Bitcoins: The Dubious Promise Of Digital Currency

By   ISBuzz Team
Writer , Information Security Buzz | Mar 11, 2014 01:35 am PST

Bitcoin has been hailed by some for its promising future applications.  However, this ignores a variety of criminal and security challenges with respect to digital currencies that need to be addressed.

Bitcoin was introduced by Satashi Nakamoto in 2009.  It functions via an exchange of electronic coins or chains of digital signatures, the length of which expand every time they are transferred to a new owner as a result of a transaction.  In this sense, all Bitcoin exchanges are available to the public insofar as one can trace the history of a particular coin’s transactions across different signatures.

Only a minority of the Bitcoins on the market are actually being exchanged.  Speculators are hoarding most of them.

The current exchange rate for one Bitcoin is 617.5 US Dollars.

Nevertheless, some analysts see great revolutionary utility for the digital currency in the future.  Cameron and Tyler Winkervoss, the twin internet entrepreneurs who accused Mark Zuckerberg of stealing their idea for Facebook, recently used Bitcoins to purchase tickets for a commercial flight into space, presumably in an attempt to elevate the digital currency’s legitimacy.

Others observe that companies can use Bitcoins to develop their own digital currencies, which they could then use as rewards when users click on their ads.  This would revolutionize online advertising by giving users incentives to seek out advertisements, taking pressure off of retailers to generate interest themselves.

These potential utilizations aside, Bitcoins, and digital currencies in general, still have a long way to go before they can hope to find legitimacy.

Bitcoins may enable the public to view the range of coins’ transactions, but digital signatures do not convey much information about the user operating behind them.  Digital currencies are still relatively anonymous in nature, which makes them an attractive currency for criminal networks, both on- and offline.

For example, last year, the FBI apprehended a man in San Francisco who used Bitcoins to administer what has come to be known as “Silk Road,” a multi-billion-dollar black market for drug trafficking.

Digital currencies have also been used as payment on sites such as “Hitman Network,” where customers can hire contract killers in the real world using Bitcoins.

Beyond cybercrime, Bitcoins represent a major cybersecurity challenge to the extent that they blur the line between code and money.

Giovanni Vigna, an Internet security expert, paints the picture well.  Whenever any code is tied to money in cyberspace, a great number of hackers look at this code in an attempt to exploit potential vulnerabilities.  Whereas banks have safeguards to prevent losses, Bitcoin does not have these.

It might not be long before a hacker breaks the digital currency’s cryptography and begins stealing others’ Bitcoins.  Should this happen, once a user’s coins have been stolen, they are unrecoverable.

The loss of legitimacy due to cybercrime and the ever-increasing threat of cyber attacks pose serious risks to all users of digital currencies.  Therefore, in its current form, it is highly unlikely that Bitcoins will attract the appeal investors and speculators are hoping they will.

David Bisson | @DMBisson

dave bissonBio: David is currently a senior at Bard College, where he is studying Political Studies and writing his senior thesis on cyberwar and cross-domain escalation.  He also works at the Hannah Arendt Center for Politics and Humanities at Bard College as an Outreach intern.  Post-graduation, David would like to leverage his extensive journalism experience as well as his interest in computer coding and social media to pursue a career in cyber security, both its practice and policy.