regarding those games who currently, or want to in the future, employ a model which allows transactions of virtual cash to real money. So certainly this is something to keep an eye on with interest, and a story to keep track with.