August 2014

bit coins in focus image

Bitcoin: Values have fluctuated wildly this year.

What is a cryptocurrency?

A cryptocurrency is a digital medium of exchange that uses encrypted software to operate a market for transactions. That market is overseen by those using the network, based on rules coded in to algorithms. It’s a transparent, peer-to-peer operation, similar to the file-sharing protocol BitTorrent which is widely used for the illegal sharing of movies, TV shows and music.

How are cryptocurrencies propagated?

Crytocurrencies are created, or mined, based on a mathematical formula. In the mining process, computers are tasked to solve complex mathematical problems and rewarded with virtual coinage. Over time, the equations become progressively more difficult to solve, slowing down the supply of new cryptocurrency units.

Can anyone become a miner?

Theoretically it is possible to start mining at home. But as the mathematical challenge becomes harder, more computational grunt is required. For this reason, miners often pool resources to buy access to supercomputers or server farms (networked arrays of smaller computers).

How many cryptocurrencies are there?

The market for such payment instruments is dominated by bitcoin, but there are scores of other currencies including litecoin, dogecoin, megacoin and there is even a sexcoin.

What are they worth?

Values fluctuate based on supply and demand (and market sentiment). At the time of writing, one bitcoin is worth $US490. But the price topped $US1000 in early December. On the other hand, one litecoin is worth just $US4.30.

How do you buy and sell it?

A transaction is similar to a direct transfer between bank accounts. Algorithmic verification ensures that the same unit of currency can’t be owned by more than one person at the same time. In most cryptocurrencies, accounts known as wallets are stored either on hard drives or remotely in the cloud. Every transaction is recorded in a ledger called the blockchain that is accessible by every currency owner.

What can you buy with it?

Because of its widespread adoption, bitcoin is the most liquid of the alternative currencies and can be readily exchanged into US dollars. In additon to being used to pay for goods and services on a person-to-person level, a number of larger enterprises have begun accepting bitcoin as payment.

Is it safe?

The infrastructure around cryptocurrency markets is vulnerable and has attracted the attention of thieves, hackers and fraudsters.

Henry Sapiecha

Rotariu uses the first bitcoin ATM in downtown Bucharest

The interest in bitcoin in Romania stands out in a region where national currencies are widely seen as poor substitutes for the euro.

Tech-savvy and still deeply distrustful of officialdom 25 years after the end of communism, many Romanians are unfazed by warnings about the cryptocurrency.

In the western town of Oradea, 370 miles (595 km) away from the capital, the first bitcoin exchange in the country has drawn more than 2,000 clients in the seven months since it opened, with transactions totaling 5.12 million lei ($1.57 million).

But Romania ranks as the European Union’s second-poorest state and among the weakest in collecting taxes and fighting fraud, making it poorly equipped to manage the bitcoin.

Bitcoin is still an infant in Europe relative to the United States, where hundreds of start-ups backed by some Wall Street traders and venture capitalists have propelled consumer and media interest. Activity in virtual currencies around Europe is concentrated in London, Amsterdam and Berlin.

Romanian entrepreneurs envision a future where the bitcoin is as common as grocery shopping. But they say it needs a legal framework to gain credibility.

“It is an industry in its early stages,” said George Rotariu, who opened the ATM in Bucharest in collaboration with Vancouver-based Bitcoiniacs and plans to expand to more Romanian cities. “You need a legislative framework to supply services or have a business in this field,” he said.

“We groped around in the legislation and interpreted some policies,” said Horea Vuscan, a local politician who owns the Oradea bitcoin operator BTCXchange.

“We are now in talks with officials because I don’t know where we fit in, a bourse, bank, money transfer firm.”

Bitcoin is stored entirely on computers, not backed by any government or central bank. It lets owners hold, trade and move money from place to place almost as cheaply as sending email.


Its use has raised concerns for governments around the world, especially after Tokyo-based Mt Gox, once the world’s leading bitcoin exchange, filed for bankruptcy after saying some 850,000 bitcoins had gone missing.

A report by Bank of America last year found bitcoin showed promise as a low-cost way to do e-commerce and as an alternative to traditional money transfer services, but could also be used to evade high taxes, capital controls and confiscation.

In July, the European Banking Authority, the EU’s banking watchdog, urged national policymakers to discourage credit and payment institutions from buying, holding, or selling virtual currencies pending a regulatory framework.

“Using bitcoin in Romania is not regulated and carries very large risks,” said the Romanian Financial Supervision Authority (ASF). “The risk of fraud is also not to be ruled out.”

It said the industry “would need to have a visible economic significance in Romania, which it does not”, before regulation is considered, adding it would enforce any EU-approved rules.

Some EU states, including Finland, the United Kingdom, Germany or Poland have found ways to tax bitcoin transactions.

But Romania collects just under 60 percent of its regular tax goal. That amounts to roughly 33 percent of economic output, well below the bloc’s 46 percent average.

“There is some preoccupation with bitcoin,” one finance ministry official said. “But a legal framework is some time away and only after that will we analyze the need for a fiscal one.”



The number of Romanian service providers accepting bitcoins – which are divisible to eight decimal places – has risen slowly to a handful of coffeeshops, gyms, restaurants and beauty salons, according to service tracker

“I want to bring bitcoin to street level, I want everyone to have a phone app where they keep their coins and use it everywhere, in coffee shops, restaurants, grocery shops, just like a regular wallet,” BTCXchange owner Vuscan said.

But before it can gain greater traction, bitcoin needs to address its volatility; it has swung from 1,170 lei ($370) to 3,406 lei ($1,100) this year, according to Oradea’s BTCXchange.

Vuscan’s exchange works only for Romanian leu deals, but he plans to open it to euro and dollar transactions, hoping to join larger European bitcoin exchanges such as Slovenia’s Bitstamp.

BTCXchange is registered as a standard company. Vuscan enforced some safeguards – users are required to have a bank account and there are self-imposed policies against money laundering. But there are no legal or regulatory safeguards.

Bitcoin’s rise in Romania is partially due to its status as one of Europe’s active technology hubs. The country has attracted investors including Oracle, IBM and Intel.

But while Romania boasts pockets of super-fast internet networks, only 58 percent of households have internet access, below the EU average. A 2012 Verizon report also said Romania was the world’s second-biggest hacking center after China.

Vuscan says his exchange is safe and he will reimburse clients if their bitcoins get stolen. “I can hardly wait for them to try,” he said when asked about hacker attacks.

($1 = 3.2626 Romanian lei)

Henry Sapiecha