Regular readers of Counting On Currency will know that I am committed to the future of hard currency. This does not mean however, that I am not interested in virtual currency. One particular form of virtual currency that has my attention is BitCoin. BitCoin is a very interesting proposition in that you work (or rather your computer works) to create it, it can be traded for hard currency on an open exchange, or used in it’s native form for payment to companies and individuals who accept BitCoin. BitCoin has also caught the attention of Dan, who has included a number of links to BitCoin stories on his Cash Per Diem page.
One of the most compelling reasons for supporting virtual currency is that it would appear to be impossible to counterfeit. Alas, this is not the case. In a recent news story it was revealed that BitCoin had indeed been “counterfeited” and the resulting drop in the value of the currency was extreme and immediate. The value dropped from $17.50 to $0.01 in 30 minutes as a result of a hacker compromising the MT Gox exchange. Like stock markets everywhere the MT Gox exchange has software in place that is supposed to prevent such calamitous results. It would seem that it failed in this case.
A significant and obvious drawback of relying solely on virtual currency is the ability to convince others of it’s usefulness and authenticity. Earlier this month the founder of the Global BitCoin Stock Exchange was refused entry to the Untied States because Customs officials were not convinced that he could pay his way for a two month stay with only $600 in his pocket and a large amount of BitCoins on his computer. He was sent back to his home country where he was again interrogated as to why he had been refused entry.
All told, I think I will stay with old fashioned notes and coins, thank you very much!