The malware attacks across Europe and the United States could have one more long-term victim: bitcoin and its fellow "crypto-currencies." The malware attackers have demanded ransom paid in bitcoin, which makes possible the anonymous transfer of large sums of money across international borders. If law enforcement authorities crack down on this form of anonymous electronic payment, bitcoin and its fellow cryptocurrencies will likely slump in value or disappear.
Bitcoin and similar cryptocurrencies are a curiosity to most economists, as they offer few of the traditional benefits of money. They are a poor store of value; bitcoin has risen or fallen in value relative to the dollar by as much as 12 percent in one day. Bitcoin quadrupled in value relative to the dollar during one four-month stretch this year.
Cryptocurrency enthusiasts tend to welcome these rises in relative value, but that is the wrong way to think about money, which is supposed to facilitate orderly and predictable transactions. Would you like to have mortgage payments denominated in a currency that quadrupled in value in four months?
Bitcoin, the most well known of the cryptocurrencies, is not a commonly accepted unit of account. The malware attackers demanded payment in in bitcoin, but the ransom request was denominated in dollars ($300). No one posts prices in bitcoin, not even the extortionists asking for payment in them.
Bitcoin does have value for people in countries where the banks are undependable, the local currency is plagued by inflation and the government has made it difficult to move money in or out of the country, such as Venezuela. And cryptocurrencies can lower the cost of moving money internationally for groups like workers sending remittances back to their home country.
For most of us, however, cryptocurrencies do not improve dramatically on a credit card or a wire transfer – unless one would like to move a large sum of money without leaving any paper trail. Bitcoin makes possible the equivalent of shipping suitcases of cash around the world electronically, making it perfect money for drug traffickers, arms merchants, terrorists, kidnappers – and the perpetrators of malware.
Authorities are likely to go after such nefarious characters by making it harder for them to get paid. Last year, Indian Prime Minister Narendra Modi banned the 500 and 1,000 rupee notes (replacing them with new currency) as a means of fighting tax evasion and black market activities. The European Central Bank has recently stopped producing the 500 euro note after a report concluded that it was used primarily for illegal activities. There has been talk in the U.S. of phasing out the $100 for the same reason. Most of us would manage just fine without $100 bills – unless we are in a business that requires moving large quantities of cash in briefcases, which is exactly the point.
Regulators might reasonably take the fight to computer criminals by making it harder to collect ransom. Governments may demand that large bitcoin transactions be registered publicly, as with large cash transactions. They may curtail the anonymity associated with cryptocurrency accounts, as has happened with Swiss bank accounts. Or they may find other ways to make it harder to do the equivalent of shipping cash to bad actors.
Even a modest dent in the cryptocurrency appeal could send the value of such money spiraling downward. Like all modern money, bitcoin and its crypto-peers have no intrinsic value.
Money is an article of trust: I accept $100 because I know just about everyone else in the world will, too. The same is true of bitcoin. When money becomes less attractive to anyone, it becomes less attractive to everyone.
For my book "Naked Money," former Federal Reserve Chairman Ben Bernanke told me, "It's hard to become a globally useful currency if regulators keep cracking down on it, which they will do if they see it primarily as a vehicle for illicit activities." Unlike with the dollar or the euro, no central bank has vowed to protect the value of bitcoin or any other cryptocurrency, which, to cryptocurrency enthusiasts, is exactly the point; this is money beyond the reach of government, just like gold only more convenient. Any government regulation of such money would draw howls of protest from libertarian-leaning supporters. But if cryptocurrencies are becoming a handy tool for nefarious international actors, it would be naive to believe that law enforcement will leave them alone.
It is one thing to build a cabin deep in the woods with the expectation that the government will leave you alone. It is another to expect that kind of anonymity when international criminals are routinely hiding on your property.
Cryptocurrency enthusiasts should be wary of the future. Of course, the nature of money is such that the time to worry about its future value is in the present.