Leading Economist Predicts Governments and Big Banks Will Attack Bitcoin

Governments and established financial institutions are likely to launch a campaign to quash the decentralized digital currency Bitcoin, according to a leading economist and academic. Simon Johnson, a professor of entrepreneurship at MIT’s Sloan School of Management, expects Bitcoin to face political pressure and aggressive lobbying from big banks because of its disruptive nature.

The system of cryptographic software behind Bitcoin represents a significant technical advance, and the currency has inspired many cyber-libertarians (see “What Bitcoin Is and Why It Matters”). Mathematical and computer networking principles are used to underpin a system through which financial transactions can be made digitally, without the need for any central authority or financial institution.

The code that supports and regulates the Bitcoin network is built into the software needed to use the currency. It works in a distributed network across the Internet to confirm transactions and prevent counterfeiting. Adding to the mystique, the technical expert or experts who developed the Bitcoin protocol are still unknown.

After several years as a nerdy curiosity, the currency has recently gained momentum as a legitimate means of payment. Many Bitcoin-based businesses are springing up, some backed by major Silicon Valley venture capitalists.

He believes they will be egged on by established financial institutions, which will likely seek to quash the currency. Bitcoin enables very rapid, cheap transfers and payments that could compete with existing fee-based ways of moving money around. “Any bankers watching this should be very afraid,” said Johnson.

Johnson, who served as chief economist for the International Monetary Fund in 2007 and 2008, said he thinks supporters of the “crypto-currency” could head off opponents by persuading politicians and legislators that it represents an opportunity for international innovation.

He also said that some governments outside the U.S. may feel threatened by Bitcoin because it allows citizens and companies to sidestep restrictions on the movement of funds across their borders.

SOURCE – MIT Technology Review

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