Despite the recent turmoil with bitcoin exchanges, the future for virtual currencies remains strong.
Mt. Gox, a Tokyo-based bitcoin exchange, halted withdrawals to correct an error that essentially permitted the deletion of previous transactions. This issue has been known for years and was dealt with successfully by other companies with simple program code changes, according to Ed Felten, a computer scientist at Princeton University. He does not foresee a long-term problem for bitcoin exchanges in this regard.
Gavin Andresen, chief scientist at the Bitcoin Foundation, which promotes the virtual currency, also believes this issue should not affect the virtual currency.
Due to denial-of-service attacks, Slovenia-based Bitstamp and Bulgaria-based BTC-e have delayed transaction processing and halted withdrawals. These two exchanges represent 56 percent of the market, according to bitcoincharts.com, which tracks trading activity. Denial-of-service attacks involve massive, intentional requests for information by a website, typically initiated by malevolent actors.
Jaron Lukasiewicz of Coinsetter, a bitcoin trading platform, is confident the problem is with the exchange, not bitcoin, and it will be resolved without impacting the evolution of the currency in a negative way.
Sovereign nations around the globe, including the United States, Canada and Russia, remain interested in examining regulations to mitigate exchange risk, protect citizen property rights and prevent illicit uses of the currency.
Mark Williams, a former Federal Reserve risk examiner and finance lecturer at Boston University's School of Management, does not recommend the use of virtual currencies. He suggests central bankers are essential in managing monetary policy, despite their inability to prevent the 2008 crisis. Williams believes they have the ability to promote prosperity when the private sector behaves in unexpected ways, as evidenced by the massive increase in the money supply following the crisis that averted a depression.
However, I believe a decentralized virtual currency system
would be less prone to the market destabilizing forces that caused the 2008 financial crisis. In fact, the Fed was unable or unwilling to prevent it, and the ramifications will take decades to remedy.
The use of production-based assets, such as virtual currencies, would most likely reduce the magnitude of future catastrophic events. Financial and economic dislocations that may result could be effectively assuaged by sovereign government purchases of virtual currencies, in lieu of increased supplies of fiat money.
While bitcoin has been bruised in the short-term, the long-term prospects for virtual currencies are firm.
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