Professor Sedunov offers the following initial thoughts:
Bitcoin is becoming more and more widely accepted in businesses around the United States. As of this month, even Dell is accepting Bitcoins (joining overstock.com, Expedia, and Dish Network, among others). To wit, we should be more concerned about the safety and soundness of Bitcoin as a currency as we go forward. To me, the Coinabul situation is somewhat of a “Caveat Emptor,” or buyer beware situation. The scenario of a company intentionally defrauding its customers isn’t unique to any kind of a currency, even a cryptocurrency. We can come up with all kinds of examples that fit this type of crime. However, the problem at the heart of this situation is the issue of security for Bitcoin. While Bitcoin’s lack of a central regulator or its extreme volatility might create issues for its acceptance as a currency, the problem here is actually one of the things that many people point to as being one of the currency’s benefits – anonymity. To be clear, this problem isn’t about Bitcoin exchanges or wallets being hacked, but rather about alleged fraud on the part of Coinabul. Since Bitcoin transactions are anonymous and irreversible, there may be problems tracing transactions back to those who transferred funds to Coinabul. Moreover, there was no way for any user who sent funds to Coinabul to withdraw their transfer (like you’d do with a credit card chargeback, for example). Because of its decentralized nature (i.e. there’s no central company like Visa or MasterCard who will process all of the Bitcoin transactions and keep a register of them all for you), users are in many ways out on their own.
So, the next question is whether third-party applications will pop-up to enhance the experience and prevent problems related to the Coinabul debacle (and other Bitcoin debacles). I think the answer is yes. We can just look back to the recent events at Dell for the answer. Dell partnered with Coinbase, which is a third-party company that converts bitcoins in to dollars. Coinbase was a start-up company not long ago, which popped up to take care of problems facing corporations who want to accept Bitcoin. We can almost think of Coinbase as an equivalent to paypal, but for bitcoins. Coinbase allows merchants to deal with one of the biggest issues surrounding Bitcoin – warehousing. The volatility of Bitcoin made it difficult for a company to accept it because there would typically be a waiting time surrounding a transaction. Between receiving Bitcoins and converting them to US Dollars, the price may fluctuate in an extreme way, thus causing the retailer to lose a significant part of the price of the goods they sold. With the advent of third-party services like Coinbase, this is no longer a problem, and Bitcoins can be instantaneously converted in to cash at a current exchange rate. More applications like this are sure to follow as Bitcoin’s popularity and acceptance grow.
I believe the major roadblocks on the path to Bitcoin’s widespread acceptance are its still-high volatility, and its lack of a central “banker” to keep the currency propped up in the event of deflation or financial crisis.
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