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Bitcoin: The Future isn’t Looking so Bright

by Delainie Britton

The past several months, many of us have heard constant chatter surrounding the use of Bitcoin. So what is Bitcoin? In a nutshell, it is a digital form of currency which allows individuals to transact directly to one’s virtual wallet, thus avoiding any type of banking middle man and associated regulation. While the concept of Bitcoin has technically been in existence for five years, the online money alternative has gained wide popularity among International Exchanges, as the value peaked at over $1,000 per Bitcoin in November 2013 and currently rests at around $800 per coin on U.S. exchanges according to Yahoo! Finance. So what are the obvious pros and cons of using a currency that is essentially intangible?

The Pros:

  • Bitcoin allows people to transact freely. There are no fees, exchange rates, etc.
  • There is no political interference, which is said to allow for stability of value and no risk of inflation or deflation.
  • Many businesses are accepting Bitcoin as a form of payment, including the Sacramento Kings Sports Franchise and soon Overstock.com (not yet official).

The Cons:

  • Let’s remember this is a fake form of money, there is no fixed value (a key characteristic in standard currencies), and quoting the value is difficult.
  • The anonymous nature surrounding Bitcoin transactions is also concerning, as it is extremely difficult to trace transactions to the source due to lack of regulation.
  • The value of Bitcoin has already dropped over $200 in just two short months; is there really a future here?

The trending use of Bitcoin has also led to an entirely new industry of Bitcoin exchanges and dealers. This past Monday, January 27th, a well-known Bitcoin dealer, Robert Faiella, was arrested and charged by Federal Agents for money laundering and operating an unlicensed money transmitting business – extremely heavy crimes. Allegedly, Faiella was running an illegal Bitcoin exchange, which included the execution of over $1 million in transactions to the underground with a virtual drug network known as “Silk Road.” Charlie Sherm, CEO and Compliance Officer (ironically) of Bitinstant.com (a Bitcoin exchange company), was arrested this past Sunday, January 26th, for conspiring with Faiella. To top it off, Sherm is charged for violating the Bank Secrecy Act by failing to file reports of suspicious activity with the federal government for Faiella’s transactions on the Bitcoin exchange. The plot thickens with the addition of the Winklevoss twins. You might know them better as the men who had a failed lawsuit against Mark Zuckerberg, in which they claimed he “stole their idea” for an online social network that is now Facebook. The twins led a campaign to raise capital for the benefit of Bitcoin.com; the total capital contributions amounted to $1.5 million. And while the twins are not currently tied to the lawsuit, they may be called to testify in future court proceedings; luck does not seem to be on their side in any lawsuit.

Considering the recent allegations, the Bitcoin markets did not take an immediate dive at Monday’s close on International Exchanges  -sitting at $900+ on Tokyo’s MtGox Exchange; though the worst of this PR nightmare is likely yet to come. So, what do you think will happen? Is Bitcoin the currency of the future? Or the next market bust?

This entry was posted in Audit & Tax Talk and tagged Accounting. Bookmark the permalink.

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