The use of the bitcoin has been a long lasting controversy among economist and politicians in the past few years. A few years ago there was a peak in this debate over whether bitcoins were a legitimate currency and whether bitcoins did any good for the economy.
The bitcoin is an online currency that was created in 2008. This is a currency that is independent from any government intervention and is different than any national currency in the fact that the government doesn’t regulate it. Its technical name is a cryptographic based currency or a cryptocurrency. What this means is that it is a currency created online. The way it works is that anyone can download the Bitcoin software and then “mine” for bitcoins. What that means is that they use the Bitcoin program on their computer to run and solve extremely difficult mathematical algorithms; the first computer to solve the algorithm gets the bitcoins. The bitcoins are then transferred to a virtual wallet address that the user creates which has a unique coding of 36 letters and numbers that acts as a sort of anonymous email address with which they can receive and send bitcoins to other users. From there, users can use the bitcoins as currency on certain websites or “convert” them into US dollars or any other currency.
And there is where the controversy lies; since the bitcoin wallets are anonymous and have no link to the person using the bitcoins (unless they link their bank account to their bitcoin wallet to convert the bitcoins to cash), a common use for the virtual currency is illegal trades on the Deep Web and back markets. One of the most popular of these sites was Silk Road, a site on the Deep Web where you could buy illicit drugs. People with bitcoin wallets could make illegal purchases online without being tracked by using a combination of methods to remain anonymous such as scrambling their IP address. Even if police or the government were to figure out someone’s virtual wallet address, each wallet is used for only one transaction so that code would be of no use after the transaction has been made.
Because of the nature of the bitcoin, it is an attractive form of currency for people making questionable purchases online. So the actual bitcoin isn’t an illegal form of currency but a large use of the bitcoin has historically been for sketchy purchases.
In 2013, Silk Road was shut down which created a big opportunity for Bitcoin to prove that the bitcoin could be used for something other than malicious purchases. For example, Overstock.com allows purchases using bitcoins and so have some other online shopping websites. There still remains a doubt whether the bitcoin should be used as a currency or not since it is not regulated by any centralized government. The organization that does exist for the bitcoin simply makes sure that the bitcoin is being transferred correctly between virtual wallets. But even that has failed. In 2014, Mt. Gox, a website responsible for handing a majority of all bitcoin transactions, shut down and declared bankruptcy because approximately 850,000 bitcoins (which at this point was valued at about $450 million) had been lost or stolen within the previous couple years. This was of large concern to the federal government since the bitcoins could be traded for US currency which would mean that US money was indirectly being stolen. But since the government can’t regulate bitcoins, they really had no power to do anything about the stolen money.
Bitcoins are the largest and most successful form of virtual currency. Because of their unstable value and nature of anonymity, they have been of interest to people making sketchy purchases and of concern to the federal government.
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