Symantec’s discovery of the Infostealer.Coinbit malware shows how valuable the new currency actually could be, although whether that value is merited is hotly debated. Another hack-based heist earlier this week resulted in the theft of 25,000 Bitcoins at a real-world equivalent value of nearly $500,000, and there’s no way the victim can recover the lost cash, thanks to the tech that makes the currency “safe” in some senses. This shows how dangerous a new way of transferring notional value in symbolic form (i.e. any type of money) can be for early adopters.
Bitcoins don’t actually exist in the physical sense. When you engage in a Bitcoin transaction, you’re merely sending a highly encrypted digital token that says, in effect, “This token is numbered X, and I’m conferring ownership to the recipient.” The identity of the coin, owner, and new owner are all cryptographically protected via public keys, and when a transaction is completed the Bitcoin “market” is alerted to the new ownership–meaning that when the new owner tries to spend it, buyers will only accept the coin if it comes from the associated account. It’s all handily explained here:
Though the idea’s been around for a while, it’s been in the spotlight recently thanks to the $500,000 theft and because two U.S. Senators recently pressed for a crackdown on the currency. Some say Bitcoins are being used to buy illegal drugs online via shadowy markets that exploit both the effectively untraceable Bitcoins and the anonymous way they can be traded. There’s also plenty of scrutiny of the entire principle that underpins the currency–for a primer, check out the very lengthy thread on Quora that delves into fiscal theory.
Any new form of currency inevitably ignites controversy on a number of fronts. The Linden Dollar, a virtual currency that drives the economy of virtual world Second Life, has attracted some of its own bad news–particularly when moves by Second Life owner Linden Labs forced tiny adjustments or even big swings in the relative value of the currency, causing real-world effects since Linden Dollars trade on an exchange for real dollars. It’s also been alleged that criminals use Linden Dollars as one step in a money laundering process that makes tracing the crime that much harder.
In terms of theft and forgery of a currency, similar problems have beset real-world coins and notes since they were invented. The coins in your pocket have intricately milled edges because it was suggested by Sir Isaac Newton as a way to defeat “clipping,” or shaving the edges of authentic coins to extract metal which could be made into a new, counterfeit coin, thereby devaluing the currency. The battle for ever-more secure printed bills, using more and more sophisticated tech, is a recurring story. And remember how controversial the first online credit-card payments were?
Bitcoin may or may not become a historic digital currency. But either way it heralds a paradigm shift in the way we think about money. Bitcoins aren’t a national currency. They’re not associated with a mint, regulated by governments or banks, and they’re traded digitally–without any real “item” changing hands, even something as transitory as a credit card being handed over to a salesperson.
With the rise of other digital currencies like Facebook credits and wireless “wave and pay” credit-card systems, we’re likely to think about actual money even less than we do already–dropping your phone onto a cash register is such a different process to handing over coins jangling around in your pocket. No one’s saying the dollar or the euro or the pound is going anywhere just yet, but when it becomes even more virtual and interchangeable for digital currency like Bitcoins, controversy will surely follow. Innovations in digital currency can’t be far behind.
[Image from Flickr user scruffdog1231]