To the casual observer, some of the recent news about bitcoin may sound terribly frightening. For example, the Islamic State is suspected to finance a part of its operations with bitcoin. The first reaction of the reader is likely to be “gosh, let’s prohibit bitcoin immediately and chase it with fire and sword”. Note that the Islamic State can do without bitcoin to raise funds, a central element of which is cash.
Similarly to bitcoin, cash transactions are not supervised by any authority. Consequently, cash can be used for terrible things such as the purchase of arms and drugs, the financing of criminal activity, money laundering, and tax evasion. What is more, cash is easy to lose, and it could also be stolen from us in an unguarded moment. The very same arguments are brought commonly for the prohibition of bitcoin, but no one seems to be bothered about cash.
I have recently been involved in another crime committed with bitcoins. I was on the injured side and involved only indirectly, but still. Back in January, a friend of a friend contacted me in despair. Their workplace server was infected by virus, which encrypted all of their data. The encryption is virtually unbreakable, which essentially means that all of the company’s data were lost. More precisely, the virus gave them a chance: if they transfer 3 bitcoins (worth approximately HUF 200,000) to a specific wallet in 72 hours, it would decrypt everything automatically.
In a situation like this, what to choose is a tough question. If we pay, we support cybercriminals. If we don’t, our valuable data are lost. Yet, you prefer to hand over the money when you hear “Stand and deliver!”, which is what you would do in this case.
The other tough question is whether the virus can be trusted. I would throw a real fit if I paid and everything remained encrypted. However, on various forums most victims wrote that the virus would actually deliver on its promise, and once the ransom had been paid, they recovered their data. The company contacting me also decided to pay, but they had no idea where to buy bitcoins and how to transfer them. That is where I helped. Half an hour after the transfer, they had all of their data intact. If you are interested, click here for details on what happens when the victim refuses to pay.
(On a side note, the usual safeguards provide adequate protection against this virus as well: don’t open e-mail attachments of unknown origin, and back up all your data.)
Of course, all this is bad business. However, it is not such cases that look really frightening to me. The massive economic policy experiment carried out worldwide with a combination of zero interest and money printing is far more terrifying and dangerous, because it is taking place at a systemic level. If it leads to trouble (which is not at all certain), it will pose a threat to the entire economic system.
On the other hand, I can take at least some comfort in the knowledge that if the experiment were to fail, for example leading to economic chaos and soaring inflation, there is an instrument which provides a safe haven because there is a limited quantity of it available, it can function as scriptural money, and yet no authority can seize it, appropriate it or restrict its use. After all, I have no confidence in the supreme and infinite wisdom of governments and central banks. It didn’t work in the communist regime either. The potential for protection offered by the bitcoin technology is priceless.