About a year and a half ago I made my first Bitcoin (the controversial digital currency) transaction and several weeks ago another one. People have asked me, "Why?" My answer was simple, "To see what it was all about."
In the last several months, I have been following the outcome of the Bitcoin ETF Backers Winklevoss Twins, who were made famous by suing Facebook founder, Mark Zuckerberg, for $140 million, claiming he stole their idea to create the popular social networking site. The Winklevoss Twins have taken strong positions and investment in Bitcoin. In July, they filed with the SEC to create the Winklevoss Bitcoin Trust (A Hedge Fund), a proposed ETF-like exchange for the digital, non-state affiliated money that will be regulated so they can seek investors.
With Bitcoin, you can move a few bucks, to millions to any company or person in the World with a few keystokes. However, as expected, Bitcoin started to get more national attention with its controversy.
- Last week the FBI arrested alleged Silk Road owner Ross William Ulbricht, 29, known as "Dread Pirate Roberts," in San Francisco. Silk Road allowed tech-savvy sellers to post ads for drugs and other illegal products, which they sold for Bitcoins and shipped to customers through the mail, according to the federal criminal charges filed against Ulbricht. According to the FBI Silk Road generated sales of $9.5 million bitcoins roughly equivalent to $1.2 billion. They seized $3.6 million worth of bitcoins.
- In Birmingham, U.K, a escort/brothel, VIP Passion had always boasted the typical assortment of partners-for-hire, but now they’re offering something no rival, or indeed any other brothel on earth; sex for bitcoins. The world's oldest profession goes to bed (pun intended) with the world's youngest currency.
What Is and Why the Excitement of Bitcoin?
In a world of government/nations currencies, Bitcoin is an admirable innovation. It revolutionized the current monetary framework into a single digitized system and it has skyrocketed in trading. It was created out of less than thin air when cybergeeks who saw it as a natural progression of the modern web specified the creation and distribution of the new cybercurrency in a paper posted on the Internet in 2008. The virtual currency was then launched into operation in 2009.
Bitcoin, therefore was born as the world’s first decentralized, peer-to-peer exchanged, open source "crypto-currency" and called, the currency of the internet. With said, it is beginning to turn heads and it's already being accepted by a variety of legal websites like gaming, music, electronics and more. Regardless of how they are used, one thing’s certain: Bitcoins have certainly got a lot of nerdy people talking and has surged in value and popularity recently as it has come to be embraced by more and more users every day.
There is no Peso, Dollar, Yen, Euro, pound sterling, or colon so there is no need to convert dollars into colones, colones into dollars etc.. It allows one to move money through any border without the conversions rate and fees. As everyone knows, these fees can be very high especially when using a credit card.
Why the Controversy?
The crypto-currency has become the preferred payment method for much of the online underground, demonstrated by none other than Silk Road as the key to making his illicit business possible and very profitable. Others say Bitcoin has the capacity to topple governments because there is no one government, or even 100 governments, can ‘shut down’ Bitcoin or establish uniform regulations.
The reason, Bitcoin records, or the “block chain,” resides on thousands of servers around the world. Every ten minutes, the whole system updates records of recent transactions making it the ideal system to launder money, drug deals, hiding massive amounts of cash, doing any type of overseas business transaction whether legal or not.
In my usage a year and a half ago I bought a bunch of banner ads for a client in Costa Rica to be shown in Europe. The reason, Paypal and other Trustee accounts frown on such oversea transaction because of the US Patriot Act. Years ago Paypal got a lot of bad press because it was arbitrary seizing money from accounts when “it thought it” was going for illegal means. Bitcoin users avoids those risks.
Bitcoin gained widespread notoriety in 2011 when Sen. Charles E. Schumer (D-N.Y.) singled it out, Bitcoin could potentially be used by terrorists and criminals.
How Does It Work?
To participate legitimately, sites like Bitcoin.org, all it takes is to become a user, download the Bitcoin software and create a digital wallet.
After you set up your digital wallet, you can create any number of addresses, long alphanumeric strings that serve as your monetary identity, like a credit card number or a username on an online marketplace. You don't know who is connected to whom, which allows for anonymity, but you can identify the same number if it's used repeatedly.
What Has it Got to Do with Costa Rica?
Costa Rica can boast four major reasons why Bitcoin is perfect for this small Central America country. It has the capabilities of becoming the first poster child of Bitcoin and become as natural and popular as eating Gallo Pinto.
