Bitcoin or bust?
The digital currency could be the way to the future, or a path to financial ruin
Bitcoin, hailed in some quarters as the future of currency, is having a rough week. Plummeting prices have again raised questions about the wisdom of owning it, if not its legitimacy.
The digital, or cryptocurrency, tumbled 15 per cent Thursday to about $3,300 against the dollar. Bitcoin, which has had bouts of volatility in the past, has shed about a third of its value since Sept. 1. But it’s still up about $600 compared with last year at this time.
Bitcoin is a digital currency created and exchanged without the involvement of banks or governments. Transactions allow anonymity, which has made it popular with people who want to keep their financial activity, and their identities, private. The digital coins are created by so-called “miners”, who operate computer farms that verify other users’ transactions by solving complex mathematical puzzles. These miners receive bitcoin in exchange. Bitcoin can be converted to cash when deposited into accounts at prices set in online trading.
In mid-july the value of bitcoin was around $1,900 per dollar, dropping from nearly $2,500 at the end of June. Users forced a change in the computer code, which was designed to improve capacity on the increasingly clogged network. The manoeuvre worked, helping to avoid a split in bitcoin and driving the value up to roughly $2,800 by the end of July.
Bitcoin’s value has fluctuated since then. At the beginning of August bitcoin’s value stood at about $2,710 and shot up to more than $4,700 by month’s end. But there’s been a steady decline this month, with the value slipping to approximately $3,300 on Thursday, according to Blockchain.info.
One of China’s biggest bitcoin exchanges announced that it will cease trades following
reports that Beijing will order all Chinese exchanges to close. And on Tuesday, Jpmorgan Chase CEO Jamie Dimon called bitcoin a fraud, saying that if any of his traders were dealing in the currency, he’d fire them.
Bitcoin tumbled 6 per cent between Tuesday and Wednesday.
In the U.S., the IRS has issued guidelines on the currency, calling it an “intangible asset” subject to taxation. But in the end, cash talks.
According to IRS guidance: “Virtual currency that has an equivalent value in real currency, or that acts as a substitute for real currency, is referred to as ‘convertible’ virtual currency. Bitcoin is one example of a convertible virtual currency. Bitcoin can be digitally traded between users and can be purchased for, or exchanged into, U.S. dollars, Euros, and
other real or virtual currencies.”
And it’s a hotly pursued asset by U.S. intelligence agencies, which see bitcoin
as a funding vehicle in some instances for groups or individuals that intend to do harm.
STEVEN SENNE/THE ASSOCIATED PRESS In this March 31, 2014, file photo, Tim Mccormack, of Boston, inserts cash into a Liberty Teller ATM while purchasing bitcoins at South Station train station, in Boston. On Thursday, Bitcoin tumbled 15 percent to about $3,300 against the dollar.