Many people are questioning if Bitcon is safe. And it's no wonder given horror stories such as Tokyo-based Bitcon exchange Mt. Gox, which filed for bankruptcy protection in March after losing around $474 million worth of bitcoins.
Ahead of the Inside Bitcoin conference in Melbourne next week, Bitreserve.org chief transparency officer Juan Llanos and Centre for Strategic Cyberspace and Security Science president Craig Wright spoke with CIO Australia about this emerging currency and whether or not there’s a need for more regulation.
Bitreserve.org's Llanos – who is a member of the Bitcoin Foundation's Regulatory Affairs and Education Committees – said regulation has a role in addressing security issues such as those seen in the Mt Gox case.
“Recently, there have been some very, very catastrophic failures in some service providers. So the concern today from regulators is… the risks of virtual currencies, particularly Bitcoin where the features it has makes it – at this point in time in the evolution of the technology – risky and vulnerable to theft, loss, and misplacement.
“When something like that happens, when some incident or event happens, governments react… and naturally citizens and society reacts, and regulation comes and fills the void.”
Llanos said regulation needs to move to an international scale, and governments need to work more collaboratively when dealing with cross jurisdictional challenges.
“There should be a regulation that covers it as a global system, so there will have to be a lot of international agreement on this new standard as there has been for the Internet. Of course that is probably wishful thinking because nations and countries will still want to protect their own interests.”
Wright – who is working with the Australia government towards acceptance of virtual currencies – said regulation has often shown to be ineffective in preventing the corruption of new technologies, and will only hamper Bitcoin’s growth and innovation.
“I can’t name a single regulation that has ever made anything more secure. In fact, every single legislation to make things more secure has done the exact opposite,” Wright said. “The perversity we have in all of this is the more compliance we have, the less security we have.
“Also, there are already volumes and volumes of laws, more than any sane lawyer could understand. For example, if I was to print out every bit of tax law and supporting documentation, the current room I’m standing in, which is maybe 80 square metres and three metres high, would not hold all the printed copies.”
He said the last thing Australia needs is another load of regulation. However, we do need people enforcing the existing rules, he said.
“What we need are simple sets of rules that are enforced. And we need a juridical system that is easy for people to get access to. We need to simplify the ability for people to take action, stop believing that we all need to rely on government and regulation is going to save the world because it doesn’t.
“We also need a police system, properly funded for these things. Complex crimes like fraud are rarely investigated properly, we don’t have the resources."
Llanos said regulation in many parts of the world has failed to keep up with new and emerging technologies. He said legacy regulation only focuses on the known risks, which may not actually occur.
“I think applying an old set of regulations to a new technology that is evolving is obviously a hindrance. Governments are applying an old mindset to something that is unknown. So they are anticipating things that may not be real or actualise."
He agreed with Wright that even though regulation is important, over regulation will only result in hampering innovation and doesn’t always address real security issues of today and into the future. “Let it evolve and the system will actually self-regulate.”
Money laundering with Bitcoin is another concern that has made headlines. Earlier this year, the CEO of Bitcoin Exchange BitInstant, Charlie Shrem, was charged with scheming to sell more than $US1 million worth of bitcoins to users of online drug market Silk Road.
Llanos and Wright, however, believe that even though these risks of money laundering with Bitcoin are real, they are quite overstated.
“The majority of money laundering is done in cash, as laundering with Bitcoin is actually much, much harder. There’s a trail of what you have done forever that you can never wipe,” said Wright.
Juan agreed, saying the technology itself is a deterrent to a large scale money launderer because the person would leave a permanent trace on the blockchain.
“Those losses and risks [through Bitcoin] are proportionately much lower than the actual losses that are happening in the world today with other payments. Millions of dollars are lost in credit card fraud every year, for example,” he added.
Bitcoin still needs perfecting, and it’s going to take time, Wright pointed out. While there have been security issues with it, there are quite a few companies in Australia embracing it. DigiDeals, LegalVision, Cellini’s café, for example, are accepting Bitcoin payments from customers.
“About 20 years ago, I was at the launch of Alta Vista. It was the first big commercial search engine. Back in the early '90s… everyone told me how much of a ‘coo-coo’ [crazy] I was for wasting all this money to be part of something that’s a ‘bloody piece of computer code’," said Wright.
“This is what Bitcoin is now. Yes, Alta Vista is not there anymore, it was replaced by Yahoo and Google. But no-one ever thinks about search engines being part of something that wasn’t in their life. It’s just ubiquitous. That’s where we are with Bitcoin. In 20 years’ time, crypto-currency will just become a part of our life.”