Reuters Insider - Mt.Gox's Bitcoin security breach isolated-NYU's Sundararajan

PB Holding NV

25/02/2014 22:00

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 Source:             Thomson Reuters                                   
                                                                       
 Description:        Bitcoin, and other digital currencies still have a 
                     promising future according to NYU Professor Arun  
                     Sundararajan, who believes when Bitcoin is better 
                     understood it will gain more mainstream acceptance 
 
 
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Transcript (May be auto-generated)

 The shutdown of Mt. Gox, once the world's biggest bitcoin exchange, raising 
questions about the future viability of the digital currency. Arun Sundararajan 
is a professor at NYU Stern whose research focuses on digital economy. So nice 
to have you. Great to be here. So first of all, what exactly happened at Mt. 
Gox? What went down? It seems to have been a security breach more than anything 
else where a lot of the bitcoin was stolen by hackers. And as a consequence, Mt.
Gox had to stop trading, and of course, this has sort of lowered the value of 
the bitcoin traded on Mt. Gox considerably. So is this a site-specific issue 
where it's a technical issue there or security issue there or is it a larger 
problem? This particular case seems to have been isolated to Mt. Gox. It may 
raise some issues about security holes in bitcoin, but for now, based on what I 
know, it is very much specific to Mt. Gox and doesn't call into question any of 
the other exchanges on which bitcoin is being traded. And yet here we are 
talking about the future viability of bitcoin, what do you think is that? Well, 
bitcoin isn't well understood right now. And so when something like this happens
on what used to be the largest exchange, investor faith in bitcoin goes down. 
And this hurts bitcoin investors around the world even if there were no problems
with their exchanges. And you might notice that I'm using the word "investor" 
and I'm using the word "investor" because right now bitcoin isn't so much a 
currency as it is a commodity. It's something that people are trading, for 
trading profits rather than something that they're using in a widespread way for
buying stuff the way that we would use PayPal or Dollars or cash or credit cards
or Google Wallet. And it's interesting that you point that out because what's 
happened recently though is a number of retailers like Overstock.com have 
started taking bitcoin as a currency. Does this change how receptive retailers 
might be to accepting bitcoin? I think that bitcoin needs to get much more 
widespread acceptability before it starts to become a currency. I think the 
challenge that it's facing- it's a wonderful technology and I really like the 
fact that we've got a secure anonymous digital currency for the first time. It's
just that it's not filling a market need that most consumers have. I mean, if I 
look at the advances that PayPal has made, if I look at my credit cards and for 
face-to-face transactions, I've got cash. And so, bitcoin doesn't have a niche 
that it has filled in legal commerce yet. So then, what's the next evolution? Is
bitcoin going to expand and eventually fill that need or do you think there will
be something else that will be the next generation of something like bitcoin? 
Yeah, I think technologies like bitcoin are likely to be the future of digital 
currency. At this point, it's still really early days and I think that we need 
to have a greater understanding among a wider group of people and a greater 
level of faith in the currency. Any currency is only as good as like the trust 
that people put into it. And even though the technology of bitcoin is excellent,
I think the level of faith that people have in it, especially because of the 
volatility that we've seen in its value which in turn is because of the fact 
that it's being used as a commodity rather than a currency, so that has to calm 
down a little before people start to say, "Hey, this is actually better than 
PayPal or better than Visa and all the retailers that I want to buy from 
actually accept it and so maybe I should start using this in addition to all the
other digital currencies I have available to me." But then there is the issue of
governments. I mean, you talk about who's behind the currency. A lot of people 
have faith in currencies because they are backed by governments. This is not a 
currency that has been backed by governments. In fact, many governments have 
come out against it. That's true. If you go back and look at the history of 
currency, most currencies started out as not being backed by governments, and 
then government backing came in later. And so, I sort of think of bitcoin the 
way one might think of gold. Gold is not backed by any government but it was a 
viable currency and a viable international currency sort of for many centuries. 
And so, I think we're going to get to the point where we realize that if a 
currency is widespread enough and if the technology is strong enough, you don't 
need government backing. And some of the regulatory challenges that have come up
around bitcoin don't have to do with the viability of the currency itself or the
need for regulation of the currency. They have more to do with the fact that 
governments have gotten used to being able to follow the money trail in order to
do their day-to-day law enforcement, and with bitcoin, there isn't a money trail
like that. And so governments that are used to having that have to come up with 
alternative law enforcement strategies. 

Which brings up the issue of cyber crime and cybersecurity. I mean, how is that 
managed when you don't have necessarily someone accountable behind the currency?
Well, you know, a lot of things that we rely on the Internet aren't backed by 
any particular government, and so we just have to get used to the idea and sort 
of start to have faith in the fact that the security around bitcoin is in fact 
extremely strong. And so, it's more of a question of like, you know, the trust 
that people are placing in it rather than an issue with the technology itself. 
Alright. One last question, are you invested in bitcoin? No, I'm not. You are 
not. Why not? Well, I tend not to invest in the things that I do research into 
or talk about, so I don't hold shares in any of the companies that I do research
about either. That way, I can- If you did, would you invest? I think it's really
volatile. And so, you know, I don't have the kind of appetite for risks that 
right now the bitcoin investment sort of represents. It's an extremely sort of 
high-risk investment, and so, you know, it wouldn't have to do with any lack of 
faith in the currency itself, it just doesn't have the risk return profile that 
I'm looking for in my investments right now. Alright. Fair enough. Thank you so 
much, sir. Okay. Thank you for having me. Our thanks to NYU Professor Arun 
Sundararajan. I'm Bobbi Rebell, this is Reuters