1) Over 15% of the people that visit Costa Rica come because of sex tourism. Since prostitution is legal in Costa Rica it is a natural for places like the Hotel Del Rey in San Jose and Cocal Hotel and Casino in Jaco to use the cyber currency as a way of guaranteeing their customers discretion, just as VIP Passion demonstrated very clearly in the UK.
2) It’s no secret Costa Rica has become the hub of drug trafficking. According to sources, it is already used to buy and sell drugs and launder money up and down the Western hemisphere, from Colombia and Peru, to Costa Rica, to Mexico to the US and Canada, and to Europe. It is a lot easier to move cyber money than pallets of hundred dollar bills. Drug cartels have found Costa Rica to be a prime spot for washing and stashing illicit cash.
According to a January 2011 report by Global Financial Integrity, a nonprofit research and advocacy group in Washington, D.C, an annual $4.47 billion slipped through this country via tax evasion, crime and corruption on average between 2000 and 2008. A lot of that money gets filtered down into the economical mainstream of the country and bitcoin fits in perfect to make it even more.
3) Gambling and Bitcoin go together like peanut butter and jelly sandwiches. Like prostitution, gambling is legal in Costa Rica. Just-Dice.com, a European-based cybercasino, was founded in June 2013 by an anonymous developer known as dooglus. In only its first month of operation, 429,600 bitcoins ($38 million back then) were wagered on the site. Since online gambling is illegal in the US, it makes Costa Rica a haven for gambling transactions coming from the US.
One of Costa Rica largest gambling house Bodog was shut down in Costa Rica a few years back, and now operates outside of Montreal, Quebec, Antigua and in London. They now use the bitcoin system to transfer payments.
In just one weekend of furious gambling at Just-Dice.com a single Internet high roller took home close 11,000 bitcoins or about $1.3 million. Since Bitcoin is unregulated with no cash or transaction records, the taxman has a hard time getting their cut. Just-Dice boasts several major features that have made it very popular: The website is highly functional, the gambling is simple and quick, the casino only has a slim 1 percent edge, and the whole system is “provably fair,” meaning because transparent algorithms power the betting. All one has to do is set up an account in Bitcoins and gamble away. So it is easy to see how the online casinos in Costa Rica could capitalize on this, providing they keep it legit and not get greedy.
EDITOR NOTE: Costa Rica does not employ a body which oversees the online gambling operations in business there. As a result, there is no regulatory authority, neither is there any third party for players to turn to, should they encounter a problem with one of the casinos based there. See Article on Costa Rica Star.
4) Lastly, Costa Rica tourism is the third-largest source of income. In 2011, about $2.5 billion entered the country from tourism and it also earns a large amount of foreign exchange from it. With said, it does create monetary problems particular in the exchange of colones to whatever system you want; there are problems with credit and debit card usages and huge finance charges and fees which can be as much as 15%.
With a Bitcoin mobile application, like Bitcoin Wallet, you always have your Bitcoins with you, You can send and receive payments simply by scanning a QR-code or by touching two phones or mobile devices together (NFC) and/or entering your accounts address on someone’s application. Bitcoin Wallet and many others are designed to be easy to use and reliable, while also being secure and fast, thus making it ideal for any tourist targeted business who does not want to get clipped with fees and make transactions as fast as a swipe of a credit card.
See the current exchange rate on Bitcoin to Colon
Editors Warning: There's no guarantee bitcoins will continue to exist in the future or maintain their value. At present the bitcoin "legal economy" is largely a bunch of hobbyists who find it interesting and enjoy the novelty of it all. There are also some speculators that are holding large quantities of bitcoins, hoping to profit if bitcoins catch on (and appreciate in value). This "economy" will need to grow to the point where enough merchants accept bitcoins to allow them to serve their intended purpose (as a medium of exchange), and until that time it still remains a gamble. Also one has to be computer savvy and understand Foreign Currency Strategy if they want to trade in Bitcoins. It’s not for the beginner. There is also a restriction of no more than 21 million can be mined so there will never be more than that in circulation.
Bitcoin is designed to behave like Gold. As a result Bitcoin suffers from the same problems as Gold: it is deflationary and expensive. There is never enough of it for at least for now. Bitcoins can be divided in ever smaller denominations, so 'physically' there will never be a shortage, but it means Bitcoin is designed to appreciate forever and this is the definition of deflation.