Virtual currencies have to be regulated, says security expert

There’s no shortage of people who have opinions on the virtual currency called Bitcoin.

This week alone you could find a headline on Mashable that read, “Retailers Who Take Bitcoin Love It,” while on Britain’s, reporter William Foxton was writing that Bitcoin’s current relatively stable price might make more people accept it as a currency. Last month, Dell announced people can buy its computers online with Bitcoins in the U.S.

So how long will it be before virtual currencies are accepted by most enterprises?

Not for another five years, says Robert Beggs, CEO of Burlington, Ont.-based security consultancy Digital Defence and a founder of the Toronto Area Security Klatch (TASK) IT security user group.

Robert Beggs, CEO of Digital Defence. (Image: Howard Solomon).
Robert Beggs, CEO of Digital Defence. (Image: Howard Solomon).

At a recent TASK meeting, Beggs went over the pros and cons of Bitcoin and other digital currencies, and while he was even-handed, he said there’s one big impediment for large businesses: A lack of trust.
Digital currencies aren’t regulated, their legal status in Canada is murky (officially they are treated as barter, which is taxable), their value is volatile, and governments fear they can be used for money laundering or to fund terrorism.

A Bitcoin – or any virtual currency – is a file on a computer, he pointed out. If a wallet is stolen, call the police. Lose a credit card? It will be covered by the issuer. If a Bitcoin file is stolen, the police don’t care.

And while people can “mine” Bitcoin by solving mathematical equations instead of buying them, there’s an even better way of accumulating them, Beggs said: Theft from exchanges.

Exhibit one: Sheep Marketplace (loss of $100 million in Bitcoin). Exhibit two: Mt. Gox (loss of $447 million in Bitcoin). Exhibit three: Alberta’s Flexcoin, forced to close after a theft. Exhibit four: Ottawa-based Canadian Bitcoins was defrauded in March.

Yet Beggs is certain that virtual currencies will eventually be regulated and legitimized.

“Right now there’s a driving need among the technologically savvy generation – your under-30s – for the mobility of their funds,” he said in an interview. “They move, their jobs move, but what you’re not seeing is a banking system that is supporting this. It’s easy to have a bank account in one country, but if you move to another country, it creates a lot of problems. What people are looking for is a financial institution that’s cross border, that offers a consistent level of service that’s available from everywhere – you can get your data from everywhere, why can’t you get your money?”

“We have to move to a state where the tax system is in place to accept Bitcoin transactions, the large financial institutions are accepting them. I’m assuming it’s going to be at least five years before there is the credibility and the history [for business] to trust a digital currency.”

The Harper government has introduced Bill C-31, which includes amendments to the Proceeds of Crime Act to treat virtual currencies the same as real money. However, the section is still being studied to define virtual currencies. But the intent, Beggs said, is for the government to find a way to track such currencies – which, he added, are created to defy tracking.

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Jim Love, Chief Content Officer, IT World Canada

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Howard Solomon
Howard Solomon
Currently a freelance writer. Former editor of and Computing Canada. An IT journalist since 1997, Howard has written for several of ITWC's sister publications, including Before arriving at ITWC he served as a staff reporter at the Calgary Herald and the Brampton (Ont.) Daily Times.

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