Recent news of the seizure of the Silk Road website has gained a fair bit of global news coverage. But the issues behind this crypto e-currency run deep, this post discusses some of these very issues.
Let’s start at the beginning: What are Bitcoins?
Here is a video that gives a brief overview:
Bitcoins are unique hashes that are generated by a series of mathematical functions. They are universally unique, which is to say that they can never be replicated. What gives them an edge over ordinary currency are the following:
- Bitcoins don’t need a middle-man(Bank) for transactions. This means that it becomes -extremely difficult to track transactions.
- They are directly transferred to the other parties’ e-wallet.
- Ideally the wallet that holds the Bitcoins can be distributed more or less anonymously over the decentralised distributed network that is required for the Bitcoins network to function properly.
- The decentralisation also means that is extremely difficult to tack which node is generating a transaction.
- The Bitcoin wallet is protected by an asymmetrical encryption(RSA-like).
- The process by which BitCoins are manufactured, is called Mining.
All of the above mentioned make the Bitcoins very hard to destroy and track.
When a transaction needs to take place, it is signed with the wallet’s private key, which acts like a signature such that the transaction cannot be modified or altered once issued. All transactions need network confirmation. This relatively anonymous nature of the currency and transaction helps the service/good providing company to be safeguarding from the online fraudulent charges and fraudulent charge-backs, generally associated with E-bay, kijiji, etc. This relative anonymity also helps the consumer as there is no need to give personal information, like with credit cards. This in turn also safeguards the user from identity theft. Furthermore, as the currency is nothing more that hashes, they can be safely encrypted and backed up.
Currently the net worth of all the Bitcoins in the world is around is about $1.5 Billion U.S., as of August 2013. It is an open-source protocol, has many software that that run it successfully. You can view the current price of a Bitcoin here.
Much like ordinary currency, Bitcoins too have some drawbacks. Once created a hash in irreversible and unrecoverable, what this means is that if you were to forget your password to your wallet, then there is no way to get back those hashes and they are permanently lost. Mathematically, there can only be a limited number of Bitcoins mined, so if some of these hashes are lost, then the value of the remaining Bitcoins increase as per Supply and Demand. The market volatility for the currency is quite high. This is because there are a fewer number of vendors and customer accepting the young currency. Moreover, as people get educated in what Bitcoins are, more businesses will start to accept the currency leading to higher per Bitcoin. One of the primary issues that the vendors are having is the question of trust. The protocol is still improving incorporating several technologies so that one day it can be used with Credit Cards, etc.
With wider acceptance and much media coverage, the legality of the virtual currency has been brought under scrutiny and its legality questioned. As of August, 2013, only Germany recognises the legality of the Bitcoin, regarding it as a “unit of account”, applicable for a capital gains tax. Despite several countries prohibiting the institution of a currency parallel to the national currency, Bitcoin still has not been considered illegal in any country. However, several countries are reviewing policies that relate to virtual currencies such as Bitcoin. It seems inevitable that such cross-border, international, and virtual currencies will dominate the cyberspace for decades to come.
If we consider what Bitcoins are typically being used for, we can safely conclude that they being used like any other currency- for legal and illegal activities. However, unlike ordinary currency, Bitcoins are impossible to counterfeit. Despite its anonymous nature, it is possible for the law agencies to associate the transactions back to a user. This is because every transaction ever taken is stored somewhere on the Bitcoin network in a block after it has been given an okay from network as a legitimate transaction. This can be easily seen in the recent FBI bust of the Silk Road case, where they did manage to shut down the website and arrest its founder. On the other hand, anonymous currency helps to ensure privacy amongst its user. This can become vital if a person is living in a very politically hostile environment, where seeking tools to overcome an oppressive regime could mean execution.
Whilst the critics and proponents for an anonymous virtual currency debate whether privacy is more important or security, in the end it is still up to us to decide what do we use the technology for. Our motives are more important, and in the end it is they that will truly dictate the outcome of any ethical grey areas such as the use of Bitcoins.
Bibliography:-
http://www.theguardian.com/technology/2013/oct/07/fbi-bitcoin-silk-road-ross-ulbricht
https://krebsonsecurity.com/2013/10/feds-arrest-alleged-top-silk-road-drug-seller/
http://bitcoin.org/en/faq#what-is-bitcoin
Computer and Human Evolution 