Bitcoin in 'bloodbath'

Physical bitcoins are sometimes used to make the virtual currency more tangible. They can hold an encryption key to access a user's digital money

Bitcoin is now 70% of its December high in what Bloomberg is calling a "bloodbath."

But at the same time, the blockchain technology that underpins it is going from strength to strength (more on which below).

Earlier today, the digital currency was trading at one Bitcoin to $US5894.

It's now getting close to the Nasdaq's 78% peak-to-trough plunge during the dotcom bust at the turn of the century.

Bloomberg notes that "Hundreds of other virtual coins have all but gone to zero – following the same path as and other red-hot initial public offerings that flamed out in the early 2000s."

Bitcoin dived earlier this month after a South Korean crypto-currency exchange was hacked. Local police are investigating but it also highlighted that, while having no state or central bank behind Bitcoin is sometimes an advantage, it also sometimes feels like there are no adults in the room, and no one keeping a handle on the bad guys.

And while regulators have so far kept a reasonably open mind on virtual currency, fears of a clampdown linger. Thre have been unilateral actions, such as one bank withdrawing services from Kiwi cryptocurrency exchanges, forcing one offline (NBR understands the bank is ASB Bank, sensitive to its money laundering legal requirements after its Australian parent was fined $A700 million for lax monitoring; ASB won't comment).

It does not help that bitcoin remains the currency of choice for ransomware attackers — as the Road Transport Forum recently found out, among many other Kiwi victims. Bitcoin advocates point to the transparency of transactions. That may be so but it remains impossible to see the person behind those transactions. Ransomware is pervasive but arrests are few and far between.

Practical concerns linger. Bitcoin remains illiquid. It takes time and effort to covert it to real-world currency, and few merchants accept it.

Google recently banned cryptocurrency ads.

And then there are analysts and commentators, including NBR's Tim Hunter, who say the emperor has no clothes. Bitcoin just does not make financial sense.

Blockchain rising
While bitcoin is under pressure, the virtual ledger technology that underpins it, called the blockchain, is heading toward the mainstream.

The blockchain is a single online record of a series of transactions. It's transparent and tamper-proof.

Earlier this month, Microsoft and EY announced an initiative to use blockchain technology for music, movie and gaming publishers on its Xbox platform to create contracts and manage royalty payments. 

IBM has developed a blockchain-based system international money transfer system. It's limited in scope so far but New Zealand's KlickEx is one of its development partners

New Zealand clients are among those using the Calastone global transaction network for the mutual funds sector.

And, ANZ is testing a blockchain solution for wrangling insurance brokers.

So while the fate of bitcoin and other virtual currencies still hangs very much in the balance, the future is looking brighter for the blockchain.

Auckland University associate commercial law professor Alex Sims says blockchain technology is heading toward the mainstream, and that in a few years it will it will be like the internet: just another background technology that we don't even think about ... and most don't really understand.

RELATED VIDEO: Auckland University associate commercial law professor Alex Sims says blockchain technology is heading toward the mainstream (April 30).

RELATED VIDEO: Calastone chief executive Julien Hammerson says blockchain provides customers with the tools they need to be future-ready. (June 29).

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