A hacker, presumably from China, has managed to get their hands on personal information from Goodchoice, a famous accommodation website with more than 3 million members, on March 23. The victims received emails from the hacker that included sexually offensive messages. WithInnovation, the parent company of Goodchoice, has yet managed to figure out the exact number of victims. The hacker is blackmailing the company to pay millions of USD with the new currency that gained popularity rapidly — bitcoins.
Private, non-national currencies like Facebook credits and Riot Points have existed for over a decade and are nothing new. Bitcoin, however, is the world’s first decentralized payment network, freeing people to transact on their own terms without an intervention of a third party. Over 70,000 bitcoins are traded every day. Credit, currency, and even location does not affect the trade. The technology also distributes the power of central federal banks to print and regulate money to the general public, removing all taxes and restrictions individuals had on spending.
The seemingly harmless technology appears to be promising but poses threats to the traditional structure of our society. As always, absolute freedom has side effects — the lack of responsibility and the ability to control extreme disasters. The main challenge the government faces is the loss of full monetary control. The central government is responsible for stabilizing the inflation rate. Although the exchange rate of the current bitcoin is minimal compared to other standard currencies, the increase in the bitcoin flow within the market will more than likely cause unstable prices of goods in the market. Bitcoin prices have historically fluctuated by an extreme rate due to its use as black money. Large-scale drug dealers mass purchase Bitcoins and cause huge jumps in the cost of bitcoins. Although the problem may be solved as long as the flow of Bitcoins is large enough by the rules of supply and demand, in extreme cases such as the housing bubble of 2008 where a collapse in housing prices led to an economic crisis, the government will have no way of compensating for the loss of value of bitcoins once it becomes standardized.
Tracking bitcoins is impossible. Traditionally, virtual transactions existed in the form of card payments or bank transfers, which can be traced. Bitcoin is the first source of payment network that cannot be traced. The government lacks the capability to trace the personal assets of an individual’s bitcoin wallet, leaving tax holes within the monetary system. The systematic increase in the proportion of bitcoins within the market will reduce the steady income of the government that is necessary for it to function. Long-term government investments, government officials’ paychecks, and government policies that are backed by the advocates of the elected party all can lose their strength due to the lack of taxes to support them. Property tax and inheritance tax can all be bypassed as bitcoins give the rich more opportunities to avoid responsibility. The anonymous currency can be also abused for blackmailing, recreational narcotic sales, and fraud. Investigation through camera records or transaction tracings is not possible as bitcoins only exist in a virtual space. The traditional trading system is composed of a third party who is responsible for compensating for the lack of trust between two individuals. But it is impossible to trust one another completely in any sort of trade. A bitcoin transaction leaves the transaction to the moral consent between two people, since bitcoins are impossible to trace if one decides to bail out.
Bitcoin mining is dominated by people who have access to powerful machines. The inequality in the availability of powerful machines all across the world gives some the capability to make much more money. Without sufficiently powerful machines, a small group of individuals will be more likely to spend money on electricity than make profits out of bitcoin mining. This uneven distribution may lead to unequal opportunity to earn money as acquiring powerful machines requires money to start with.
New technologies will be used widely as long as they are the most efficient, but they may not necessarily be moral or beneficial to society. Environmentally friendly products, for example, should be chosen over their counterparts for the greater good but the reality is that the counterparts provide immediate benefits to the consumers. Bitcoins will continue to grow if it manages to compete with the current system. Informing the public about its potential threats to society should be prioritized to establish a healthy culture in using bitcoins as an alternative.