Silk Road drug bust could lift value of bitcoins

Byron Acohido | USA TODAY

WASHINGTON – The price of the bitcoin digital currency has rebounded, following a drop on Wednesday in response to the FBI's take down of the Silk Road narcotics-for-sale website.

Here's a fascinating twist: the demise of Silk Road could actually elevate the bitcoin's steadily ascending stature as a globally-accepted currency every bit as legit as government-guaranteed greenbacks.

That was the buzz among tech security, financial and law enforcement experts who assembled in the nation's capitol for the annual VISA Security Summit.

"It may well be that the demise of the Silk Road will help remove a bit of tarnish from Bitcoin's public image," observes investigative reporter Brian Krebs, author of krebsonsecurity.com.

According to Reuters, the value of one bitcoin slipped as low as $110, but rebounded to $129, following the court appearance in San Francisco of Ross Ulbricht, 29, allegedly known as "Dread Pirate Roberts" or "DPR," Silk Road's alleged creator and operator.

Prior to news breaking about Ulbricht's arrest, a bitcoin was worth $140.

Bitcoins were launched in early 2009 in response to the collapse of the U.S and global economy. It's creator is a brilliant, mysterious programmer known only by the pseudonym Satoshi Nakamoto.

Nakamoto sought to create a global currency free of ties to any precious metals or .government guarantees. He devised a currency tied to a predictable, rare asset: high-end mathematical computations.

Nakamoto issued the first bitcoin with a value of less than a penny. Approximately every 10 minutes, more coins would be issued through a lottery-like process to anyone who could solve a complex math problem. His idea was to release a finite number of bitcoins over a 20 year time span.

The concept caught fire. A group of followers dedicated powerful computers to compete in the lottery and legitimate online exchanges arose where bitcoins now can be reliably exchanged for U.S. dollars, euros and other currencies.

Bitcoins have become a main form of currency among online gamers looking to purchase weapons and special powers. And bitcoins have gained a small, but steadily growing following of merchants; you can buy pizza with bitcoins, for instance. But you cannot yet use bitcoins on Amazon.

Bitcoins have also come into play as a safe haven for financiers dabbling in the fluctuating currencies of third world nations.

Last March, the U.S. Treasury issued guidance indicating that the same money-laundering rules that make it illegal to use money orders to transfer ill-gotten profits applies to virtual currencies.

But one of bitcoins' big attractions is that it is both legal and free from traditional forms of banking fees and manipulations by politicians and banking officials, says Mercedes Turnstall, an attorney who specializes in consumer financial services at Ballard Spahr.

Supporters of virtual currency seek a payment method separated from the vagaries of the established financial services sector. Consider what's going to happen to the value of the U.S. dollar if Congress fails to raise the nation's debt limit later this month.

"What they are trying to do is make an online equivalent to paper currency that can be run anonymously," Turnstall says. "The point is to have freedom of currency, and not have many of the traditional obligations that come into play."

Exchanged anonymously across the Internet, bitcoins are perfect for anonymous criminal transactions. But the same is true of hundred dollar bills hand-delivered in a valise.

"The US has a long tradition of currency battles dating back to the Civil War and states issuing their own currencies," says Turnstall. "We've had the gold, silver and mixed currency standards, but most of that died down in the 1880s … for 130 years we haven't thought about currency."

But with a bitcoin's value, relative to the dollar, steadily gaining traction -- and Congress in apoplexy -- you may consider the currency discussion revived.