BitCoin Sushi – digital coins are catching on.

Bitcoin is still alive and kicking despite the spectacular collapse of its leading exchange in February 2014. Its users no doubt see more benefits than risks.

The so-called “cryptocurrency” that launched in 2009 is still used for purposes like sending money across borders. The peer-to-peer blockchain technology uses no middleman, like banks or Western Union, and saves users from paying expensive transaction fees.

For some, the fact that these currencies operate outside the control of central banks is a big attraction. But as Mt. Gox victims found out, this allure is a double-edged sword.

Cyber Wild West

Gokkusu ka, or Goxification, is now part of the lexicon used by Japanese virtual currency enthusiasts, following the bankruptcy of Mt. Gox, which was once the world’s largest bitcoin exchange. The term refers to the risk of losing virtual coins that are kept at an exchange should anything happen to that exchange.

Based in Tokyo, Mt. Gox was at one time hailed as part of a new run of financial technology innovation. Then it filed for a bankruptcy with more than 40 billion yen ($328 million) in losses.

In the Wild Crypto-West, Goxification is a real and present risk. Other exchanges have also suddenly stopped operating, leaving users unable to access their deposits. There also have been various cases of fraud involving digital currencies.

“Second, third and more Mt. Goxes will be exposed one after another,” said Yoshimitsu Homma, president of the Digital Money Association.

The Mt. Gox bankruptcy severely dented bitcoin’s credibility. As a result, the alternative currency’s development and usage in Japan have been stunted. Still, Homma stresses the importance of separating bitcoin from Mt. Gox’s failure.

“The problem occurred because of the top executive’s wrongdoings,” Homma said, “not due to a failure of the system.”

As he pointed out, the encryption technology behind bitcoin remains secure and highly regarded.

Great potential

The global financial industry in late September showed some confidence in Net-based currencies. That is when the world’s 22 leading financial institutions — including Mitsubishi UFJ Financial Group, Bank of America and Citigroup — formed a study group. The industry believes virtual currencies, with their blockchain and related technologies, can create a new economic sphere.

It is estimated that roughly 700 virtual currencies exist today, up tenfold from two years ago. Their combined value stands at around 500 billion yen.

Today, 1 bitcoin is worth about $321, according to coinbase.com. That is way down from the currency’s high of $1,145, reached Nov. 30, 2013, but up from its post-Mt. Gox low of $178 this past Jan. 15.

In Japan, speculation is the biggest reason people buy cryptocurrencies. Elsewhere, virtual money is increasingly being used as a cheap, convenient way for migrant workers to send money back to their emerging economy home countries, many of which have poor financial infrastructure.

One new virtual currency is being issued by the Stellar Development Foundation, a nonprofit organization in the U.S. that refers to its platform as “public infrastructure for money.” It is even giving away stellars in South Africa and elsewhere. The project has been supported by Stripe, a U.S. smartphone-based funds settlement startup.

Stellar can now handle transactions in 180 currencies. The project aims to bring the technology to 2 billion people around the globe who do not have access to bank accounts or credit cards.

Joyce Kim founded Stellar. Before that, her career path had taken her from being a lawyer to an entrepreneur to a venture capitalist. “We will make inroads into the segment that the existing financial institutions have left behind,” she said.

Virtual currency startups are also popping up in Japan.

Metaps, which in August listed its stock on the Tokyo Stock Exchange’s Mothers market for startups, began issuing spikes in June. Nearly 10,000 businesses have already signed up to use the digital coins.

These coins’ selling point is that they accrue 1% interest each year.

“We aim to create an economic sphere that is worth several trillion yen within five years,” Metaps President Katsuaki Sato said.

The company is advised by Heizo Takenaka, the finance minister in the reform-minded administration of Prime Minister Junichiro Koizumi, who was in office from 2001 through 2006.

Uncertain future

Still, plenty of uncertainties surround virtual currencies. Governments, for example, are wary of them. The Financial Action Task Force — an intergovernmental organization set up by Japan, the U.S., China, India, European and other countries — says virtual currencies can be used to launder money.

Japan’s Financial Services Agency is considering a regulation that would require digital currencies to be registered at exchanges or be licensed.

There is no doubt cryptocurrencies can be convenient, but they remain outside the mainstream. Whether they can catch on like email or chat apps remains to be seen.

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