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BLOG: Don't trust anonymous e-currencies like Bitcoin

Roger A. Grimes | June 10, 2013
The Liberty Reserve debacle cast a new light on Bitcoin, but even well-maintained e-currencies aren't worth the risk

Let's not forget nation-state armies. Ultimately, those armies protect the treasures of countries. If they didn't, another country could bust into your country, take the money, and walk away with it. I don't know of an army willing to send a soldier to recover a stolen Bitcoin.

The safety net
You don't even need nation-state armies to get back your stolen money. In most industrialized nations, if you can prove that a malicious hacker stole your money, the bank will often put the money right back. For example, some bad guys broke into a friend's stock account and stole more than $50,000. He notified the stock trading company where he had his account, and in a few minutes, the money was back. The entities that put your money back don't even require you to work too hard to prove your money was stolen. It's a cost of doing business, and they're ready to help get back what you lost. Try that with your e-currency. In almost every case, if your e-currency is stolen, it will be gone for ever.

In the real world, if you lose your credit card, checkbook, or even bank account log-on password, your money isn't gone. In fact there are lots of services and laws to protect you and your money. Not so in the e-currency world — check out a statement posted on a Bitcoin Wiki Faq regarding the potential loss of Bitcoins: "Consider it a donation to all other bitcoin users."

Ultimately, most e-currencies possess the security of whatever your email address and password is. If hackers break into your computer, learn your password — or even break in and steal all your money at the bank — it will be replaced fairly quickly. This is absolutely not true of e-currency sites.

I'm not saying that e-currency schemes are evil. And I'm not saying fiat money is perfectly trusted or protected — the runaway inflation that led to wheelbarrows of money being exchanged in Weimar Germany come to mind. I'm just saying that by comparison, over the long run, there is no comparison. The trust equation isn't even close.

The perfect e-currency would be one that is widely accepted, where I'm protected against malicious loss — by armies, law enforcement, or the fiduciary entity creating it. Oh, yeah, I already have that. It's called real money.

 

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