SPECIAL REPORT UPDATE: Digital Dollars - Tucson News Now

SPECIAL REPORT UPDATE: Digital Dollars

TUCSON, AZ (Tucson News Now) -

Taking money online can be a game-changer in the world of bank transactions and interest fees.

"A lot of people see Bitcoin as a way to kick out the role of a central bank and basically fire it," said Bitcoin enthusiast Mike Caldwell via Skype from Utah.  He said that converting cash to Bitcoins, an online currency, is convenient.

"I don't have any philosophical problems with the government, I pay my taxes like I should, I'm a good citizen, I follow the laws," he said.

Here's how it works:

Bitcoins were created in 2009.  As the number of them goes up, the virtual money gets harder and harder to create, which is a way to try to control the value.  Bitcoins are mined by using a free software application, and the number of Bitcoins is limited to about 21 million.  Currently, 7.6 million are in circulation.  The last Bitcoins are estimated to be generated around the year 2140.

Early this year you could buy a Bitcoin for less than a buck, and sell it for 30 this summer.  Or, by now, one Bitcoin is worth just a few dollars.  But Caldwell said the real value is for sending cash in the form of Bitcoins.

"It's not a way to make money or lose money.  It's a way to get money from point A to point B.  The value of the coin really means nothing compared to the technology," he explained.

"Not only do you want to be careful about using Bitcoin, you want to be careful with entities that are asking you to use Bitcoin as their currency because there's generally, there's a possibility they're trying to hide something," said Ken Colburn, CEO of Data Doctors.  He showed an online exchange where one Bitcoin was worth just more than three dollars.

"Most people that are using this system want to stay anonymous.  So you're not going to see a lot of people screaming, 'Yes, I'm trading in this.'  And that's what the exchange allows people to do is trade anonymously. And that's why government entities are watching is to see if this is where illegal activity is taking place," he said.

According to Reuters, in June Senators Charles Schumer of New York and Joe Manchin of West Virginia requested U.S. Attorney General Eric Holder and DEA head Michele Leonhart to shut down the Silk Road website after a blog on Gawker reported that Bitcoins could be used on Silk Road to buy illegal drugs.  The concerns raised questions of how law enforcement can investigate the use of Bitcoins since the currency and its transactions do not appear to be attached to their users.  One possibility is through Bitcoin exchanges where they are bought and sold. Bitcoin developers contacted KOLD News 13 after this original report broadcast to say that managers of the most active Bitcoin exchanges have responded to the senators and the DEA that they are not averse to cooperating with authorities who are investigating illegal activity.  An online video illustrates how Bitcoin works.

While Bitcoin users might be hard to find, the currency works at some online sites for buying items that range from video games to books.  But using Bitcoins in the real world is another story.

"I don't see Wal Mart taking Bitcoin any time soon," Colburn said.

"Someone has to have a compelling reason to want to use Bitcoins over credit cards or cash to say go to the grocery store," Caldwell said.

Caldwell defended Bitcoin and said that the possibility of illegal activity should not keep legitimate users away from it.  Both he and Colburn said that Bitcoin will be sticking around, just not as a way to buy a latte.

"As a consumer, there's very little reason to go with an exchange of that sort unless you're completely fed up with what's going on in a traditional sense," Colburn said.

"Bad things happen with cash every day, and that certainly has nothing to do with the so-called decline of the dollar," Caldwell said.

In Tucson, the Secret Service said that it does not have any incidents that involve Bitcoin.  Neither does the DEA.  Tucson Police are not specifically investigating any aspect of Bitcoin; however, they consider the currency to have the same possibility for illegal activity as online, value-added cards.  Such types of transactions were brought to their attention by the Department of Homeland Security.

This year, Bitcoin users have seen the value of the currency dip dramatically after the theft of millions of dollars in Bitcoins.  Users are urged to secure their digital wallets against malware that seeks to steal the currency.

"The more popular it becomes, the more of a target it becomes for hackers as well," Colburn said.  "The very popularity is going to make it that much more dangerous.  So, I don't see this as ever becoming a mainstream currency at all."

Caldwell said that because Bitcoins are code, they can be printed and kept securely on paper.  He said that people who leave Bitcoins on their computers leave themselves open to hackers.

"I think Bitcoin's great, I can say that, and I say if you want to keep your Bitcoin safe, find a way to get a safe paper wallet that's the way to keep them safe from hackers," Caldwell said.  "That's, to me, the number one answer to security.  And, when people realize they can keep them safe, they just have to take a couple precautions, I think that might dispel a lot of people's fears about using it."

 Copyright 2011 KOLD. All rights reserved.

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