BITCOIN has long had a reputation as the currency of choice for criminals - but it is becoming increasingly more accepted by the financial industry in the UK, according to a Scottish expert.
Digital strategy consultant Dug Campbell, who organised the first Scottish Bitcoin Conference held last year, said the reputation of digital currency as being associated with illegal activities - because transactions can be carried out anonymously on the web - had preceded it in the "early days".
But he said: “I think we are in a very different place now, if you look at what is happening within the financial industry and the type of banks and financial institutions that are getting involved in bitcoin.
“There is really quite a significant shift and something we have seen particularly over the past six months very publicly.”
Earlier this year the Bank of England said it was looking into the possibilities of electronic currencies and predicted it could transform the way people in the UK pay for goods and services – with the resulting shake-up as big as the internet revolution.
And the UK government announced that it would invest £10million in research looking at bitcoin and other digital currencies in the Budget unveiled in March.
Campbell added: “It is like every single new technology where the early stages are fraught with idealists and also critics that say this can’t work - we saw it with PCs and we saw it with the internet.”
However the association with crime is difficult to shake off. Yesterday (SAT) it emerged Japanese police had arrested the head of failed company MtGox, which was once the world’s biggest exchange of bitcoin. Mark Karpeles is being held in connection with the disappearance of bitcoins worth nearly £250million last year.
The virtual currency – which is currently worth around £178 for one bitcoin - has also featured in two high profile court cases last week.
It was used by Liverpool man Mohammed Ammer Ali to attempt to purchase a “Breaking Bad” style delivery of 500mg of the poison ricin from an online black market– enough to kill 1,400 people.
And teenager Liam Lyburd, who was convicted of planning a mass murder at his former college in Newcastle last week, also used bitcoin to buy weapons from the internet.
In both these cases, they used black market websites which were successors to the notorious Silk Road website - which was known as the 'eBay of drugs' by users. It was shut down by the FBI in October 2013 and its US founder Ross Ulbricht life sentenced to life.
Professor Garrick Hileman, economic historian at the London School of Economics, said the Silk Road case showed the “huge advantage” of bitcoin for law enforcement – because every single transaction is recorded.
He said: “If you can catch the criminal and there is a whole record of all the transactions on the laptop – then you really have a very strong case, much stronger if you would than if someone was using cash and there were no records."
While fears have been raised that bitcoin could be used to fund terrorism, Hileman said there had not yet been a notable case of this kind.
“I think cash is still king when it comes to major crime – bitcoin is still relatively small and it is hard to imagine significant volumes of opium or illicit oil being moved through bitcoin," he said.
But he added: “Even after the fall of Silk Road, other leading online black markets are still accepting bitcoin.
“It is the most easily tradable digital currency in existence today, so it is still the preferred means of payment for online drug purchases etc.”
Hileman said other criminal scenarios involving bitcoin included hackers stealing digital currency by accessing the ‘wallets’ in which they are held or even holding people’s computers to ransom by installing malware and asking for bitcoin to be paid for it to be removed.
He said: “There is still a pretty significant crime element associated with bitcoin.”
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