Bitcoin still remains a viable currency. With so many faithful proponents worldwide, Bitcoin has maintained significant value and the options to trade this unsanctioned currency remain robust. While Bitcoin has fallen from its lofty heights of more than a thousand dollars, it did dramatically rise in value from its humble beginnings - a few pennies - to more than six hundred dollars, where it trades today. There are now Bitcoin ATMs, numerous exchanges and retailers to convert Bitcoin, and many bars and restaurants that will gladly accept virtual currency around the world.
A top European Union banking regulator has issued a strong warning about Bitcoin, and the Chinese government has decided to restrict its trading. Lately, this virtual currency has endured its fair share of bad news; in January 2014, the owner of a notable Bitcoin startup, Charlie Shrem, was indicted on charges of money laundering; a month later, the two largest Bitcoin trading exchanges were attacked by hackers, thereby preventing customers from withdrawing funds. The dramatic take down of the Silk Road tarnished the image of Bitcoin, which was used to facilitate illicit drug deals. Furthermore, traditional banks and trading firms will not touch this virtual currency.
Interestingly, the United States government has been more tempered than other nations in its approach to Bitcoin. Remarkably, the U.S. may ultimately be the savior of this much maligned currency. U.S. trading firms may not have made the bold step of buying Bitcoin, but this does not mean that they are not attracted to the currency. In fact, indications are that traditional trading firms are very interested in the prospect of trading Bitcoin given its tremendous volatility. Nevertheless, the financial services industry is likely to wait until the U.S. government provides more guidelines on their approach to virtual currencies.
The U.S. government is likely to make their policies about Bitcoin known soon, given its growing influence on the world economy. The Financial Crimes Enforcement Network (FinCEN), which is concerned with the prevention of money laundering, deterring terrorist financing and stopping other financial crimes, is not opposed to Bitcoin. FinCEN has clearly indicated that owning or converting (‘mining’) Bitcoin for personal use is not illegal.
In South America, the use of virtual currencies has risen exponentially. WebMoney top-ups in Mexico are available at 15,000 stores; in Colombia, top-ups are available at 3,000 Baloto Stores and wire transfers from 17 Colombian banks. Additionally, WebMoney top-ups are available from any bank in Argentina, Brazil, Mexico, Uruguay, Chile or Peru. In fact, there are 22 million users of WebMoney worldwide.
There are other virtual currencies besides Bitcoin, and more will evolve. For now, virtual currencies are here to stay and it is critical to understand that there are many Generation Y supporters and promoters, who think differently than older generations and want Bitcoin to thrive as an alternative to traditional currencies. Ironically, this younger generation, which has sacrificed so much of their personal information online, advocates for a currency that offers anonymity. However, a vacuum exists as we await the firm guidance from the U.S. government on its official stance on virtual currencies, which will have a major impact on the feasibility of Bitcoin and other contenders.
Hayes is a professor at Pace University’s Seidenberg School of Computer Science and Information Systems in New York. A former investment banker, Hayes began his career in the financial services industry with Cantor Fitzgerald at the World Trade Center.