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31 Mar, 2013 13:06

‘Challenging the dollar’: Bitcoin total value tops $1 billion

‘Challenging the dollar’: Bitcoin total value tops $1 billion

Already bigger than many sovereign currencies, Bitcoin has broken the $1 billion in value mark this week. In the wake of continuing economic crises and liquidity shortages, this new virtual currency is poised to challenge the euro and US dollar.

By not being tied to any particular financial institution and independent from world governments, Bitcoin will become a safe haven for anyone trying to save their money from the crippled international banking system, claimed Max Keiser, the host of RT's Keiser Report.

“It is inevitable that Bitcoin will become a multi-trillion dollar enterprise because every other currency in the world is tied to dying central banks that are encumbered with impossible-to-pay debts and bankrupt counter-party risks,” Keiser said.


Bitcoin emerged in 2009 amid the global financial meltdown. The digital currency was created by someone who identified himself as Satoshi Nakamoto. It is based on open-source software, and uses peer-to-peer connections for monetary transactions to avoid centralized authorities.

Bitcoin aims to provide safe and secure exchange by verifying transactions with encryption that is used in military and government applications. And unlike bank services, the Bitcoin network is free, except for a voluntary to speed up transaction processing.

Bitcoins can be bought for other currencies, virtual or real, and are accepted as payment for goods or services. They can also be won through gambling, received as gifts or donations, or simply 'mining' – the process by which new bitcoins are introduced into the system. Bitcoins (BTC) are bought and sold for other currencies at online exchanges. The Japan-based Mt. Gox is the largest of its kind, where BTC have recently traded at an average exchange rate of $90 per bitcoin.

Issuance of the currency is completely automated, with 25 new bitcoins generated every 10 minutes; inflation is set to be halved every four years, until a total of 21 million bitcoins is reached. In theory, the currency would not lose its purchasing power unless individuals and businesses refused to use bitcoins.

With numerous financial companies already exchanging bitcoins into any of the world’s currencies, the founder of the Swedish Pirate Party, Rick Falkvinge, estimated that Bitcoin could capture between 1 and 10 percent of the global foreign exchange market. This implies that the price of each and every bitcoin would rise to between $100,000 and $1 million, Max Keiser explained.

“I have stated that myself,” Keiser said. “I think bitcoin's price will reach $200,000 per bitcoin before Warren Buffett's Berkshire Hathaway's stock.”

Ten years ago, few predicted that Facebook would have more than 1 billion users worldwide/ By the same token, few today imagine bitcoin could take on the G20 nations, but Keiser believes this may soon take place: “Bitcoin's valuation, already bigger than many sovereign currencies, will challenge the most-traded currencies today, including the US dollar, the euro, the yen and the renminbi.”

Image from Flickr.com/zcopley

Regulatory hand reaches out

Because the virtual currency bypasses authorities and cannot be taxed unless the person deliberately reveals his transactions,  the US government and the Treasury Department are seeking to enact stricter regulations and new money-laundering rules.

Bitcoins are vulnerable to being stolen by hackers, thieves and fraudsters, though the Bitcoin community has made efforts to curb such crimes.
The largest Bitcoin scam reportedly ran in 2012, and was structured like a classic Ponzi scheme. Investors lost at least 200,000 BTC worth $2.2 million at the time, according to the Bitcoin Forums. The high estimate puts the number at 500,000 BTC, or 5 percent of the total number of bitcoins in circulation at the time. The largest Bitcoin hacking heist, in March 2012, robbed the victims of 46,653 BTC ($230,468). The perpetrators exploited a vulnerability in the customer service of Bitcoinica exchange to get access to users' wallets. Satoshi Nakamoto, who created Bitcoin in 2009, left the system to develop on its own in 2011; his true identity was never revealed. One popular theory among Russian bloggers speculates that Nakamoto is Grigory Perelman, a reclusive Russian mathematician famous for solving the Poincaré conjecture and receiving the Fields Medal – the 'Nobel prize of math,' – for the achievement.

It is difficult to predict this new policy would play out: Patrick Murck, a legal counsel for the Bitcoin Foundation, a trade group promoting industry standards, said the framework “would be infeasible for many, if not most, members of the Bitcoin community to comply with.”

Keiser believes that Bitcoin users and the currency itself have little to worry about, unlike most of Internet startups feeling themselves suddenly vulnerable to government oversight. Bitcoins are not issued by a central body, and rely on a network of verification nodes to regulate transactions; in the future, Bitcoin users may achieve enough political clout to defend itself in traditional arenas.

“As Bitcoin's price increases, the new Bitcoin millionaires and billionaires will use their economic clout to rewrite laws in favor of Bitcoin, the same way banks like JP Morgan or Goldman Sachs lobby government to write laws that favor them,” he explained.

Web 3.0?

Bitcoin could also offer relief to debt-stricken countries such as Cyprus. “Cyprus was Bitcoin's 'come to Jesus' moment and it's fitting it happened around the Easter Holiday,” Keiser said.“For millions of people around the world who have been victimized by banksters and their corrupt politician friends, the light bulb went off and they suddenly realized they could save their wealth by parking it in Bitcoin and no government or bankster could stop them.”

After the initial rush of interest in the Internet in the mid-1990s, and the follow-up boom of Web 2.0 and the growth of social networking, Bitcoin is the third and “perhaps the most disruptive wave of all,” Keiser said.

“This is Web 3.0,” he said. “For me it's extremely exciting since I pioneered the idea of virtual currencies back in the mid 1990s and have four US patents in my name covering virtual trading and virtual currencies. Most people I talked to back then about these ideas and the possibility that something like Bitcoin could exist didn't think it was possible. They were wrong.”