Currency

Bitcoin Is At The ‘Wild West Frontier’ Of Crime

Virtual currencies like Bitcoin are under a very real threat from regulators as New York State moves to curb their appeal with criminal gangs.

Financial Services Superintendent Benjamin Lawsky is ready to stamp his authority on the ethereal world of internet financial transactions with new laws.

He sent out a memo dubbing virtual currencies as at ‘the Wild West frontier’ of currency exchange and criminality.

To see the world of Bitcoin from the inside, Lawsky has demanded companies and investors turn over piles of data and documents that will give regulators insight into how virtual currencies work.

Some heavyweight names are included in the list of subpoenas – including Google Ventures, a subsidiary of the search giant, and Winklevoss Capital Management, run by twins Tyler and Cameron Winklevoss, who claim they had the original idea for Facebook.

Software pass keys

Lawsky explained his inquiry was aimed at drafting regulations that would benefit virtual currencies rather than leave them on the fringes of the markets and open to exploitation.

“I have seen examples of the anonymity of virtual currencies bankrolling dangerous criminal activity, like drug smuggling, money laundering, gun running and child pornography,” said Lawsky.

Virtual currency lives online as computer code protected by software pass keys.

Bitcoin is one example of virtual currency. Bitcoin was introduced in 2009 as a currency free from the control of governments and unpegged to any real currency, like the US dollar.

Bitcoin has become the online currency of choice for many illegal transactions, especially those that take place on the infamous Silk Road, an online drug dealing network.

The idea of a virtual currency is similar to the old gold standard, which meant governments could only print as much money as they had gold bullion in reserve.

Nations had problems with inflation and exchange rates as this limited money supply, so the gold standard was dropped.

Flawed security

Meanwhile a security flaw in Android phone and tablet operating systems leaves Bitcoins in apps like Bitcoin Wallet and Bitcoin Spinner vulnerable to theft.

The Bitcoin Forum believes virtual currency worth thousands of dollars may already have been stolen by hackers.

The security problem derives from the way software apps generate random licence keys to protect ownership of the currency.

Dr Joss Wright, of the Oxford Internet Institute, explained software often failed to generate reliable random numbers.

“This is a key issue, because anyone who can predict your random number can potentially take control of your Bitcoin,” said Wright.

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