Cryptocurrencies opening fraud gates - Fraud Magazine REPORT

Do we trust a currency designed to eliminate trust?
There are differences among e-currencies, such as e-gold and virtual currencies (linden dollar), and cryptocurrencies such as Bitcoin, Litecoin, Peercoin and Namecoin, among many others.

Generally, e-currencies are allegedly supported by precious metals or other valuable materials. Virtual currencies have value to those who want to use them in virtual worlds such as Second Life. (This shouldn’t be confused with "massively multiplayer online role-playing games," which also have currencies.)

The most widely known cryptocurrency is Bitcoin. However, there are many others. One site, coinmarketcap.com, lists 100 at press time.

Bitcoin ("Bitcoin" is capitalized, "bitcoins" isn’t) allows many computers to keep track of all transactions, which are verified using mathematical mechanisms. It’s known as a peer-to-peer system because individuals transact with each other without individual owners, such as financial institutions, supervising the transaction. (It’s a bit like Hawala banking — an informal value transfer system — but with one person and a computer.)

No trust — or trusted third party such as a bank — is required because all the transactions are known to all the users (but not the identities of the parties to the transactions).

"Satoshi Nakamoto," who wrote the original Bitcoin proposal, "Bitcoin: A Peer-to-Peer Electronic Cash System," stated that society needed an "electronic payment system based on cryptographic proof instead of trust." However, as always, even though cryptographic proof may be secure, sound trust in currency ultimately determines its success or failure.

(Many believe that Nakamoto was a pseudonym for a group of computer scientists; after he published his proposal he mysteriously disappeared. However, a March Newsweek article raised the possibility that Nakamoto is a very real recluse living in Temple City, Calif. See "The Face Behind Bitcoin," by Leah McGrath Goodman, Newsweek, March 6, 2014. The person profiled in the article has said that he isn’t the founder of Bitcoin.)