Uphill task to rebuild trust in Bitcoins

In recent weeks, Bitcoin has attracted wide media coverage. (“Mt Gox fallout: Mizuho gets drawn into legal battle”, March 17; “Bitcoin exchange MtGox’s collapse ‘could help strengthen industry’”, March 5)

The collapse of Mt Gox, once the largest bitcoin exchange, and the likelihood of massive losses by users and traders may have surprised some, but sceptics have long felt uneasy about the risks associated with crypto-currencies. Bitcoins stored in digital wallets are less secure than cash kept in a pouch. It is easier to stop pickpockets than hackers, who are becoming more sophisticated and less traceable.

They raided Mt Gox’s digital vault, and the probability of recovering the stolen bitcoins is remote. Flexcoin, a Canadian outfit, suffered the same fate and bit the dust on March 2.

The Monetary Authority of Singapore has cautioned consumers and businesses about virtual currency transactions and is set to have rules similar to those governing money changers and remittance companies. (“MAS to regulate virtual currency intermediaries”; March 14)

Regulatory structures and measures to counter money laundering and terrorist financing will not be completely adequate or effective to prevent potential fraud and other crimes committed by vendors or exchange operators.

Users, traders and investors of virtual currencies should therefore not be complacent or remain oblivious to the broader risks.

Bitcoin is still a novelty in Singapore, appealing largely to the tech-savvy and the young. The total exposure in electronic currency investment is probably not considerable, and the bulk of Bitcoin transactions could likely be retail in nature.

Therefore, the impact of Bitcoin exchange bankruptcies on Singaporeans would be limited.

Countries have refrained from imposing an outright ban on virtual currency transactions, so as not to stifle creativity and entrepreneurship.

Outstanding market value, circulation of Bitcoins and the infrequent bankruptcies and failures also do not warrant drastic action at this stage.

Undoubtedly, though, enforcement agencies and regulators worldwide are keeping an eye on the proliferation of crypto-currencies.

If more failures and bankruptcies surface, causing widespread harm and losses, then proactive and more rigorous counter-measures would surely be enacted for tighter control.

The probe into Mt Gox is ongoing and the outcome will be watched keenly. Class-action suits filed in the United States and Canada are alleging fraud. It was also reported that a fraud complaint has been lodged with the police in Tokyo.

Allegations of duplicity add a new dimension to this saga, lending credence to the argument sceptics have that the Bitcoin enterprise is a big con.

With all the negative news, the industry faces an uphill task to rebuild trust, besides having to brace itself to handle potentially more supervision and restrictions from a greater number of jurisdictions.