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The Stability of Bitcoin

Mobile Commerce Insider Featured Article

March 26, 2014

The Stability of Bitcoin

By Michael Guta
TMCnet Contributing Writer

The Bitcoin model eliminates borders when it comes to conducting a financial transaction by getting the rules and regulations associated with financial institutions. While eliminating these regulations provides many opportunities, it also presents challenges that have resulted in Bitcoin losing hundreds of millions of dollars at the Mt. Gox exchange. Stability therefore becomes a very importance component in this digital currency; one that has many people questioning the viability of the platform.

Las Friday Mt. Gox Chief Executive Mark Karpelès announced the recovery of 200,000 Bitcoins valued at around $120 million, which still leaves an estimated 650,000 coin still accounted for. He said, "Mt Gox had certain old­ format wallets which were used in the past and which, Mt Gox thought, no longer held any Bitcoins," in an online statement.

According to the company, the reason for the disappearance and how much has gone missing is still under investigation as the company goes under a court-led restructuring bankruptcy estimated at $64 million.

Having the largest exchange in Bitcoin going bankrupt and the vast majority of its money disappear is definitely a reason for worry, but it should be noted there are other Bitcoin exchanges that are still functioning properly.

This includes established investors such as Winklevoss twins, Andreessen Horowitz’s Chris Dixon, Boston-based Circle Internet Financial Inc. and many others who have invested in Bitcoin. So the legitimacy of the currency is no longer in question, the question is how stable is it?

As a form of currency for conducting commercial transactions it is very stable, but as an investment vehicle it is very unstable. The speculative nature of the platform makes it very difficult to determine with a degree of accuracy what will take place. This is a platform where the value can swing many percentage points every single day without any rhyme or reason.

According to the Washington Post, Director of the Alabama Securities Commission Joseph Borg told investors Bitcoin is a high-risk commodity because of: its volatility in its price; it is not backed by any central banks worldwide and has no tangible value; it is not an experimental concept; it is not unregulated and does not provide protection for consumers; and consumer disclosure rules and regulations are limited or nonexistent.

Whether it is Bitcoin or any other digital currency, it is a platform that will eventually be responsible for many of the ways we conduct commerce. Although it goes at the very core of its foundation, it will be regulated as more legitimate investors continue to put their money in digital currency.

Digital currency reduces the way financial transactions are conducted country to country and provides the possibility for countries with unstable currencies to conduct business around the world. Making this platform stable is one way of ensuring the current financial demarcations that exist because of borders will be a thing of the past.

Edited by Cassandra Tucker

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