Virtual currencies under scrutiny: Bitcoin’s next
Systems for virtual currencies, largely perceived as an alternative to crisis stricken traditional banking, are now pressed on all fronts. Since US federal prosecutors halted digital payment network Liberty Reserve, the Bitcoin currency is now under fire.
The largest exchange of the digital Bitcoin currency is now requiring all accounts to be verified as the US piles the pressure on the coin.
US authorities shut down Liberty Reserve for being a large money laundering scheme. The Costa Rica-based company is charged with running a "$6 billion money laundering scheme and operating an unlicensed money transmitting business," Preet Bharara, U.S. Attorney for the Southern District of New York said. Liberty Reserve was tailor-made for criminal transactions and money-laundering, facilitating "a broad range of online criminal activity, including credit card fraud, identity theft, investment fraud, computer hacking, child pornography, and narcotics trafficking," according to the indictment. The Liberty Reserve system handled huge amounts of money outside the control of national governments, as it was not registered with US authorities. On top of that, it did not require proof of identity for users.
“Through what happened to Liberty Reserve, it (Bitcoin) will be hurt, as alternative currency under this big heading,” Christopher Hartwell, Senior Research Fellow of the IEMS of the Moscow School of Management SKOLKOVO, told Business RT.
“Bitcoin will survive, but is it going to continue growing in its demand? It’s going to become more of a target in terms of the governments looking at it,” the SKOLKOVO expert added.
Virtual finance: viable alternative to traditional one?
With the central banks around the world now putting increasing pressure on normal depositors, virtual currencies have been growing exponentially. One recent example came after the financial crisis in Cyprus, when people with deposits above 100,000 euro were deprived of up to 30% of their savings. This shook faith in traditional banking and made Bitcoin an overnight sensation. Its exchange rate swung by hundreds of dollars in a few hours, ranging from between $100 and $140, according to bitcoincharts.com. The numbers are really high for a currency that relies on an electronic code and a network of anonymous helpers instead of a central government.
“… global central banks are coming out and saying: we have the policy that’s going to make your money work less, so people are looking to other channels to look towards,” said Hartwell.
Despite all the scrutiny virtual currencies are now facing, “they are going to be more sophisticated, they are going to be different from Bitcoin,” the SKOLKOVO expert said.
“We’ve just started that tinkering experiment with the limits of that free banking of alternative currencies. … They are going to be better and tougher to get into, we are going to see more proliferation in the future. ”
The official stance is not that optimistic, with the US authorities claiming they are well prepared to combat global illicit finances. Mr Bharara classified the Liberty Reserve indictment as "an important step towards reining in the 'Wild West' of illicit internet banking."
"As crime goes increasingly global, the long arm of the law has to get even longer, and in this case, it encircled the earth," he added.
Though posing greater competition among currencies, the virtual ones are not going to replace key traditional means of payment, especially the US dollar.
“The thing is that the US dollar remains the soundest bet around – it’s the best of a bad lot. Do you see what’s happening to the euro? Still going on. Cyprus – still shaking up. Greece – still shaking up. The euro was going to replace the dollar and it’s not. There’s really nothing out there that’s going to take the dollar’s place,” a SKOLKOVO expert concluded.
