Oct 17, 2013

How has the shutdown of Silk Road affected the viability of Bitcoins?

Did the government’s shutdown of Silk Road and seizure of Bitcoins have a major impact on the viability of Bitcoin as an alternative currency? News reports indicated that the number of Bitcoins seized account for about 5% of all Bitcoins in existence. This would have a huge impact on traditional currencies. Are Bitcoins still viable as an alternative currency?

Bitcoin: I’m Not Dead Yet!

"Silk Road was one of the most critical support beams for Bitcoin. In March 7,000 of 10,000 items on Silk Road were drugs. After the news, the value of a bitcoin plummeted from $145 to under $110. And the claims of the currency’s demise reignited.

But the currency has stood strong, and jumped back to more than $130 the day after Ulbricht’s arrest. As of today, it’s back at about $140. The market’s resilience bolstered an optimistic, underdog outlook about the news, which viewed the arrest as a necessary step toward legitimacy. After all, Silk Road’s reputation for illegal activity—from drugs to guns—made it an easy target for Bitcoin critics. (Silk Road’s seizure will not be the last, either: The success of both Bitcoin and Silk Road has already inspired competitors.)

So what about our economist’s warning about trouble with governments? Simon Johnson, a professor of entrepreneurship at MIT’s Sloan School of Management, expects “big political backlash.” The seemingly inevitable collision stems from the novelty of a currency over which no government has tight control."
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