It was a hyped September month when hackers stole presidential candidate Mitt Romney’s tax records and demanded ransom of USD 1 million dollars in ‘Bitcoins’ equivalent. They threatened to release the keys of encrypted files to the public if demands were not met before the deadline. With all the elements of a Hollywood thriller, the world watched the cyber crime story with interest. And the Bitcoins ─ a digital currency ─ too aroused equal curiosity. With this one high profile incident, more people seemed to wake up to the phenomenon of Bitcoins than ever before.
But the security experts, while watching the nightmare unfold, had another concern in their mind. They were appalled to see the belligerence of cyber crime that didn’t stop short of touching high profile people backed by the entire law machinery. So is Bitcoin now the crime currency, all set to push the boundaries of cyber crime?
But first let us understand Bitcoins in all its complexity.
Bitcoin: Real world Value, beyond Manipulation, no Transaction Fee
The very famous quote of Mayer Rothschild, originator of the Rothschild banking, “Give me control of a nation’s money supply, and I care not who makes its laws” is often quoted to show how the present monetary system is manipulated by state and financial institutions. In response to this flawed system, a person by the name of Satoshi Nakamoto’ (real identity is still not established) – a self proclaimed libertarian, a product of information age and a brilliant programmer ─ created Bitcoins in 2009.
Bitcoin is a strong currency due to its intrinsic properties of being low in supply, durability and high divisibility ─ down to eight decimal places. And it is secure, convenient to use at the click of a mouse and is validated with no scope of counterfeiting it. In the beginning, close to 10 grand of Bitcoins could buy you just one pizza! It then rose to dizzying heights at an exchange rate of USD 33 and now is much mature and stabilized at USD 12. Its acceptance is gradually rising as more and more people use it for payments for gaming, hosting services, website design, app development, cloud services and also to buy food in some upscale New York restaurants.
So what regulates Bitcoin? The technology of course!
The Self Regulatory, Future Proof Technology of Bitcoins
Simply put Bitcoin is an open source software code, more precisely a protocol, below the HTTP layer. As P2P based currency with no central servers, it is built on well thought out and strong principles of mathematics and cryptography. The piece of software that serves as digital currency is designed to solve the double spend issue of digital cash through application and integration of advanced financial principles in the code itself. Therefore it is widely speculated that the author of Bitcoin is not only a world class programmer but is also closely aided by financial experts in integrating technology with insider knowledge of finance and economics. At the centre of the Bitcoin structure is the Bitcoin network via which people communicate using Bitcoin client software. Users store a collection of keys ─ called e-wallet/Bitcoin Address ─ on their computer for storing, sending and receiving payments through the Bitcoin network. And these are protected by strongest possible encryption algorithms.
Unlike dollars or any other currency, Bitcoins are not issued by a central authority. Anyone can ‘mine’ Bitcoins by solving public and highly difficult algorithms with enough computing power and a little technical understanding. The technical mining process is basically akin to issuance as in traditional currency minus the drawbacks. Thus issuance is such that it decentralizes Bitcoins and is inbuilt into the code. Inflation is also regulated through inbuilt technology of the code wherein mining of Bitcoins get progressively difficult. So much so that after every four years Bitcoin mining reduces by almost 50%, making it mathematically impossible to exceed 21 millions.
Seems like a utopian dream! But there is already trouble brewing.
Bitcoin: A Cyber Crime Haven
Yes the trouble becomes obvious when creators of dreaded Zeus Botnet start using Bitcoins for transactions, the anonymous drug sites do brisk business through Bitcoins, hacktivists are quick to Tweet their gratitude on anonymous Bitcoin donation and Wikileaks openly proclaims acceptance of Bitcoin donation. So is the currency turning into a crime currency?
The inherent structure of Bitcoin system is based on P2P network that lacks a central server making it very difficult to detect criminal transactions, discover the identity of users or acquire full transaction records of illicit money transfers. The security companies are forever racing against cyber crime in securing businesses and institutions. And in case of breaches, the security companies provide electronic trail, which the law applies to trace the activities in real world that finally nails them. By leveraging the decentralized Bitcoin system, criminals not only make it hard to trail electronically, but leave very few foot prints in the real world, making prosecution almost impossible.