Neither the recent implosion of the world’s biggest bitcoin exchange nor the collapse of a much-smaller Edmonton-based “bitcoin bank” this week seems to be worrying Canadian promoters of the virtual currency.
The bad press is clearly fuelling skepticism in some quarters about money that exists only digitally, as computer code. But not among the subculture of entrepreneurs and enthusiasts devoted to the concept, who are busy starting bitcoin businesses or their own new virtual currencies.
“This is going to be the way that transactions are done in the future,” said Anthony Di Iorio, executive director of the Bitcoin Alliance of Canada. “…You can do it with bitcoin instantly, anywhere in the world, one person to one person, and you can do it pretty much for free.”
Bitcoin attracted unwelcome attention last month, after Tokyo-based Mt. Gox, said to be the world’s largest bitcoin exchange, collapsed and later filed for bankruptcy protection, blaming hackers for stealing close to $500-million (U.S.).
Meanwhile, police in Edmonton are investigating after Flexcoin Inc., a self-styled bitcoin bank based in Edmonton, shut down this week after hackers made off with about $670,000 (Canadian). Last October, the U.S. Federal Bureau of Investigation shut down an online black market for drugs and seized millions in bitcoins.
Bitcoin also hit the cover of Newsweek on Thursday, with a story about Satoshi Nakamoto, the man believed to be the secretive inventor of the currency. He is said to be a 64-year-old Japanese-American living modestly in a Los Angeles suburb, despite reportedly owning $400-million (U.S.) in bitcoins. (Bitcoins are divided into units known as “satoshis.”)
The man singled out in Newsweek's piece later told the Associated Press, after being chased by other reporters, that he never had anything to do with bitcoins, and had never heard of the currency until recently. Someone claiming to be the reclusive bitcoin founder also reportedly posted a statement on an online bitcoin forum denying he was the man identified by Newsweek.
Bitcoin proponents say those who lost money in the collapse of Mt. Gox or Flexcoin should not have trusted their bitcoins with a third party, and instead should have kept them on a computer in “cold storage” – disconnected from the Internet.
Regulators could soon change the bitcoin game as concerns grow about possible fraud, money laundering and terrorist financing. Ottawa said in its recent budget that it will bring in regulations to trace money launderers who use bitcoin or other virtual currencies.
Jean-Paul Lam, an associate professor of economics at the University of Waterloo, thinks governments must extend financial regulation to the bitcoin Wild West. Such large amounts are becoming involved, he said, that one day a collapse in the bitcoin world could reverberate through the rest of the financial system.
“The irony of bitcoin is, it was created to avoid regulations, to avoid government intervention completely,” Prof. Lam said. “So the minute there is regulation ... I think that’s the end of [virtual currency] as we know it.”
But Stuart Hoegner, a Toronto lawyer who is general counsel for the Bitcoin Alliance, said if the government were to force bitcoin exchanges to report suspicious transactions as banks and some other businesses do, it would be good for the bitcoin world.
“My enthusiasm both as a user and as an attorney is not the least bit shaken by what happened with Flexcoin or Mt. Gox, any more so than what happened with Bear Stearns shook my faith in the dollar,” he said, referring to the 2008 collapse of the massive U.S. investment bank.
At the Bitcoin Alliance’s storefront in Toronto, a special automated teller machine that allows consumers to buy bitcoins attracted computer animator Barry Sanders, 42, who stopped in to take a look on Thursday: “It’s sort of an experiment. I wasn’t planning to put in a lot of money ... There’s this negativity around it, but have you talked to anybody on Wall Street?”