The failure earlier this year of Tokyo-based bitcoin exchange Mt. Gox may have stirred Japanese doubts about the credibility of the digital currency.
But despite its demise, many people worldwide view bitcoin technology as a world-changing innovation. Among them is Takafumi Horie, 42, former president of Internet firm Livedoor Co.
There have been many digital currencies and monetary services, including Suica, Rakuten Edy and Internet banking, but they are basically centralized and managed by certain companies or organizations.
Bitcoin, however, is not run by a company or the government, and participants can ensure, by monitoring, that transactions involving the currency are legitimate, Horie said.
In an interview with The Japan Times last month, Horie said it is impossible to predict whether bitcoin will become a mainstream currency because “(Bitcoin) is like an enemy to nations.”
Its global spread could undermine the authority of nations to issue currency, so “(nations) would probably attempt to eliminate that system,” he said.
Some nations have already taken precautions. China banned banks from handling bitcoin transactions and Russia announced in February that it was illegal to use bitcoin in the country.
But it is also true that bitcoin has the potential to reduce the role governments play in our lives, Horie said, noting that it eradicate government monitoring of online transactions, including contract information and voting records.
Horie discusses bitcoin innovations in the recently published book “No Need for Nations Anymore” (“Mou Kokka wa Iranai”), in which he talks to journalist Soichiro Tahara about the need for smaller government.
Bitcoin is a crypto-currency operated via peer-to-peer networks that are also used to run services like Skype and users’ computers are directly connected to each other instead of to a main server.
People merely create an account with a bitcoin wallet service, which gives them a bitcoin address — a combination of letters and numbers.
One advantage of bitcoin is that small amounts can be sent to other people worldwide at anytime almost free of charge.
When bitcoin debuted in 2009, it had no monetary value. Now that it has spread, 1 bitcoin currently trades worldwide for around $360. The rate peaked at about $1,200 in November 2013.
The individual technologies used to run bitcoin systems are not new, but the way they are combined makes the currency innovative, Horie said.
Bitcoin security includes the use of cryptography, including public and private keys and digital signatures like those used to conduct online shopping.
Once a user creates a bitcoin wallet, it comes with a pair of public and private keys that also are a combination of letters and numbers. The bitcoin address itself is a hashed public key that users publicly share with others so they can send bitcoins to the designated address. The private key is needed to actually send bitcoins with a digital signature that proves the ownership of the sender to prevent identity theft.
The private key must be kept secure. If other users know it, they can send bitcoins from that account, or digital theft.
Another core technology is the block chain, which is a public ledger that records every bitcoin transaction from the beginning. The block chain is maintained by bitcoin users known as “miners” who boast enormous computing power. Miners check whether people are trying to alter the records of the block chain. Since they receive bitcoins as a reward for keeping the ledger accurate, their maintenance efforts have been dubbed “mining.”
People seeking to alter block chain data would need more computing power than the miners possess, thus they would be better served by earning bitcoins as miners than by trying to hack into the ledger.
If someone succeeded in hacking the system, it could jeopardize the credibility and value of all bitcoins, including those of the perpetrator.
The combination of bitcoin technologies has created a digital currency system that works without the need for central authority, offering great worldwide potential, Horie said.
The global interest is evident in the statistics. According to CoinDesk, a digital currency news provider, the total number of bitcoin wallets in September rose to 6.55 million from 1.3 million in the same month of the previous year.
It also says the investment of bitcoin-related venture capital is expected to leap to $290 million in 2014 from $91.8 million in 2013.
But it will probably be difficult for bitcoin use to spread in economies whose main currency has strong credibility, such as Japan. In nations where citizens mistrust their currency, bitcoin may be warmly embraced, he said.
“I heard that bitcoins have rivaled the main currencies in parts of the world that have faced currency crisis, like Cyprus and Argentina,” said Horie, who is also an adviser to Osaka-based Tech Bureau Inc., which created the Zaif bitcoin wallet service.
Horie emphasized that the bitcoin phenomenon is not just a digital currency trend. Its innovative technology, a combination of the block chain and public and private keys, requires no central authority.
“People are sending currency information called bitcoin (on that system), but it doesn’t have to be currency information,” he said. It could be real estate contract data, IOUs or equity returns, Horie said, noting the data could even include election ballots whose records are kept in a block chain open to public scrutiny.
Bitcoin aside, Horie also discusses in his book about the need for a smaller government and about privatizing most of the functions of the state.
Horie spent 21 months behind bars until last March after being convicted of falsifying Livedoor’s financial results for the business year to September 2004. Since his release, he has been actively involved with many businesses.
For instance, Horie has been involved with creating a social networking service app for smartphones called 755 and the Antenna news magazine curation app.
SNS Inc., which Horie founded, hopes to develop a pioneering, low-cost satellite rocket system
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