Bitcoin, a virtual currency that was introduced in 2009, has gained popularity and faced challenges over the past several months. Another form of money in today’s digital age, the perils and promises of Bitcoin as a digital currency have been observed recently in the marketplace.
Bitcoin is a type of alternative currency known as cryptocurrency that allows individuals to make transactions without middlemen, banks, transaction fees or governments – a powerful concept. Using cryptography for security, Bitcoins are mathematically generated by computers in a process called “mining”, which currently creates 25 Bitcoins every 10 minutes.
Bitcoins can be obtained by mining them, or by exchanging products or services for them. Bitcoins are also used as a speculative investment vehicle, able to be purchased for other currencies on exchanges such as Bitstamp and Mt. Gox. Users can send and receive bitcoins using wallet software on a personal computer, mobile device or web application.
The anonymity of the Bitcoin has made it a favored currency for illegal activities such as tax evasion, smuggling and weapons purchasing. The most fundamental threat for Bitcoin has been a bug in some basic software that determines how Bitcoins are moved between digital accounts.
Bitcoin exchanges Mt. Gox and Bitstamp halted their transactions for most of last week immediately after hacking attacks that created fake transaction confirmations, threatening the strength of the network’s security.
Bitcoin also has had credibility problems recently, with Chief Executive Officer Charlie Shrem being arrested this past January for conspiring to commit laundering by selling more than $1 million in Bitcoins to users of the black market website Silk Road, which let users buy illegal drugs anonymously before it was shut down by the FBI in October of 2013, according to the Associated Press. When Silk Road reopened recently, hackers took advantage of the ongoing Bitcoin glitch to steal $2.7 million from its customers.
Bitcoin exchange Bitstamp implemented a fix for the security hole in Bitcoin this past Friday and reopened. Jeff Garzik, one of the currency’s longtime developers, said in an interview with the New York Times that the problems exposed last week should not be a long-term issue for the network, but that Bitcoin would still face significant tests going forward.
Information from The New York Times and the Associated Press was used in this article.