REFLETS MAGAZINE - Revue d'information et de réflexion économique - n°100 - 67

The thing is, no one knows
for sure yet if virtual currencies
will be inhrently volatile.
control the value, while in the case of Bitcoins, it’s all
a question of algorithms. Professor Malshe says that
this is a plus in some ways – as companies and
governments can’t flood the market and cause
inflation. But, in other ways, it leaves still-fragile
digital currencies at the mercy of volatility.
« Some had speculated that bit coins would take off
in the wake of the Cyprus crisis », he adds. « The
Bitcoin value did go up for a time, but it quickly
became volatile : because they are relatively new,
investors were very sensitive the smallest pieces
of information. »
« The thing is, no one knows for sure yet if virtual
currencies will be inherently volatile. In fact, signs
point towards a fairly robust system. While statistics
show that people still have relatively little faith in this
kind of system, this may change in the future. »
And the jury is still out on privacy
The controversy over National Security Agency
(NSA) data mining has put the subject of online
privacy back in the headlines, boosted sales of
Orwell’s 1984 (up 112 % on Amazon) and made
whistleblower Edward Snowden an overnight
celebrity. As it turns out, not only have NSA been
tracking social media and mobile activity, they’ve
most likely been tracking credit card activity. Bitcoins
offer an answer to this kind of privacy dilemma
because they are completely untraceable. However,
herein lies the debate.
The NSA surveillance program has upset a lot of
people – not least Europeans who fear data have left
American soil and been shared with the UK. But
many others – and a majority of Americans – feel
that giving up their online privacy is worth it if it
means catching a criminal and keeping society safer.
« This is a classic example of type 1 and type 2 error
trade-off », says professor Malshe. « Without surveillance, you could potentially miss information
about terrorist activity – the type 1 error – and with
surveillance, you could be using information against

N° 100 - juillet/août 2013

an innocent – the type 2 error. By picking one option,
you’re making a trade-off and accepting a certain
amount of error. And this is the very same debate
that runs rampant amongst critics and supporters of
virtual currencies. »
As professor Malshe goes onto explain, many have
criticized Bitcoin technology because of its untraceability. While it can ensure privacy, it could make virtual
currencies a target for money launderers, terrorist
and others intent on criminal activity. Also, the virtual
currency exchange where Bitcoins are traded can
be prone to cyber attacks. Just this past April, the
world’s biggest Bitcoins exchange, Mt. Gox, came
under hacking attack and closed temporarily.
« On the other hand, privacy isn’t the issue with
corporate digital currencies because they make it
easier than ever for companies to gather data on the
real purchasing behavior of their clients », he adds.
« Facebook in particular is benefiting from this information in terms of marketing because they already
know so much about their users. With middlemen,
there are almost always legal perimeters limiting
access to data. »
So are we at the cusp of a currency revolution ?
« Digital currencies probably won’t replace the dollar
any time soon, but usage does look ready to expand
», he concludes, « particularly within closed ecosystems. And if Bitcoins aren’t here in ten years, some
other virtual currency certainly will take its place. »

REPèREs / Ashwin MAlshe
Ashwin Malshe teaches marketing management in the MSc program at the ESSEC
Asia-Pacific Campus. His research interests include marketing-finance interface,
marketing strategy and social media marketing.

To read more :

http://knowledge.essec.edu
67

http://knowledge.essec.edu

REFLETS MAGAZINE - Revue d'information et de réflexion économique - n°100

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