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Virtual Currencies

May 29, 2011

Lots of signs are pointing to the realistic future of virtual currencies. Arguably the most significant is bitcoin, but there are several others most notably linked to facebook which are prevalent (They all involve exchanging real cash for tokens or virtual currencies in a game).

For instance Chinese Prisoners Forced to Play Online Video Games in Lucrative ‘Gold Farming’ Enterprise:

“One former Chinese prisoner, 54-year-old Liu Dali, told Britain’s Guardian that his days were spent breaking rocks and digging trenches at the Jixi Re-education Through Labor camp and his nights were spent in mind-numbing forced shifts playing online video games to collect virtual credits. He says guards would then trade the credits for real money, earning as much as 5,000- 6,000 yuan ($770- $924) a day, of which he didn’t see a penny.”

This is also a great way to launder money:
“Alastair MacGibbon, founding head of the AFP’s Australian High Tech Crime Centre and now a security consultant, said criminals were buying up virtual currency and expensive items in games such as World of Warcraft and then selling them on secondary markets for money.
“But compared to laundering it at the track or a casino or offshore financial havens I would suggest that the online stuff is a fraction of a fraction compared to all the other ways that criminals launder funds which are still very successful,” he said.

Read more:”

The first viable virtual currency is Bitcoin, and it seems to be something that will vie for true currency assuming the world goverments dont find a way to destroy it first. Banks wont make any interest off of this, and thats no good.

“The same people who brought you Wikileaks are back, and this time, they’ve created a virtual currency called Bitcoin that could destabilize the entire global financial system. Bitcoin is an open-source virtual currency generated by a computer algorithm that is completely beyond the reach of financial intermediaries, central banks and national tax collectors. Bitcoins could be used to purchase anything, at any time, from anyone in the world, in a transaction process that it is almost completely frictionless. Yes, that’s right, the hacktivists now have a virtual currency that’s untraceable, unhackable, and completely Anonymous.

And that’s where things start to get interesting. Veteran tech guru Jason Calacanis recently called Bitcoin the most dangerous open source project he’s ever seen. TIME suggested that Bitcoin might be able to bring national governments and global financial institutions to their knees. You see, Bitcoin is as much a political statement as it is a virtual currency. If you think there’s a shadow banking system now, wait a few more months. The political part is that, unlike other virtual currencies like Facebook Credits (used to buy virtual sock puppets for your friends), Bitcoins are globally transferrable across borders, making them the perfect instrument to finance any cause or any activity — even if it’s banned by a sovereign government.

You don’t need a banking or trading account to buy and trade Bitcoins – all you need is a laptop. They’re like bearer bonds combined with the uber-privacy of a Swiss bank account, mixed together with a hacker secret sauce that stores them as 1′s and 0′s on your computer. They’re “regulated” (to use the term lightly) by distributed computers around the world. Most significantly, Bitcoins can not be frozen or blocked or taxed or seized.

Think back to the very peak of the Wikileaks Affair, when financial institutions were blocking payments to and from bank accounts controlled by Julian Assange and Wikileaks. This then precipitated a wave of hacktivist attacks on financial institutions ranging from Bank of America to Mastercard to Visa. Anybody who attempted to stop Wikileaks was slammed with massive denial-of-service attacks that had people seriously concerned about the fate of the world’s financial system. That was just the amuse-bouche.

Theoretically, you could start generating Bitcoins right now on your laptop by putting a sophisticated computer algorithm to work. (Watch this video segment from Jason Calacanis for all the details) Right now, there are six million Bitcoins in circulation, trading at an average value of $6.70 each. $40 million is a lot of money, but a drop in the bucket in the grand scheme of things. After all, trillions of dollars trade hands each day in the spot FX markets. However, remember that computer algorithm I mentioned earlier? Well, it controls the value of all those Bitcoins in circulation. The greater the demand, the higher the value of the Bitcoins. Within years, we could be talking about billions of dollars’ worth of Bitcoins in circulation. Money might not grow on trees, but now it grows on your laptop.

There are so many fascinating angles to this that even the digitally-savvy folks at Boing Boing have had a hard time wrapping their heads around Bitcoin. Quite frankly, it sounds like something out of a James Bond movie: a group of shadowy individuals attempt to bring the world’s financial system to its knees. The founder of the Bitcoin open source project, Satoshi Nakamoto, hasn’t been heard from in months, but other leaders of the open source movement have taken over. (People really aren’t sure if a Satoshi Nakamoto really exists — he’s more like a Keyser Soze figure right now). What’s fascinating is that anybody can download an 8-page PDF explaining this P2P virtual currency system and judge for themselves if it makes sense — just be prepared to work through some differential calculus and probability theory.

Can any government do anything about Bitcoin? Well, the hacktivists like to point to the example of P2P distributed systems like Bit Torrent or The Pirate Bay. What happened then? Nobody has been able to consistently shut them down. So… back to our original question: What happens when Anonymous gets a bank? Well, it’s worth re-reading the final chapter of The Girl With the Dragon Tattoo, where Swedish hacker Lisbeth Salander single-handedly re-routes hundreds of millions of dollars around the world and brings down a huge billion dollar corporation, all without leaving an electronic fingerprint. Truth, it seems, may soon be stranger than fiction.”

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