March 10, 2014 00:00 By The Straits Times Asia News N 2,092 Viewed
The collapse of the Tokyo-based MtGox, the bitcoin exchange that was once a dominant player, says a lot about both so-called renegade entrepreneurs and cyber buyers. It smacks of world-changing concepts that fail to deliver and overweening business plans
Some US$450 million is said to have been lost from the MtGox debacle. Yet, bitcoin ATMs have appeared here for the exchange of Singapore dollars for the virtual currency. The lure of digital cash is partly driven by the speculative streak and partly out of need as e-commerce grows.
Now, users have to rely on fiat currencies that have to go through credit card companies or payment providers like PayPal. This incurs currency conversion costs and other charges. It would be considerably more convenient and efficient if digital cash could change hands directly between online buyers and cyber merchants.
The vision of inflation-less currency that can move easily and without cost between sender and receiver is an attractive one. But one should not get carried away by it.
Some tough questions need to be asked. Are operators of any currency or payment scheme trustworthy and accountable to users? If there are doubts about a system’s security and support offered when something goes amiss, it would be reckless to convert large sums of money into digital cash.
No monetary value
Bitcoin is not underwritten by a central bank or a sovereign state. Indeed, it has no monetary value except that ascribed to it by an anonymous group of currency owners.
However, any sense of self-empowerment could be illusory. While bitcoin, Linden dollar and ripple might offer an alternative economic space, free of traditional encumbrances and costs, they also pose risks to users. As the Monetary Authority of Singapore warned last year and again recently, bitcoin is an unregulated virtual currency that may leave consumers without legal recourse should there be problems.
Not being legal tender, they are not recognised as an official medium of exchange or as a form of securities here. Also, crypto-currencies could face great fluctuations in value, a volatility that could hurt unwary consumers. Then, there is the danger of hacking, which is what brought MtGox down.
The bitcoin bank Flexcoin, too, closed its doors after a hacker attack. Problems of traceability compound the difficulty of dealing with the aftermath of such attacks.
An associated danger is that these currencies could be used for money-laundering and terrorism. This makes them a threat to state and market security. Caution, therefore, is in order to ensure that investments in digital cash are not rendered worthless, either by fraud or ineptitude.