Euro fears boost virtual currency Bitcoin

Eugen Leitl eugen at leitl.org
Wed Jun 13 06:35:20 PDT 2012


http://business.financialpost.com/2012/06/08/euro-fears-boost-virtual-currency-bitcoin/

Euro fears boost virtual currency Bitcoin

John Greenwood  Jun 8, 2012 b 6:31 PM ET | Last Updated: Jun 12, 2012 8:02 AM
ET

Akos Stiller/Bloomberg

The bad news out of Europe is benefitting safe haven countries, pushing down
borrowing costs for a whole swath of governments. On May 30 the yield on the
benchmark 10-year U.S. Treasury slipped to 1.6%, the lowest since the Second
World War.

Fearful of the future, Europeans are moving their money out of their banks
and dumping it into safe havens such as U.S. Treasuries, Government of Canada
bonds b and apparently the virtual currency Bitcoin.  bWebre getting requests
from people saying, can we mail you euros? We canbt do that legally, but they
keep askingb

bEuropean volume has been skyrocketing,b said Charlie Shrem, chief executive
of BitInstant LLC, a company in New York that enables clients to transfer
funds between Bitcoin and U.S. and Canadian dollars, British pounds, euros
and other major currencies.

According to Mr. Shrem, the sudden rise has been driven by people in
countries like Greece, Italy, Spain b and even the Netherlands b anxious to
protect their savings.

bWebre getting requests from people literally saying, can we mail you euros?
We canbt do that legally, but they keep asking.b

The bad news out of Europe is benefitting safe haven countries, pushing down
borrowing costs for a whole swath of governments. On May 30 the yield on the
benchmark 10-year U.S. Treasury slipped to 1.6%, the lowest since the Second
World War. Ten-year bond yields in Germany, France and Canada have all hit
record lows in recent weeks. Even the U.K. is getting a lift.

But why is Bitcoin caught up in the frenzy?

The darling of techies, hipsters and, increasingly, currency traders, it was
created back in 2009 as an Internet-only currency regulated by a network
algorithm. Traditional currencies, the thinking went, are cumbersome and
expensive to use in online transactions. Every time a purchase is made, fees
must be paid to a bank or credit card company. Costs are even more onerous
when one currency is converted to another.

Bitcoin solved these problems and others as well, since it operates outside
the payment systems operated by the banks. More importantly, itbs not under
the control of any central bank or government. In fact, the supply of
Bitcoins is controlled by an algorithm.

Proponents argue that makes it safer than traditional fiat currencies and
essentially immune to the political pressures.

Indeed, at a time when governments around the world are pumping massive
amounts of so-called fiscal stimulus into the economy, potentially setting
the stage for untold inflation down the road, itbs not surprising that
Bitcoin is suddenly attracting a lot of attention, as are other digital
currencies.

For fans of the currency, itbs hard to imagine a better way to shelter your
savings from the ravages of the gales that are blowing through global
financial markets.

But itbs not the only alternative currency thatbs garnering attention.

Second Life, a popular online game, has its own cyber money, known as linden
dollars. Originally intended for use only within the game, linden dollars
have morphed into a real currency that is becoming widely used across the
internet by real consumers.

Earlier this year the Canadian Mint announced a project to create its own
digital money, MintChip. Analysts call it a positive sign, since it shows
that even the government has recognized the importance of digital currency.

So far though, the concept mostly remains a work in progress. Almost since
its creation, Bitcoin has been struggling with hurdles, including software
bugs and, more worryingly, hacker attacks. Last June, Mount Gox, one of the
biggest Bitcoin exchanges, suffered a security breach with hackers reportedly
making off with thousands of account passwords and a substantial amount of
Bitcoin money, inflicting a huge blow to user confidence.

Since then the value has recovered somewhat b it was trading around US$4 in
April. But amid renewed fears around the eurozone itbs been on a steady
upward trajectory, climbing from around $5.20 at the start of June to an
intraday high of $5.65 on Friday.





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