The Green Sheet Online Edition
April 22, 2013 • Issue 13:04:02
Virtual currency getting real world attention
The virtual currency known as the bitcoin is attracting the attention of the U.S. Department of the Treasury and the payments community as an alternate payment system, even as the value and security of bitcoins remain in question.
On March 6, 2013, BitPay, a processor of bitcoin payments, integrated its service with Amazon.com's Fulfillment-by-Amazon (FBA) web service. BitPay called the integration the first move into large-scale e-commerce for "companies wishing to accept payments over the bitcoin peer-to-peer payment network."
On April 11, 2013, OpenCoin Inc., a San Francisco-based company, said it closed funding for development of its Ripple protocol, a payment system designed to allow people to exchange any amount of money in any currency, including bitcoins.
"Our world has moved into a digital era, and it is time that we embrace a digital currency that can accommodate today's global commerce needs while laying the groundwork for future evolution," said OpenCoin Chief Technology Officer Jed McCaleb. Earlier in the month OpenCoin acquired simplehoney Inc., a company known for creating "targeted vertical applications for travel and shopping."
Joyce Kim, co-founder of Simple Honey Inc., said, "We believe that the world economy is on the cusp of a major evolution, and we want to make it easy for anyone, anywhere to be a part of that change through Ripple."
Troubles with bitcoins
Volatility and security remain among the chief problems programmers and adopters of bitcoins face, however. In a recent two-day period, bitcoin value went from a high of $260 to a low of $105 per coin, before settling at $120 when a major online exchange halted trading. At the beginning of 2013, bitcoins were trading below $15 per coin.
As the value of bitcoins rises, so does the interest in stealing them, resulting in bitcoin exchanges being attacked by hackers. On April 4, 2013, the bitcoin wallet service Instawallet was suspended indefinitely after a data breach. "Due to the very nature of Instawallet it is impossible to reopen the service as-is," the service wrote on its website after the attack.
The company opened a claims process for customers to recover any bitcoin funds lost, but the company promises only to pay back balances of fewer than 50 bitcoins. Any claimed losses of more than 50 bitcoins "will be processed on a case by case" basis.
The same day as the Instawallet attack, bitcoin exchange Mt. Gox suffered a distributed denial of service attack where hackers attempted to overwhelm servers with web traffic. Mt. Gox, which reportedly handles close to 67 percent of all bitcoin transactions, said it believes the attack was designed to manipulate the price of virtual currency.
"What is interesting in this case is that a distributed denial of service attack was used to destabilize the exchange, as well as push people in to panic-selling of bitcoins," noted Mary Meyer, President of Corero Network Security Inc.
Mt. Gox said the attack was directly correlated to the company's success. It said the panic selling yielded such an increase in trades that they froze the trade engine. The company said it is processing approximately 20,000 new accounts every day.
FinCEN on the virtual action
All the activity surrounding bitcoins is naturally drawing the attention of the federal government. On March 18, 2013, the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Treasury, issued interpretive guidance for virtual currencies.
"Virtual currency does not have legal tender status in any jurisdiction," the guideline notes. However, the agency guide said virtual currency exchanges are money services businesses and must comply with FinCEN registration, reporting and recordkeeping regulations.
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