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Bitcoin Phenomenon 'Scares' Governments and Banks, Creating New Open Society: Experts

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Bitcoin "scares" banks and governments, as the cryptocurrency cannot be regulated and can be used for money laundering and fraud. Proponents of digital currencies praise Bitcoin for its freedom from government scrutiny, claiming that the decentralized currency is a step towards a "free" society.

MOSCOW, October 09 (RIA Novosti), Ekaterina Blinova - Bitcoin "scares" banks and governments, as the cryptocurrency cannot be regulated and can be used for money laundering and fraud. Proponents of digital currencies praise Bitcoin for its freedom from government scrutiny, claiming that the decentralized currency is a step towards a "free" society.

"The Bitcoin phenomenon is one of the most intriguing things to have happened in cyberspace since the invention of the peer-to-peer networking that undermined the music business and enabled developments such as Wikileaks… The basic idea behind Bitcoin is to use a combination of public-key cryptography and peer-to-peer networking to create a virtual analogy of gold," wrote John Naughton, a professor of the public understanding of technology at the Open University in his article “Why Bitcoin scares banks and governments.”

According to the professor, the currency is vulnerable to attacks by cyber vandals and hackers "because everything based on software will have vulnerabilities”. Anonymity, one of Bitcoin system's advantages, is utilized by criminals, drug dealers, money launders and others involved in shadow economy schemes. Furthermore, Bitcoin is not stable: Since the cryptocurrency launched, its price "has fluctuated unpredictably." The value has been gradually diminishing since peaking at $1,150 last year.

Venture Beat points out that Bitcoin was seriously disrupted in February 2014, when Mt. Gox, the largest Bitcoin exchange at the time, suspended trading and filed for bankruptcy after incurring massive losses due to bitcoin cyber theft. Earlier, in January 2014 Charlie Shrem, CEO of BitInstant, another large Bitcoin exchange, was arrested for using the digital currency to participate in Silk Road's scheme of online drug trading. The incidents undermined the trust in the Bitcoin system and the cryptocurrency's purchasing power began to rapidly decrease. However, Venture Beat notes that it has slowly started recovering after venture capitalists invested $72 million in April 2014; the projected overall capital investment in a new "Bitcoin ecosystem" is now expected to reach $300 million this year.

Citing risks posed by the use of cryptocurrencies, the Russian Finance Ministry has drafted a law banning Bitcoin. According to the bill, individuals and companies using Bitcoins and deliberately sharing information about Bitcoin mining will be severely penalized. The bill states that cryptocurrencies are not legal payment instruments but a "money surrogate."

"Bitcoin transactions are anonymous, providing a new level of privacy to online commerce. Unfortunately, this feature has also proven attractive to criminals. Detractors frequently cite the currency’s widely publicized use as an opportunity to sell drugs, launder money, and allegedly fund murder-for-hire," Time Magazine contends.

Simultaneously, the National Bank of Serbia has claimed Bitcoin cannot be considered a legal tender in the Republic, while the Central Bank of Portugal has issued warnings against risky bitcoin transactions. Bitcoin is also banned in China, India, Bangladesh, Thailand, Bolivia and Kyrgyzstan.
Nevertheless, Bitcoin advocates claim the currency was invented for a "free" and independent transnational society. Experts [which experts?] claim that banks, which control the payment system worldwide, are "too heavy regulated," while their "intervention" into every aspect of social life is not always welcomed by customers. "But increasingly, payments can be made via mobile phones, with no apparent intervention by banks," notes John Authers, Financial Times' Senior Investment Columnist. According to the columnist, although banks maintain a dominance role, digital currencies will increasingly occupy the market of "peer-to-peer" transactions.

Remarkably, Bill Gates, Microsoft’s founder, had stressed that Bitcoin is a "convenient" and "promising" payment solution during the Sibos 2014 conference.

"Bitcoin is exciting because it shows how cheap it can be. Bitcoin is better than currency in that you don't have to be physically in the same place. And of course for large transactions currency can get pretty inconvenient," said Gates, as cited by the International Business Times.
Bitcoin is not the only emerging cryptocurrency on market. For instance, Reddit has revealed its plans of creating its own digital currency, backed by company shares. The shares will be redistributed back to the Reddit community "in recognition of the role it has played in the site’s success." DogeCoin, a cryptocurrency created by programmer Billy Markus from Portland, Oregon, as an experimental and "fun" project, has already become the fifth largest digital coin by market capitalization.  

Communities worldwide are increasingly embracing the idea of decentralized and unregulated digital currencies. A Commonwealth of Dominica, the Dominican Republic, has announced "a full island party" which will take place during March 2015 and will be dedicated to a Bitcoin project. "We will create local information centers to educate people about Bitcoin and how to use their new digital wallets," the official statement reads. The Business Insider reports that Flinders University in Australia has become the first institution in the country that accepts Bitcoin payments. In Europe, one of Germany's e-commerce platforms, PlentyMarkets, has recently confirmed its plans to widen its payment methods to encompass the crypocurrency. In addition, Blockchain, a Britain-based global Bitcoin wallet and software developer, has just raised $30.5 million during its first fundraiser round of external financing, the largest amount yet in the cryptocurrency industry, the New York Times reports.

Although numerous questions remain regarding the security, instability and volatility of bitcoins, the use of cryptocurrencies continues to rapidly spread worldwide.

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