Why Bitcoin Needs Banks

On a mission to convince the world that Bitcoin is enduring and serious, enthusiasts convened at a place that symbolizes the ephemeral and the glitzy: Las Vegas. At the Inside Bitcoins conference on Dec. 10 and 11—sponsored by BubbleCoin, BitDeliver, CoinComply, and other companies—the top issue for many attendees was how to persuade regulators that the digital money and payment system is a valuable financial market innovation, rather than the currency of choice for illicit gambling and drug purchases. Banks shun Bitcoin companies “because it’s scary,” says Jered Kenna, founder of Tradehill, a Bitcoin exchange that shut down this summer after its bank closed its account. “If the banks aren’t sure, they default to ‘no.’ ”

Introduced in 2008 by a person or group using the name Satoshi Nakamoto, Bitcoin is the most prominent of a group of virtual currencies—money that exists mainly as computer code—that have no central issuing authority. Bitcoins are stored in electronic wallets, which are identified only by a string of letters and numbers, and can be traded on online exchanges and converted to cash. They are created by computers that solve difficult cryptographic problems. As more coins are created, the problems get tougher. The system is designed to produce no more than 21 million Bitcoins. About 12 million exist.