Real Clear Politics
March 2, 2014
Just before the bankruptcy of the Mt. Gox bitcoin digital-money (or virtual-currency) exchange, Japanese finance minister Taro Aso predicted the inevitable failure. “No one recognizes them as a real currency,” he told reporters. “I expected such a thing to collapse.”
I totally agree with Mr. Aso. For weeks and weeks I have been tweeting and broadcasting that bitcoin is not real money. It is not a reliable medium of exchange, nor is it a reliable store of value. It has no central-bank regulation, network operations or even centralized issuance. And because of its wild price fluctuations, bitcoin can never be a reliable payment system.
The virtual currency originally offered a way to make transactions across borders without third parties such as banks. But the collapse of Mt. Gox — with 850,000 bitcoins unaccounted for, summing to $425 million of losses, according to many reports — illustrates the grand failure of this digital experiment.
Venture capitalist Ezra Galston writes in the Wall Street Journal, “without a regulatory framework, credible payment processors — such as PayPal, Dwolla or Square — cannot service bitcoin exchanges. And because payment processors are vital for converting fiat currencies into virtual deposits, bitcoin operators will be forced to move downstream into the black market.” Mr. Galston concludes by asserting that “the bitcoin community must embrace external regulation to ensure that credible vendors may participate in payment processing.”
This article was posted: Sunday, March 2, 2014 at 8:16 am