SHARING AMERICA'S TECH NEWS FROM THE VALLEY TO THE ALLEY
courtesy Mark Courtney of GBGroup & wired.com
As the ongoing economic uncertainty has continued to cause global currencies to fluctuate, consumers and investors alike are increasingly looking for alternative options. As a result, digital currencies such as Bitcoin have come to prominence recently as an exciting and important innovation. However, they’re also dividing opinion.
There’s no doubt there is massive potential for Bitcoin. Recent estimates place the amount of bitcoins in circulation around 11 million, with a collective market value approaching $1.4 billion at current rates. Users are drawn to the inherent anonymity that the currency provides, making it particularly attractive for the shadier corners of the “dark web”.
When Bitcoin users engage with one another online there is currently no way for them to verify the identity of the individual they are doing business with. Whilst this is the core attraction for many users, this needs to change if the currency is to achieve widespread acceptance. However, the anonymity that attracts many users is already being picked apart. Every Bitcoin transaction is actually publicly recorded on the network, meaning public metadata is freely available, while user pseudonyms are now verifiable. It is a start, but it isn’t enough.
Reliable identity information is a fundamental requirement of infrastructures used to manage the exchange of currency, goods and services, and online trading floors need to adopt online ID verification. This enables companies to authenticate their potential customers in real-time, while also offering the scalability and efficiency needed for a global company.
The first step in implementing these practices more widely, and also dramatically altering the perception of Bitcoin as the leading digital currency, is to form an industry body. Some form of global regulation is inevitable as the industry currently does not do enough to safeguard against money laundering. But, if they can beat the external regulators to it, forward-thinking Bitcoin companies can lead the way in drafting up guidelines to shape and secure their own industry.
These guidelines would include the introduction of compulsory identity verification for Bitcoin users, shining a light on some of the more shady corners of the industry. At the very least the network will have to introduce pseudonymous verification to enable even a basic level of security. Granted this will potentially erode some of the anonymity that makes digital currencies like Bitcoin so attractive, but common ground has to be found to allow the industry to grow.
Installing such verification measures would be a boon for member organisations as well as users. Compliant Bitcoin companies would be able to operate and market themselves as following the industry best practice standards. This should include following anti-laundering regulation as well as the implementation of identity verification for both sellers and buyers. This would generate greater trust and expand the global appeal of this burgeoning currency. Taking the lead in this way is important to avoid knee-jerk reactions further down the line that might lead to over-regulation.
Anonymity on the internet is important — it’s one of the unique features of bitcoins. But if something goes wrong, there has to be accountability. The currency’s meteoric rise to prominence earlier this year demonstrated its inherent instability, with recent research showing that 45 percent of Bitcoin exchanges fail, most taking their user’s money with them.
Digital currencies are still finding their feet and part of their appeal has been their existence outside the authority of traditional banking institutions. By forming a robust and reliable industry body, Bitcoin will also set an important perception both with regulators and consumers alike that it is an industry to be taken seriously.
Without a safe infrastructure, a digital currency will never achieve widespread adoption by a mainstream audience. The initial success of Bitcoin proves that there is appetite for a type of digital currency, but without making the service trustworthy, more trading floors will close.
As public awareness of bitcoins grows and stimulates a higher demand, there is a need for the Bitcoin to establish its own standards and acknowledge the importance of ID verification when making online financial transactions. Only then will this promising and disruptive technology reach its huge potential.
This is a guest post by Mark Courtney, product and services director at GBGroup, an identity intelligence company.