Can Bitcoin Go Mainstream?

Photo: bitcoin.org

Bitcoin, the peer-to-peer digital currency is under fire.

It's struggling with hack attacks that sent the value of the virtual currency plummeting, major thefts of the currency from one users computer, plus Senators Chuck Schumer and Joe Manchin calling for a crackdown.

My colleague John Carney writes about how the Bitcoin "HackCrash" raises doubts about the viability of virtual currency. But the folks behind the currency are pushing very hard to make it legit.

Though Bitcoin isn't an organization or company with someone in charge, Gavin Andresen, Bitcoin's lead developer has emerged as the unofficial spokesperson for the currency. He was just down in Washington D.C. at the CIA presenting Bitcoin to a digital currency conference. He's also been meeting with his Congressmen to educate them on the system, and why the company should be seen as a positive to cut transaction costs, rather than an evil responsible for money laundering and drug deals.

He told me this morning that it's important to remember that Bitcoin itself wasn't hacked — just one particular exchange using Bitcoin had its consumer database compromised. Andresen acknowledges that this weekend's hacking "Could slow the growth of the use of Bitcoin." But surprisingly, Andresen tells me that slower growth is "not necessarily a bad thing — the Bitcoin infrastructure needs to grow up." From Andresen's perspective, developers, led by him, need plenty of time to build the infrastructure. His defense of Bitcoin: "the nature of dealing with money is that you will deal with thieves."

Another vocal proponent of Bitcoin is Donald Norman, the co-founder of Bitcoin Consultancy, which advocates for Bitcoin's regulation and works with retailers to help them incorporate Bit coins. He blames the slew of negative media about Bitcoin on a lack of information about how the "currency" is distinct from the storage and trading of it. He says the theft of $500,000 of Bitcoins from one user has nothing to do with the currency's security, and everything to do with the firewalls on that user's computer. Bitcoins' bank account is your computer — and you're responsible for keeping it safe. But unlike a regular bank, there's no FDIC to protect your assets.

Norman is pushing to bring Bitcoin away from its roots and closer to a traditional currency — he is reaching out to regulators, looking to get legislation to oversee the system. He wants to create a system of accountability for Bitcoin, which would help protect assets if an exchange is hacked or a firewall penetrated. And yes, he even wants fraud protection.

The big question is if Bitcoin is successfully brought to the mainstream — with accountability and regulation — will it still have its appeal? Regulation and central oversight would quite likely bring with it some costs, which means the frictionless Bitcoin system — the ability to do transactions with incredibly low fees — could change. We'll see if Norman's plan works, and in the meantime, how the value of the currency fares as it battles with attacks from hackers and senators.

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