Bitcoin safer than the euro?

Bitcoin safer than the euro?

Summary: What do government bonds and bitcoin have in common? Some investors think they're just a bit safer than the euro at the moment.

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TOPICS: Government
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What do government bonds and bitcoin have in common? Some investors think they're just a bit safer than the euro at the moment.

bitcoins


(Nobody gets me Bitcoins image by Zach Copley, CC BY-SA 2.0)

Economic uncertainty in Europe is at an all-time high, and it doesn't look to be easing anytime soon. The levels of Greek debt are astronomical. If anti-austerity parties gain power in the upcoming Greek elections, and refuse to cut government services, they're likely to default on that debt, meaning financial turmoil for all nations in the European Union. As a result, European investors are shifting their cash out of Europe and into other, safer investments, like the US Treasury Bonds, and, yes, even bitcoin.

Bitcoin is a virtual currency created by applying computer processing power and time to solve a particular problem. Bitcoins can be transferred over peer-to-peer networks, and can also be used for real-world purchases. The advantage of bitcoin as a currency is that it is decentralised, and the supply of bitcoins is controlled by an algorithm, rather than a bank or a government entity, meaning that it's not influenced by the regular market or political pressures that other currencies are.

This means that none of the economical factors currently affecting Greece, Spain or even Australia will change the value of bitcoins, and, as the world stares down the barrel of Global Financial Crisis mark II, that has got to be pretty good, right?

According to the Financial Post, New York-based company BitInstant, which specialises in transferring funds into bitcoins, is seeing European trade into bitcoin "skyrocket". The company has reportedly said that demand is so high that some investors are asking to mail euro currency to BitInstant to get it converted into bitcoins.

It's still early days, and bitcoin is not without its share of problems. A bitcoin exchange was hacked in June last year, resulting in around 2000 bitcoins being stolen, and a massive drop in value for the currency from about US$30 per bitcoin to about half of that amount. Added to that, it's also apparently a health risk; our UK sister site last year reported that a bitcoin miner suffered heatstroke caused by staying in the same room as four overclocked machines used for bitcoin mining.

However, if bitcoin defies these problems and becomes more mainstream, then perhaps the ABC was hasty in disciplining an IT employee for mining for bitcoin on the ABC's production systems.

Updated at 10.05am, 14 June 2012: Corrected the figure to 2000 bitcoins were stolen in the Mt Gox hack.

Topic: Government

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Armed with a degree in Computer Science and a Masters in Journalism, Josh keeps a close eye on the telecommunications industry, the National Broadband Network, and all the goings on in government IT.

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9 comments
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  • "A bitcoin exchange was hacked in June last year, resulting in around 500,000 bitcoins being stolen..."

    That isn't accurate. 500,000 bitcoins were not stolen. About 500,000 of the exchanges internal representation of bitcoins were sold into the existing bids, which caused a massive price decrease. The hack was detected, the exchange was shut down, and the bad trades were reversed. IIRC, no more than 2000 (I think it was much less) bitcoins made their way out of the exchange and the exchange, MtGox, covered that loss.
    proudhon-73d05
  • Hi proudhon,

    That wasn't what I read at the time but I will investigate and update if necessary. Cheers.
    Josh Taylor
    • Just dug up MtGox's official press release, which you can read here:

      https://mtgox.com/press_release_20110630.html

      The release doesn't mention the number of fake bitcoins sold, but it does say:

      "On June 20th at approximately 3:00am JST (Japan Time), an unknown person logged in to the compromised admin account, and with the permissions of that account was able to arbitrarily assign himself a large number of Bitcoins, which he subsequently sold on the exchange, driving the price from $17.50 to $0.01 within the span of 30 minutes. With the price low, the thief was able to make a larger withdrawal (approximately 2000 BTC) before our security measures stopped further action.?

      We would like to note that the Bitcoins sold were not taken from other users’ accounts—they were simply numbers with no wallet backing. For a brief period, the number of Bitcoins in the Mt. Gox exchange vastly outnumbered the Bitcoins in our wallet. Normally, this should be impossible. Unfortunately, the 2000 BTC withdrawn did have real wallet backing and they will be replaced at Mt.Gox’s expense. Again, apart from the compromised admin account, no individual user’s account was manipulated in any way. All BTC and cash balances remain intact."

      If 500,000 bitcoins had been stolen from MtGox, it would have been evident in the blochchain, which is, remember, public. But there was no 500,000 bitcoin transaction at the time.
      proudhon-73d05
  • Thanks for that proudhon, I was digging around but lots of the releases I found were not very conclusive (apart from the news reports at the time that said 500,000). I will update to clarify that.
    Josh Taylor
  • Thanks, Josh.
    proudhon-73d05
  • The ABC employee was mining on ABC's customer machines as well
    AndersonL-e0a14
  • "Added to that, it's also apparently a health risk; our UK sister site last year reported that a bitcoin miner suffered heatstroke caused by staying in the same room as four overclocked machines used for bitcoin mining."

    That's rather misleading, any money can be a health risk if that's how you're defining it. What if I ate too much paper money?
    Tronlet
    • if consuming, how much paper money is too much paper money?
      OHaiDenny
  • Great article. We have seen a strong increase in the value of a Bitcoin this last few weeks. Many people will be wondering how they can obtain bitcoins themselves.. Well you don't have to go to an exchange! One option is to sell your old items in return for BTC.

    http://rawfocus.blogspot.co.uk/2012/06/sick-of-high-ebay-fees-try-bitmit.html

    The article above explains the benefits of BitMit, the bitcoin alternative to ebay (and much cheaper!)
    RawFocus-694b2