The world’s currency is going digital

No taxation. No central authority. No serious regulation. Welcome to the new economic world of Bitcoin.

For the uninitiated, Bitcoin is a digital and completely decentralized currency. All transactions with Bitcoin are strictly between two individuals, bypassing banks and clearing houses. This do-it-yourself method of financial transactions is praised by its users as preventing centralized authorities from using money as levies of power. Moreover, Bitcoin allows users to enjoy freedom from additional fees per transaction.

Supporters of this system argue that decentralization will drive banking innovation. If Bitcoin enters the market, banks will need to alter their investment methods to keep up with the competition. Furthermore, Bitcoin is international: purchasing a bitcoin is as easy as going online. This new currency is catching on quickly, as many retailers are now accepting bitcoins. Prominent examples include Overstock.com, Tiger Direct and many Las Vegas hotels. 100 percent kosher. Or is it?

Although Bitcoin advocates complete accountability with Block Chain, a public database of every Bitcoin transaction, the company has been under scrutiny due to its suspected ties to illegal activities. Even with a log of all operations, Bitcoin users are hidden behind a digital screen, separating their faces from their digital footprints.

The suspicions of illicit activity were confirmed in October 2013, when the FBI shut down the infamous drug-trafficking website, The Silk Road, and confiscated over 144,000 bitcoins, estimated to be worth $28.5 million. In a recently published article, the Carnegie Mellon CyLab and the Information Networking Institute estimated that 4.5–9% of all bitcoin transactions at the time were held on The Silk Road.

Just as Bitcoin began recuperating from this scandal, a new series of events tarnished the reputation of the currency. On Jan. 27, Charlie Shrem, the CEO of Bitcoin exchange company BitInstant, was accused of laundering over $1 million worth of bitcoins on The Silk Road. Before this, Shrem was one of the most renowned faces of the Bitcoin community, appearing in a Business Insider profile of Bitcoin Millionaires. Shrem and Robert Faiella, his alleged co-conspirator, are now charged with one count of conspiracy to commit money laundering and one count of operating an unlicensed money transmitting business. The two could face up to 25 years in prison.

This is a drastic setback for Bitcoin, which has struggled to gain mainstream attraction since its establishment. Many government and law enforcement officials have issued warnings against the use of Bitcoin. Additionally, the Bitcoin community has not provided answers; the issue of financial security remains questionable even though some Bitcoin transactions reach millions of dollars.

With Bitcoin’s decentralized system, only the seller and buyer are involved in the transaction. Originally this seemed appealing, but would you take a suitcase filled with five million dollars in cash to a business deal without a third party to moderate?

Despite these fallbacks, the U.S. has decided to let the Bitcoin system play out. In fact, on Jan. 30, the U.S. Treasury stated that Bitcoin investors will not have to register with the government or comply with certain money-laundering regulations. This, in effect, advocates the purpose of Bitcoin.

So, for now, any United States citizen is permitted to use bitcoins to set up transactions and bypass the common, and often loathed, additional bank fees. Will the American economy shift to bitcoins in the near future? It will certainly be interesting to follow the development of this revolutionary currency.