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POLITICAL ECONOMY
ATMs raise Bitcoin profile, concerns
by Staff Writers
Washington (AFP) Feb 19, 2014


Bitcoin value plunges on Japanese exchange
Tokyo (AFP) Feb 19, 2014 - The value of bitcoin on a Tokyo exchange was less than half that on other platforms Wednesday, two weeks after it suspended withdrawals claiming a bug in the software that underpins the virtual currency.

MtGox, one of the world's oldest Bitcoin exchanges, this month stopped processing client requests to withdraw money held at its "wallet", citing a problem with the technology.

On Wednesday afternoon a single Bitcoin at MtGox stood around $286 while other exchanges around the world were offering more than $600. In January a Bitcoin was worth over $900 at the Tokyo exchange.

Bitcoin is at the leading edge of the nascent crypto-currency movement. It is based on an open-source computer code designed by an anonymous person or people five years ago.

Unlike fiat currencies like the dollar or the euro, the bitcoin is not backed by a central bank or a government, but depends on cryptography to control the creation and transfer of money.

MtGox, which began life as a trading card exchange late last decade, was one of the first online exchanges for bitcoin and has grown quickly to become one of the world's largest repositories.

In a release, it said a glitch in the open-source software that powers the unit makes it possible for users "to alter transaction details to make it seem like a sending of bitcoins to a bitcoin wallet did not occur when, in fact, it did".

This would allow someone to purchase a single unit and then to claim that it had never been received, which may then result in another bitcoin being sent or a refund being given, the company said.

"We apologise for the inconvenience caused by the recent suspension of external bitcoin transfers," the company said in a separate statement dated Monday.

Transactions are still permitted between users on MtGox, but not to a third party. It is also possible to exchange bitcoins for real-world currencies, including US dollars and Japanese yen.

However, the price appeared to have been undercut by a loss of faith in the exchange.

- Guns and drugs -

Critics say the bitcoin itself is safe and the problems lie with MtGox, which they claim cannot process a high volume of transactions.

MtGox, which has not responded to AFP requests for comment, said in a statement it has "implemented a solution" to the problems and insisted customers' assets were safe.

"With this new system in place, MtGox should be able to resume withdrawals soon," it said, adding that the firm was also adding a fresh layer of security.

But the hiatus has caused consternation among those whose cash is caught up, and there have been small protests at the exchange's headquarters.

London resident Kolin Burges has sat outside the Tokyo building since last week with a sign saying, "MtGox where is our money?"

While it is largely the domain of speculators at present, a small number of commercial bodies accept the currency including at least 18 establishments in Japan, according to coinmap.org.

Its volatility and the anonymity it gives people involved in transactions have drawn criticism, including in relation to the underground Silk Road website where it was used to buy guns and drugs.

David Yermack, a professor at the New York University Stern School of Business, listed Bitcoin's flaws in a recent commentary in the MIT Technology Review as MtGox's woe continued.

Among the problems was its "digital wallets" that are "vulnerable to thieves and hackers", he wrote in the commentary dated Tuesday.

Even if you aren't sure what a Bitcoin is, you may soon find them at a nearby machine.

The first Bitcoin ATMs are cropping up in North America, enabling consumers to swap cash for units of the crypto-currency, or cash in their Bitcoins. ATMs are coming in Europe and Asia as well.

The machines could allow Bitcoins, generated by a complex computer algorithm designed in 2009, to move out of the realm of geeks to the broader public.

The US startup Robocoin, after unveiling its first ATM in Vancouver last year, announced plans to begin operating a machine in Austin, Texas, on Thursday. It also plans to open one in Seattle, in Washington state, ahead of a wider global launch.

"We have completely removed the barriers for people to buy and sell Bitcoins," Robocoin chief executive Jordan Kelley told AFP.

"You no longer have to wait days, you don't have to provide your bank account."

Kelley said Robocoin provides the only "bi-directional" Bitcoin ATMs, meaning that consumers can either buy or sell the digital currency.

Robocoin provides the hardware, made in the United States, to local operators, who must get certification from state and federal authorities and comply with anti-money laundering rules.

Operators around the world will also need certification in the countries where they operate, Kelley said.

"We were built to be fully compliant (with finance regulations) globally," he said.

Kelley declined to provide the number of orders for the ATMs, saying only, "We have a lot." He said the company is awaiting certification for its shipments to locations in Europe and Asia.

- 'Incredible idea' -

The Robocoin ATMs perform a biometric scan of each user's palm, as well as take a facial photo, which is matched to the user's government-issued identity card. The system also runs a check to determine if the user is a wanted criminal or terror suspect.

"We provide a profile of the customer that gives our operators full visibility and trackability," Kelley said.

The first operational ATM in the United States started up Tuesday in a New Mexico cigar shop, according to manufacturer Lamassu Bitcoin Ventures.

Lamassu has some 200 orders around the world, and has opened Bitcoin ATMs in two Australian cities as well as one each in Helsinki, Berlin, Bratislava and Vancouver.

The New Mexico operator Enchanted Bitcoins is "paving the way for mainstream Bitcoin accessibility in the United States," says Zach Harvey, CEO of Lamassu, a company registered in the British Virgin Islands.

The operator is following guidelines from FinCEN, the Financial Crimes Enforcement Network, to avoid running afoul of the law, and has registered as a money exchange service.

Despite the growing popularity of Bitcoins, the digital currency has been linked to crime and drugs in exchanges such as the dark Web bazaar Silk Road. And many economists warn that the currency has no hard value.

Bitcoins have been exceptionally volatile, rising to more than $1,200 last year, before falling to around $600 in recent weeks. And some Bitcoin exchanges have been shut down by regulators.

Last month, US authorities filed criminal charges against two operators of a Bitcoin exchange, including the head of a company with high-profile investment backers.

Some analysts see advantages in the move to Bitcoin -- it has little or no transaction costs, is quickly and easily transmitted and has verifiable and traceable transactions based on its software.

"The deeper I dive, the more impressed I am with this as a technology solution, as an incredible idea for finance, as a stored value for payments," said Staci Warden, executive director of the Center for Financial Markets at the Milken Institute.

Warden said Bitcoin has advantages over other currencies because it can be divided into extremely small units -- one quadrillionth of a Bitcoin -- for micropayments.

"Bitcoins can be sent to you with no transaction costs at all," Warden told an online forum Tuesday. She said that contrary to popular belief, Bitcoin transactions are not anonymous but "pseudonymous" and can be traced and verified on the Bitcoin master ledger.

"If Target (a US store) used Bitcoin, none of the 70 million customers would have had their accounts compromised, because Target wouldn't know anything about the customers," she said.

- 'Speculative commodity' -

But a report last month by the International Institute of Finance (IIF), which represents more than 450 banks and financial institutions, said Bitcoin's future as a broadly accepted exchange medium is limited.

Mark Williams, a Boston University banking and risk management specialist, argues that Bitcoins are dangerous for the financial system, and that ATMs heighten the risks.

"An ATM makes it easier for the average person to get access to Bitcoins," Williams told AFP.

"But there is no consumer protection. There is no guarantee you will get your money back."

Williams argues that Bitcoin is not really a currency but a commodity, "and it's a high-risk commodity, a speculative commodity."

He said Bitcoin values have seen "flash crashes" of as much as 80 percent on an intraday basis and can be highly volatile, like other speculative assets.

"So I don't think they should even use the term ATM machine," he said. "It's really a betting machine."

.


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