It was not so long ago that we were warned of the risk of dealing in the digital currency of Bitcoin. Many dealers recently lost their “money” after being targeted by internet hackers, since there is no physical presence of this currency, which is issued and traded only online.
The losses were not limited to individuals alone, but also included banks trading in bitcoins. The Canadian Bank of Flexcoin collapsed after computer hackers stole 896 bitcoins worth $600,000 (Dh2.2 million). Japan’s Mt. Gox, the world’s largest bitcoin exchange, announced its bankruptcy after the loss of $63.7 million in bitcoins through hacking.
There are still some who trade in bitcoins, while the value of the total units of this digital currency is now about $7 billion. These people are encouraged by the skyrocketing rise in the value of this currency, which recently reached $660 per bitcoin. Its value increases several times in a short period of time, attracting quick profit-seekers and those who want to get rich quick despite the inherent risk they could also lose all of their savings.
Although trading in the electronic currency has not become a phenomenon in the region, there are attempts to penetrate local markets, where many individuals would not mind taking high risks even if it means they could conceivably lose a portion of their wealth. A search for quick profit is always the fuel for such decisions, or it could be the thrill that accompanies a high-risk gambit that could end up with huge losses, similar to what happened in Canada and Japan.
At a time when many countries have taken practical measures to stop trading in Bitcoin, or curbing it at least, central banks and telecom companies in the region have yet to determine their stand or take any protective measures to avoid potential downsides that may impact dealers in this fake currency.
Regarding central banks and financial institutions, it is necessary for them to set practical steps, alert dealers and investors about the risks and follow those who deal in this currency, particularly individuals and foreign institutions trying to exploit the availability of funds in countries in the region.
Telecom companies that provide internet services have to block bitcoin trading sites in order to protect dealers and investors, as Canada did after it was hit by fraudulent scams. This is simply because most dealers and investors trading in bitcoins are not fully aware of the details of this type of monetary and financial transactions, driven by major temptations while ignoring the potential danger.
Trading in bitcoins looks like the doings of certain fund and asset management companies who descended on the region in the 1970s and 1980s, and thousands of investors lost their savings after they believed they would give them high profits. They then found out that these were just bogus profits after the owners of such entities, mostly set up under a religious façade, fled to their home countries along with depositors’ money.
Time repeats itself, but in different ways and on a global scale, with the use of modern technology and keeping abreast of the era of globalisation and the internet, and through international networks in which money laundering inter-relates with drug-trafficking and trade in the black market.
If it was possible to monitor and hold responsible asset management companies in the last century — when many of those involved in the scams were tried and brought to justice but unfortunately without recovering investor funds — today’s fake trading and manipulations are away from accountability.
This is because of the “ghost” management of these operations, as evidenced from the bankruptcy of companies and banks in Canada and Japan.
Swift action to protect local markets and investors is required, and can be done through the measures mentioned, to fill in the gaps and protect markets and investors from exploitation and hackers.
This is necessary, especially after fraud has become a phenomenon associating monetary and financial transactions, and despite security precautions taken by banks and financial institutions to protect clients.
By Mohammad Al Asoomi
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