Tuesday, January 29, 2013

Central Banks Sees Bitcoins as Threat

Anything that emerges from the markets that poses as a threat to the power of central authorities will be harassed via regulations. This seems to be the coming fate of the fast growing decentralized P2P Currency or Bitcoins. Here is my previous post on bitcoins

From Bloomberg’s chart of the day,
An increase in the value of bitcoin, the world’s largest online currency, may fuel concerns that virtual money could undermine the role of central banks.

The CHART OF THE DAY shows that bitcoin has more than doubled in the past 12 months, strengthening to $16.37 from $5.88, according to data from Mt. Gox, the world’s largest bitcoin exchange. The money, issued by a decentralized network of computers, has recovered after falling to $2.14 in November 2011 from a high of $29.58 five months earlier.

Greater demand for virtual currencies could have a negative impact on the reputation of central banks, according to a report published by the European Central Bank in October last year. Since the report was released, bitcoin has risen more than 55 percent against the dollar and use of the currency has surged.

Bitpay Inc., a bitcoin payment processing company that recently raised $510,000 in an investment round, this month announced that the number of companies using its services has increased almost 50 percent to more than 2,000 since November, when blog management firm WordPress.com said it would accept the digital currency.

“I think the ECB obviously is concerned, and it’s not reputational,” said Steve Hanke, a professor at Johns Hopkins University in Baltimore who helped to establish new currency regimes in countries such as Argentina and Bulgaria. “I think it’s a competitive threat. Maybe virtual currencies will be so convenient that they will pose a threat because of their ease of use.”
If more people will migrate to the use bitcoins, then central bank’s power to influence the economy will likely be diminished, so I expect not only a direct assault on bitcoin by regulations, other means of control will indirectly be coursed through social media via censorship.

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