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Does it matter whether or not Bitcoin is actually worth anything?

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Last week, in the first known ruling in a case involving virtual currency’s role in money laundering, Miami-Dade Circuit Judge Teresa Mary Pooler tossed out all three felony charges against website designer Michell Espinoza, who had been charged with illegally transmitting and laundering $1,500 worth of Bitcoins.
Last month, someone using the handle “The Attacker” siphoned 3,641,694 Ether, worth the equivalent of US$60 million, from the DAO, short for “distributed autonomous organization”, a decentralized venture capital fund built on the Ethereum blockchain protocol which raised the largest ever amount for a crowdfunding campaign, US$117 million.
The Attacker issued an open letter, insisting that he obtained the virtual currency perfectly legitimately, by exploiting a vulnerability in the code, and that he intends to pursue “legal action against any accomplices of illegitimate theft, freezing, or seizure of my legitimate ether”.
I wrote at that time that I was eager to actually see the thing go to trial, if only so that the words “seizure of my legitimate ether” could be spoken in front of a judge, with predictable results.
The other day, the theft of 119,756 Bitcoin, about US$72 million, was hacked out of the accounts of clients using the Bitfinex exchange platform in Hong Kong, sending the “value” of Bitcoin lower and keeping the spectre of uncertainty alive in the minds of Bitcoin true believers while also providing more evidence for skeptics that none of it is real anyway.

How different is having a certain amount of Bitcoin in a virtual wallet or on a currency exchange platform from having a high score in a video game or collecting a bunch of Pokémon?

When a bank heist happens, the authorities swing into action. In these cases, not so much.
How different, then, is having a certain amount of Bitcoin in a virtual wallet or on a currency exchange platform from having a high score in a video game or collecting a bunch of Pokémon?
Meanwhile back in Miami, undercover detectives arrested Spinoza in real life by tracking him down through a site called LocalBitcoins.com, which exchanges Bitcoin, and then telling him that they wanted to exchange Bitcoin for stolen credit card numbers.
The undercover officers met with him three times in total, once at an ice cream shop and later in a hotel room.
He was arrested along with Pascal Reid, who negotiated an unusual deal, agreeing to plead guilty to acting as an unlicensed money broker in exchange for teaching law enforcement about how Bitcoin works.
Charles Evans, a Barry University economics professor who agreed to testify in Spinoza’s defense for $3,000 worth of Bitcoin, argued to the judge that Bitcoin is not money, as it’s not backed by any central government and that its legal status varies from state to state, with the IRS regarding its use as more or less equivalent to bartering.
“This court is unwilling to punish a man for selling his property to another, when his actions fall under a statute that is so vaguely written that even legal professionals have difficulty finding a singular meaning,” wrote Pooler as part of her ruling.

Even for people who have no use for Bitcoin or Ether as “currency” it has become clear that the underlying technology, the blockchain, can be used to facilitate a variety of very real applications, including banking, insurance, copyright protection, identity management, and digital asset management.

Advocates of virtual currencies such as Bitcoin applauded the ruling on the grounds that they would now be able to send Bitcoin as remittances with fewer regulatory hurdles, owing to the fact that those would not be regarded as real money transmissions.
The ruling does tend to fly in the face of the gradual legitimization of blockchain, the technology underlying virtual currency, even as developers struggle with their own set of legitimacy issues.
Watching the real-world drama of Ethereum founder Vitalik Buterin struggling to cope with fallout from collapse of the DAO, along with these other Bitcoin related heists tends to beg the question: Who cares?
Even Canadian Tire money is worth at least something. You can buy a wrench or a kitchen utensil with it, or just keep it in your wallet and look at it. Bitcoin, for a lot of people, feels a little abstract.
But even for people who have no use for Bitcoin or Ether as “currency”, it has also become clear that the underlying technology, the blockchain, can be used to facilitate a variety of very real applications, including banking, insurance, copyright protection, identity management, digital asset management, securities trading, private markets, and niche quasi-financial assets such as domain names.
Last month, a group of seven banks, including Alberta’s ATB Financial and Germany’s ReiseBank working with Accenture and SAP, used Ripple, a blockchain-based technology, to move actual money across international borders between financial institutions at the Chartered Professional Accountants (CPA) Payments Panorama 2016 conference in Calgary, a first for blockchain technology, which reduced a transaction that would normally have taken three days through the existing SWIFT system down to about eight seconds.
PwC is exploring the use of blockchain for identify verification, or know your customer (KYC) procedures, which would eliminate the need for paperwork and redundant procedures required for identity verification.

The use of Bitcoin as currency for buying real-world stuff is basically a niche activity right now, representing not even a percentage point of global transactions.

PwC also entered into a high-profile partnership with Blockstream in January, a Silicon Valley blockchain company with a Canadian connection, which will introduce Blockstream’s technology to PwC clients in the US, Europe and Asia.
Another of the “Big Four” accounting firms, Deloitte, announced in May that it had partnered with five blockchain companies to develop prototypes aimed at the insurance, employee management and cross-border payments industries.
In January, the Government Chief Scientific Adviser in the U.K. released a report called “Distributed ledger technology: beyond block chain” which recommended that the UK government explore the use of distributed ledger technology, or blockchain, to reduce fraud, error and the cost of paper-intensive bureaucratic processes in public services.
In response, someone on the Bank Underground blog, which provides a platform “for Bank of England staff to share views that challenge – or support – prevailing policy orthodoxies,” outlined her view that the introduction of “CBcoin”, or virtual currency issued by a central bank, would end banking as we know it.
“Taken to its most extreme conclusion, CBcoin issuance could have far-reaching consequences for commercial and central banking – divorcing payments from private bank deposits and even putting an end to banks’ ability to create money,” writes Marilyne Tolle, who works in the Bank’s MPC Unit. “By redefining the architecture of payment systems, CBcoin could thus challenge fractional reserve banking and reshape the conduct of monetary policy.”
Would this necessarily be a bad thing? Issuing a government-backed form of virtual currency, in theory at least, should replace current private transaction settlement systems, and offer central banks greater leeway in shaping monetary policy, but it could also spell the end of the hegemony of the large banks.
To accept that idea, however, would be to underestimate the power of “brand loyalty” that people feel towards their banking institutions.
The use of Bitcoin as currency for buying real-world stuff is basically a niche activity right now, representing not even a percentage point of global transactions.
But as the Miami ruling indicates, not to mention widespread indifference to the mass theft of Bitcoin from virtual currency exchanges like Bitfinex and Mt. Gox, the proliferation or collapse of what amounts to a form of bartering may not matter except to the people directly affected.
With the People’s Bank of China currently looking at the idea, however, and the Bank of England now seriously kicking it around, there could come a day in the not-too-distant future where banks would operate less like banks and more, writes Tolle, “like mutual funds, losing their power to create money and becoming pure intermediaries of loanable funds.”

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