We’ve all heard of Bitcoin, but have you heard of Namecoin, Litecoin, Mastercoin, Betacoin and Globe? Reports now suggest over 200 variants of known digital and cryptocurrencies have come and gone in cyber space. How did it all begin?
Pre-millennia, there was ‘E-gold’. Boasting ‘better money since 1996’, by 1999, the Financial Times called it “the only electronic currency that has achieved critical mass on the web”. Unfortunately it wasn’t the right kind of critical mass. E-gold traded in precious metals via an online account, which was accessible to international users.
Instead of becoming a legitimate currency rival, E-gold’s optimistic creator, Douglas Jackson, saw it abused by hackers and drug dealers looking to launder money, due to not running user identity checks. Despite his before-its-time innovation, Jackson ended up on the distinctively wrong side of the law himself in 2005 when his house was raided and he pleaded guilty to running an unlicensed money transmitter business. It is worth noting that the upside of creating and using an asset backed currency is that Mr Jackson was able to liquidate vaults of gold to pay out on $20m claims.
All that aside, the fact that E-gold users opened more than 4 million accounts, with more than $60m in deposits, proved the need and inclination to develop an online currency. And soon enough, Goldmoney was hot on E-golds heels, featuring all the corrected verification issues omitted during E-gold account set up. With the growth of e-commerce, we’ve never looked back.
Introducing a cryptocurrency isn’t for the feint-hearted, with strict regulations now in place involving identity checks, registering as a money transmitter and account monitoring; it is a costly exercise to embark on and a difficult business investment to fund. And by no means is every loophole closed, with many regulatory debates held in full view of the world media.
Fast forward to 2014 and skimming over alternative cryptocurrencies, we reach the highly-publicised Bitcoin. The fact that Bitcoin is decentralised and remains in effect ‘a concept’ makes it hard to pinpoint any potential blame in the way in which the E-gold case was handled. Some countries have banned it and, in the USA, Bitcoins are not recognised as currency but as ‘property’ for tax purposes and subject to capital gains. As reported in the Guardian, “paying for a beer in Bitcoin would be a taxable event with the buyer having to work out if they had made any capital gain on the asset they had just sold.”
But for the e-user, Bitcoin could be a good option. In today’s international marketplace, Bitcoins can be transferred to a location on the other side of the world almost instantly and with no fees or change of currency. Small fees are requested for certain processes and to pay those who run the Bitcoin network, however it remains the users choice as to whether to pay the fees or not. Buy Bitcoins from friends or ‘mine’ them. However, ensure you don’t accidentally throw your digital wallet away like this person did, losing around $7m in the process.
Yes, the concept is completely different to anything we’ve known before and will take some getting used to. The question is, if the circulation of Bitcoin ever ceased, could the balance of an account suddenly find itself worthless, with no way of selling any assets to replenish it?
Are you a Bitcoin user? And if you are, what have you found to be the key benefits of using cryptocurrency?
Catherine Howe is a Marketing Executive at Total Ltd – a business to business service provider, delivering genuine solutions across all core telecommunication services, based in Cheltenham, Gloucestershire. Total Ltd is a business that brings together and unifies all the component parts. For up to the minute business telecommunications news, please view the Total Ltd blog.