The crypto-currency, Bitcoin, has risen to fame in recent years, and become especially prevalent due to the recent media coverage linked to the WannaCry ransomware attack. Bitcoins have the advantage of anonymity for criminals and cyber-fraud, but could this currency become a mainstream method of payment in the future?
What is a crypto-currency?
For those that are unfamiliar with bitcoins, and other forms of crypto-currency, they are simply a form of digital currency. This currency is underpinned by a technology called blockchain, and can be traded from one person’s ‘wallet’ to another. These bitcoins possess value, and can be traded as if they were any other type of currency. Once the bitcoin software has been downloaded, an individual is connected to other bitcoin users over the internet, and a set of unique keys are generated that enable the transfer of bitcoins to other users. One key is kept private and the other is public, but it is almost impossible to work out an individual’s private key is from their public key. These keys can then be used to transfer bitcoins between users.
History of Bitcoin and cyber-fraud
First created in 2009, Bitcoins became famous between 2011 and 2013 when traders rapidly inflated their value through purchasing millions of dollars of Bitcoins. This allowed these criminal traders to be able to move money outside the control and watch of law enforcers. Bitcoins offer criminals the dual advantages of having a decentralized currency that can be traded without a middle man, combined with the additional advantage of high anonymity. Perfect for executing cyber-fraud. The value of bitcoins has risen so rapidly that in March 2017 the value actually surpassed that of an ounce of gold.
The use of bitcoins is seen as controversial for a number of reasons. The major issue with this currency is that it operates outside the control of the central bank and government. This means that tracking the movement of this currency becomes more complicated. This has made bitcoins an attractive option for the illegal market and for cyber-fraud.
Bitcoins are also changing the way in which personal wealth is stored and managed. The control of personal wealth has been restored to the individual through this crypto-currency, removing the power formerly held by banks. However, unlike traditional transactions, bitcoin transfers are final and wealth is subject to no form of insurance, making this a risky method of storing wealth.
Are crypto-currencies the future?
Despite its affiliations with the illegal economy, and the association with cyber-fraud, major banks and companies across the world are in talks to adopt digital currencies such as Bitcoins. Already Bitcoins can be used to purchase certain items including Dell laptops and vouchers to be used at major shops. A recent survey completed by Cambridge University estimates that over 6 million people across the world possess a bitcoin ‘wallet’. This suggests that there is a possibility of mass adoption of this currency.
Although the greatest level of attention is given to bitcoins use in the shadow economy, the greatest use is actually in the legal economy. Many believe that the technology blockchain underpinning bitcoin transactions could be used for other things. One suggested use is for the government to be able to track international aid money, for tracking the origins of raw materials in supply chains and for online voting.
In addition, if people lose trust in traditional currencies crypto-currencies may increase in importance. Governments are able to print money in order to finance government debt, which essentially works as an inflation tax. The use of Bitcoins prevents this from happening as there is a mathematical limit on the amount of Bitcoins that can be created. The future of Bitcoins is uncertain but many are excited about the potential this technology has to revolutionise markets.