Digital money takes on the banks
Cyprus is the birthplace of Aphrodite, the goddess of beauty in Greek mythology. Here, an unprecedented bank tragedy began in March, as the European Union demanded to tax bank deposits in return for a bailout. It led to complete chaos, account holders rushing to their banks to take money out. But the Cypriot crisis benefitted an unexpected group of people.The price of digital money called “bitcoin” skyrocketed. The value of bitcoin jumped from 20 cents each to 266 dollars in four years, more than 1,000 times. Many bitcoin holders became instant millionaires, and the central banks around the world were astonished. The digital money emerged as an “alternative” to conventional currency overnight.
When pseudonymous developer Satoshi Nakamoto first introduced bitcoin in 2008, it was considered a mere joke among a small number of liberalists. Bitcoin is a currency traded online, and there is no special issuing agency. Anyone can create it with software that is open to the public. New money is not controlled by a central bank but is registered and managed by a membership network.
It was considered a “dream currency” for those liberalists allergic to anything “government-controlled.” The competition of central banks around the world to print money fanned the popularity of bitcoin. New bitcoins will be created every four years until the year 2140, when the maximum of 21 million bitcoins is reached. The currency has a built-in safety system to prevent inflation.
Bitcoin also has secret edge that dollars, euros and yens don’t have. It doesn’t have to be traded in real name, perfect for money laundering. It can be transferred online, as if sending an e-mail, with nearly no fee. That’s why bitcoin also has a dishonorable name as the “main bank of the underground economy” such as drug trafficking, prostitution and smuggling.
The concern of bitcoin mania came true. Last Tuesday, the U.S. legal authorities cracked down on Liberty Reserve, a digital money company, and five people were arrested, including the founder who fled to Costa Rica. The difference between Liberty Reserve and bitcoin is simple. No one owns bitcoin while Arthur Budovsky is the founder and owner of Liberty Reserve.
The authorities indicted Liberty Reserve for laundering $6 billion for criminal syndicates around the world. Then, bitcoin will hardly be able to avoid the government control. On Silk Road, an online black market where illicit drugs and firearms are openly traded, only bitcoins are used for transactions. The authorities won’t leave bitcoin alone for long.
However, it is too naive to think that digital money can be controlled or eradicated. There is no border in the cyberspace. When central banks around the globe are printing money recklessly, people grow thirstier for “alternative currency.” The bitcoin boom may be a problem that the central banks have brought on themselves.
* The author is the New York correspondent of the JoongAng Ilbo.
by Jung Kyung-min
with the Korea JoongAng Daily
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