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Bitcoin 'won't go away'

Nicola Mawson
By Nicola Mawson, Contributor.
Johannesburg, 19 Sept 2014
Bitcoins are set to grow in popularity in SA, despite government warning the sector is unregulated.
Bitcoins are set to grow in popularity in SA, despite government warning the sector is unregulated.

Bitcoin enthusiasts are adamant the virtual currency is here to stay, and that growth of the fledgling currency will not be marred in the long-term by government's "knee-jerk" warning of its unregulated status.

Government's warning, issued yesterday, is being seen as the state getting "on the bandwagon" out of fear that virtual currencies will disrupt the traditional monetary market, and eventually lead to its collapse. The warning comes on the back of a July statement by the European Banking Authority arguing that a regulatory environment is needed for the currency, and urging retailers not to accept it in the interim.

Locally, National Treasury, the South African Reserve Bank, the Financial Services Board, the South African Revenue Service and the Financial Intelligence Centre have warned the currency is risky, susceptible to fraud, unregulated, and users have no comeback if they are burned. The authorities have also said regulations may be issued should the need arise.

Disruptive

Bitcoin investor Chris Naude says government's warning is "belated" and it is just following other countries' moves to protect traditional monetary structures. He says government's statement may scare off some people, but only for a while. "I don't see it going away, no matter how much governments pray."

Bitcoin was created as an alternative to physical currency in January 2009, by Satoshi Nakamoto, although there are doubts as to whether this is his real name. The virtual currency allows users to send payments within a decentralised, peer-to-peer network without the need for a clearing house. However, unlike banks, Bitcoin third-party accounts are unregulated.

By design, the supply of Bitcoins cannot exceed 21 million and there are more than 13.3 million units currently in circulation, according to Bitcoincharts, a Web site that tracks activity across exchanges.

Sonya Kuhnel, founder of local entity Bitcoin Payment and board member of the South African Bitcoin Foundation, says government's unsurprising statement will not hurt the industry, although more education is needed to inform people about the currency, and the technology behind it.

"Obviously this technology has never existed before and because governments and financial institutions can't control it entirely, they have real concerns. I'm sure everyone remembers how sceptical people were when the Internet or e-mail was invented."

Kuhnel notes with PayFast's recent integration of Bitcoin as a payment method to more than 30 000 merchants, she believes Bitcoin adoption will grow significantly. According to CoinDesk, Bitcoins are currently trading at $410.94.

Bitcoin enthusiast Haroun Kola says SA is just reading the same handbook as the majority of central banks, most of which have come out against the currency because they do not understand it. He says the "knee-jerk" reaction will only scare away speculators, but will not affect Bitcoin's "real economy. It's like shooting in the dark."

Not trusted

ICT veteran Adrian Schofield, however, says he would never have trusted the virtual currency anyway because there is no true governance or control. "Any scheme that depends on the faith of the participants is only as good as unbroken faith."

Bitcoin has come under fire because it was the currency used by underground traders on the illicit Silk Road, and Mt. Gox lost hundreds of thousands of coins after a hack attack earlier this year, which eventually led to its demise.

Schofield says virtual currencies are not founded in a way that protects people, and government is saying: "Use it at your own risk, don't look to us if you lose your shirt."

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