Bitcoin: winged, but still in the air

Virtual currencies, if they are to survive, need to be regulated

The people who had their savings deposited in Mt.Gox have now seen them disappear following the collapse of the bank. Many Spaniards who put large amounts of their money into preferred shares, and lost it all, are not going to be exactly overwhelmed by this news: just like me, they will say. The same can be said of the many other people who invested their savings in some of the other entities at the center of notorious Spanish financial scandals of recent years, such as Fórum Filatélico, and the first and second Rumasa.

The principal new thing here is that Mt.Gox is a Japanese financial entity that kept people’s savings in the form of a virtual currency, the bitcoin. The disappearance of Mt.Gox confirms what banking authorities throughout the world — which have always been opposed to bitcoin — had already warned about: the fact that carrying on transactions in a virtual currency has its risks, quite considerable ones.

At the present time, there are half-a-dozen virtual currencies, but none of them have attained the geographical extension, volume and importance of bitcoin.

In February of last year, this form of money was barely trading at 20 euros, but by December it had soared to 1,000. Now, in spite of the closure of Mt.Gox — the principal house of exchange of bitcoins — and of some other negative developments, such as the arrest of several people in connection with alleged drug trafficking that was being conducted through this medium of exchange, bitcoin is still alive. It has so far maintained a stable value of around 350 euros, while Mt.Gox’s clientele has gone to other establishments that deal in bitcoins.

The oscillations in the currency’s value are likely to continue, but it will still have an audience of people who do not want their trade to go through the hands of intermediaries, commission agents and authorities who are empowered to raise and lower the value of a currency in order to suit their own convenience.

Obviously, a currency that exists outside the boundaries of central control and of any authority is subject to greater risks, and has a far higher volatility — a warning that has just been issued by the Bank of America, the financial entity that has spoken most intelligently and convincingly of the possibilities inherent in electronic commerce.

The bitcoin has been winged, but it is still in the air.

It is not merely a matter of volatility — though throughout history the creation of currencies has always sought precisely the greatest possible stability in exchange. The problem is also one of regulation and responsibility — that is, of security for the owner of the currency. If as many as 750,000 bitcoins can be stolen by a hacker in one fell swoop — a figure that amounts to six percent of the total volume of bitcoins in circulation — this obviously means that this and other virtual currencies are in need of new regulations governing their functioning. That is, of course, if they expect to survive.