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“With great power comes great responsibility.” These words of wisdom, spoken to Peter Parker by his Uncle Ben in the movie Spiderman, might find their origin in a fictional world but reveal a real-world gem of truth. Think of any number of superheroes or villains. Their commonality? Powers. Their difference? Purpose, and how they use those powers.
Any powerful tool can be used for innocent or sinister purposes – and Bitcoin is no different. It offers its users financial freedom and the power to control their transactions in a mighty way. Unfortunately, there are those who abuse this power, and it’s often Bitcoin that takes the wrap.
Ironically, it’s some of Bitcoin’s most attractive features that drives its most awkward situations too. The fact that it’s a decentralised system, independent of government control and free of regulation, combined with pseudonymous transactions, makes it an alluring means of paying for illegal goods or services.
It was the exposé of Silk Road, an online black market where illegal drugs, pirated digital goods and a host of other products enabling criminal activities were freely available in exchange for bitcoin. This led to enormous media hype about bitcoin in mid-2011 and adoption soared dramatically. Following FBI investigation, the website was shut down in 2013 and its alleged founder, Ross Ulbricht, is currently serving a life sentence in prison for trafficking drugs on the internet, narcotics-trafficking conspiracy, running a continuing criminal enterprise, computer hacking, and money laundering. Despite authorities stepping in, its creation – using bitcoin – has left a lasting impression of bitcoin as a driver for unscrupulous practices and business. An impression that’s difficult to shake.
Bitcoin is a digital currency, meaning it exists within the realms of the Internet, and even then, only as a virtual record of ownership. There’s no physical money that will ever be held in your hand; you don’t pop down to the bank or ATM and withdraw bitcoins. For end users who aren’t familiar with the underlying technology, mining or earning bitcoin themselves, they rely on an online exchange to help them to acquire, hold and transact in bitcoin.
One such company was Mt. Gox, which prior to its scandalous 2014 closure, was responsible for 80% of bitcoin trades. When a company holds that amount of valuable data (bitcoin), it becomes a prime target for hackers, which is initially what was reported to be the demise of the largest bitcoin exchange to date.
In the weeks that followed it emerged that the shutdown was not as a direct result of an outside attack, but rather thanks to a cover-up operation headed by its own CEO, Mark Karpeles. It’s suggested that Mt. Gox may well have been the victim of cybercrime, but instead of coming clean at that point, Karpeles continued to run the exchange using a fractional reserve banking system. A system that he didn’t have a licence for, nor the expertise to operate. This led to a loss of approximately 650,000 BTC valued at £230m. Following this allegation, Karpeles was first arrested by Japenese police in August 2015, and re-arrested some 21 days later with further charges of embezzlement levelled against him. This remains an ongoing saga, but certainly one that casts yet another shadow for bitcoin.
When looking to the dark reputation of bitcoin, it’s important to remember this. Nefarious people will always find a way to operate – whether it’s in cash, or now, readily accessible bitcoin.
But bitcoin itself can’t be blamed. It was after all, developed with an entirely different purpose in mind.
In the 2008 abstract, Nakamoto stated his (her / their) vision: “A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.”
Breaking away from the need for a financial institution to be involved in an online payment opens a traditionally restrictive system to anyone, irrespective of their socio- or economic-class or where they reside.
For citizens of poorer, developing countries this is a radical opportunity. These are people who are battling on a daily basis to gather sufficient drinking water, let alone the paperwork and funds required to open, or maintain, a regular bank account. This leaves them detached from economic activity and restricted to finances that they can manage outside of the traditional financial system. For them, bitcoin is a means to step outside of the permission-based world of finance, into one where they’re in control and can use it to break free from a poverty cycle.
For residents of otherwise developed, but debt-laden countries, bitcoin offers a way for them to hedge their funds in an asset not subject to government controls. With bitcoin there is no risk of limited withdrawals, frozen accounts or confiscation of funds. Take Greece, for example. Don’t you think Greeks would be more comfortable with their financial security in their own hands, and not a politically driven policy that renders banks supreme dictators?
Traditional payment systems require numerous institutions and authorities to process and verify information along the payment chain. And naturally each gets to tack on their processing fees along the way. The more money you want to move, the higher the charge.
With bitcoin, transactions are processed by the Bitcoin network – the miners running computational power and software to verify the transactions and in doing so, awarded bitcoins for their effort. This eliminates the need for exorbitant fees, and in the instances where fees are levied they amount to less than a penny, irrespective of the value of the transaction.
The combination of the unique qualities and features of Bitcoin make it an ideal instrument for philanthropy. It empowers the upliftment of the previously impoverished, and gives those in a position to do so the ability to fund the winds of change, instantly.
Consider disaster managers and relief funds that need to mobilise quickly in the face of crisis. Bitcoin allows us to send bitcoin across international borders within a matter of minutes (10 to be precise), with those funds then being immediately available. Many charities have already started collecting donations via bitcoin, and in a widely covered moved earlier this month Barclays Bank, UK, have announced acceptance of bitcoin for charitable funding.
Any disruptive innovation will face conflict and controversy in its infancy stages. Bitcoin, most especially, as it challenges a system established specifically to control individuals, with money as the central mechanism to do so. So will there continue to be ‘villians’ using bitcoin to fuel illegal or otherwise unsavoury behaviour and activities? Certainly. Will this stop bitcoin from being a ‘superhero’ driver of a profound movement of equality and empowerment? Not a chance.