Bitcoin saw a sharp fall in value after Silk Road, the online black market for drugs were hacked last Thursday. According to the website, hackers took undue advantage of a continuing glitch in the online currency to take $2.7 million from its kitty.
The anonymous administrator of the underground website told users that the attackers had decamped with all funds Silk Road held in escrow. The website functions as a middleman between sellers and buyers, temporarily functioning as a fund holding area until a deal is completed. Buyers are expected to place money into the website’s accounts, and sellers then take the money from the accounts.
According to Nicholas Weaver, a researcher in computer security, Silk Road had a total of 4,440 bitcoins in its escrow account. The news, however, had its effect on Bitcoin where it resulted in sharp price fluctuations. Prices dropped dramatically, but later rose to hover around $660.
Hard times for Bitcoin
Bitcoin is yet to shake off its image of unproven and unstable currency. Apart from the latest Silk Road fiasco, a top Russian prosecutor ruled that Bitcoin and other anonymous payment systems must be deemed illegal. Mt.Gox, one of the biggest Bitcoin exchanges in the globe, disbarred investors from pulling out Bitcoins, terming the event a technical glitch. Apple also chopped off the last Bitcoin digital wallet from the app store. These events come after a CEO of a Bitcoin exchange was arrested on charges of money laundering.
All such events had their effect: the value of Bitcoins tumbled from $900 to approximately $618 on Monday. This heart stopping drop limits its use as an excellent investment and its difficulty of use as a currency. According to Zach Harvey, the developer of a Bitcoin ATM, these kinds of fluctuations are a part of the currency’s growing pains. He admits that Bitcoin is unstable, and it will not be stable for a long period of time.
This fluctuating value is maddening for both businesses and consumers which accept the currency. The constantly altering value forces many companies to cash out every day in the local currency. Many restaurants that previously took payment in Bitcoins are rethinking their decisions.
Role of governments
Governments are in a fix about what to do with Bitcoin. The currency is hard to trace to particular users and so, lawmakers have asked for stringent regulations. The Prosecutor General of Russia said on Thursday that Bitcoin and other cryptocurrencies are substitutes for money and cannot be utilized by any legal entity or individual.