Despite Cyberattacks and Overspeculation, Bitcoin Economy Continues to Evolve

Bitcoin has been trading at the depressed price of between $6 and $7 USD for the past few weeks, which

Bitcoin has been trading at the depressed price of between $6 and $7 USD for the past few weeks, which seems bad for the once high-flying digital currency that had climbed to $33 USD at one point. Hardly a week has gone by without some extreme crisis. In addition, New Yorker finance columnist James Surowiecki, wrote a long treatment of Bitcoin for the MIT Technology Review in which he notes pessimistically that “the number of actual transactions conducted in bitcoins, and the value of those transactions, has been shrinking.”

According to, the best source of Bitcoin data, more than a million dollars’ worth of bitcoins were traded on June 13. By early August, less than half a million dollars in bitcoins were being used in transactions; even the currency’s value had been cut in half. Successful network technologies do not tend to see usage plateau, let alone shrink, this early in their history.

Mr. Surowiecki’s take on the hoarding of Bitcoin leading to its downfall was echoed by another respected mainstream writer, Paul Krugman, Nobel Prize winner in economics: “So to the extent that the experiment tells us anything about monetary regimes, it reinforces the case against anything like a new gold standard – because it shows just how vulnerable such a standard would be to money-hoarding, deflation, and depression.”

Other sources of bad publicity include (from Bitcoin Economy):

– Sept 14, 2011. Bitcoin GPU mining trojan distributed over twitter retweets
– Sept 13, 2011. More Mt.Gox phishing
– Sept 12, 2011. User says Mt.Gox account hacked and funds sent to the Ukraine
– Sept 10, 2011. forum hacked by Cosbycoin
– Sept 09, 2011. 35 trojans targeting Bitcoin detected by Kaspersky Labs
– Aug 30, 2011. Mt. Gox Phishing attacks

And also about a month ago came the discovery and publication of Bitcoin evangelist Bruce Wagner’s involvement in a civil case for mortgage fraud in Illinois, in which he was fined $250,000 for misrepresentation to customers in violation of the Consumer Fraud Act and ordered to pay $115,858 in restitution to more than 60 customers. The revelation led to new speculation that perhaps Mr. Wagner was behind the MyBitcoin heist/hack, in which the popular wallet service disappeared with 154,000 Bitcoins. (Mr. Wagner denies wrongdoing.)

But despite the negative publicity, we’re still receiving press releases announcing new Bitcoin exchanges, a Bitcoin mint, a new user-friendly wallet and transaction processing service, noticed the proliferation of Bitcoin-denominated online poker sites (another one here) and other Bitcoin casino games as well as the Bitcoin variations Namecoin and Solidcoin. There was a session on Bitcoin and alternative currencies during the Open Video Conference in New York last weekend. We have also been asked to fill out a survey for a graduate student thesis on Bitcoin.

All the trouble with Bitcoin, especially the loss of credibility for Mr. Wagner, who converted many non-techie users into Bitcoin enthusiasts, is driving casual users away and leaving the hardcore Bitcoiners behind. Despite Cyberattacks and Overspeculation, Bitcoin Economy Continues to Evolve