Bitcoins

Reporter: Helen Wellings

Customer's smartphones are cashed up with virtual money -- Bitcoin digital currency. Enthusiasts predict it is set to revolutionise the way we buy and sell.

But when money launderers, arms dealers, ATM hackers and illegal drug traffickers like Silk Road use Bitcoin's on-line anonymity, just how big are the risks? Detective Superintendent Brian Hay of Fraud and Cybercrime Group, State Crime Command, Queensland Police Service says: "You may make yourself an increased target in the cyber environment if you are a Bitcoin user".

He says go in with your eyes open -- and plenty do. "We are going from strength to strength, we've got a couple of hundred members now and Bitcoin is really taking off in Australia", said IT specialist, Jason Williams.

Jason aims to drive the Bitcom economy in Australia. "There are lots of investors in the US and not so many in Australia but the US are pouring money into Bitcoin related businesses", Jason said.

Jason meets weekly with this user's group to do Bitcoin trading via the virtual wallets, in their smartphones. But where do Bitcoins come from? With paper money, a government decides when to print and distribute money. Bitcoin doesn't have a central government.

"Bitcoins are transferred from person to person without going through a bank or clearing house".

In 2009 an anonymous person or group developed crypto-currency, a whole new electronic payment system, called Bitcoin. 21 million virtual Bitcoins were created but to become active, they have to be unearthed or "mined" by computers that can crack increasingly complex algorithms.

"Miners use special software to solve math problems and are issued with a certain number of Bitcoins in exchange".

Adan Malinowski is a miner. "You use specialised hardware to generate the Bitcoins. I can get a small reward being paid to me in Bitcoin", Adan said.

"This provides a smart way to issue the currency and also creates an incentive for more people to mine".

Most users simply buy Bitcoins on internet exchanges, or convert real dollars into Bitcoins and store them in a digital wallet -- today there almost 12 million in circulation, worth around $1.6 billion. Nakamoto set the number of coins in existence to halve every four years until 2140 when they will stop at 21 million coins, never to be produced again.

"It's not a bad invention, it's progress. We've always got to keep up with progress", said Garry Pasfield.

Sydney's famous Old Fitzroy Hotel at Wooloomooloo was the first business in Australia to adopt Bitcoin payment. Owner Garry Pasfield says it brings the young ones in. "We scan it with our smartphones and we take the bitcoins", he said.

Garry's customers pay 0.05 Bitcoins for a beer, equivalent to $7. All you need is a mobile app or computer program that gives you a Bitcoin wallet to trade with Bitcoin. "A Bitcoin transaction is exactly the same as an EFTPOS transaction; it has a terminal where we produce the sale, we get evidence of that sale, that sale transacts into cash into our bank the next day", Garry said.

The Australian Tax Office told us the normal tax rules apply to Bitcoin but its anonymity provides a perfect mask for tax dodges and illegal trading.

Hundreds of Bitcoin traders have had their accounts hacked, in one case a user had 25,000 Bitcoins swiped -- almost half a million dollars worth. In the United States, there's concern about Bitcoins being allowed as presidential campaign donations.

Bitcoin currency is also very volatile -- determined by market demand. Over two months this year the value fluctuated between 15% and 204%, a 189% variation, when the price of gold varied just 7%. Silk Road's FBI drug bust last week immediately sliced about 25% off the value.

"Bitcoin has already been compromised. It is going to be compromised again. It is all about the cyber environment and as we know the cyber environment can never be guaranteed to be 100% secure at all times", Det. Super Hay said.

"The benefits would outweigh the downside, there's not a lot of hacking that goes on. There is a little bit but the usefulness of Bitcoin is going to grow and the security will grow on that too", Jason said.