Bitcoin Boosters Want 2015 to Be the Cryptocurrency's Year
Bitcoin enthusiasts hope 2015 will be the year when a critical mass of people start using the virtual currency — but to achieve their goals, they need to convince new users to overlook plummeting bitcoin values, unsolved heists, and other scandals that tarnished the crypto-cash's reputation in 2014.
"There were a lot of promises, a lot of hype about bitcoin," Mark Williams, a lecturer in finance at Boston University, told VICE News. "But we're at the point now that they have to demonstrate that they can deliver on their promises of cheaper, faster, and safer."
It's not clear if bitcoin can deliver. The currency's past year was bookended by embarrassing screw-ups that would give any investor pause.
In early 2014, Mt. Gox in Japan — then the largest bitcoin exchange — announced that it had lost 850,000 bitcoins worth $450 million. Later, during bankruptcy proceedings, the exchange "found" another 200,000 bitcoins. Mt. Gox CEO Mark Karpeles recently suggested that the missing funds were stolen as part of an inside job, further undermining confidence in his management.
On Tuesday, Slovenia's Bitstamp — the third-largest bitcoin exchange — announced that hackers had stolen 19,000 bitcoins worth $5.1 million. A few weeks before, a federal judge in New York sentenced the former vice chairman of the nonprofit Bitcoin Foundation, Charlie Shrem, to jail for two years for facilitating $1 million in drug transactions through Silk Road, a black-market website.
Incidents like these helped drive down the value of bitcoins from around $1,150 at the end of 2013 to around $290 today — a drop of nearly 75 percent — as holders convert the money encrypted as computer data into US dollars, British pounds, and other hard currencies.
"The market is pricing in the risk of bitcoin," said Williams.
Despite those setbacks, advocates note that venture capitalists last year poured $335 million into companies that depend on bitcoin, more than triple the amount in 2013, according to CoinDesk, a website that tracks the virtual currency's value.
"We got off to a terrible start to the year," Patrick Murck, executive director of the Bitcoin Foundation, told VICE News. "But in some ways, it was a shakeout. Some of the pioneers got rewarded in 2014 and some caught arrows."
He noted that more large businesses, including Dell, Expedia, and Microsoft, now accept bitcoin as payment.
"These are big tech brands saying, 'We think this is an interesting technology and we want to associate our names with it,' " said Murck. "That's important."
He also noted that Bitstamp stopped the breach in its security systems before the alleged cyberthieves could steal more. Unlike Mt. Gox, the exchange also has sufficient reserves to pay back customers who lost money.
"This breach represents a small fraction of Bitstamp's total bitcoin reserves, the overwhelming majority of which are held in secure offline cold storage systems," Bitstamp said in a statement. "We would like to reassure all Bitstamp customers that their balances held prior to our temporary suspension of services will not be affected and will be honored in full."
Murck thought the website was handling the crisis well, at least on the face of it. That gave him confidence.
"They managed to mitigate the losses. They actually caught it early, shut things down and kept all the customer funds safe," he said. "That might not have happened a year ago. If they hadn't learned the lessons of 2014, things could have been worse."
Follow John Dyer on Twitter: @johnjdyerjr
Photo via Flickr
TOPICS: crime & drugs, asia & pacific, americas, bitcoin, mt. gox, cryptocurrecy, mark karpeles, bitstamp, coindesk, bitcoin foundation, europe
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