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A Grim Future for Bitcoin in Costa Rica

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BitcoinBitcoin, a controversial digital currency that is being widely adopted in many parts of the world, is not likely to make too much of a splash in Costa Rica. This is a sad fact of reality since the peer-to-peer nature of Bitcoin will probably appeal to many Ticos who do not trust in their Central Bank’s ability to balance the value of the national currency against inflation and pressure from other currencies such as the United States dollar (USD).

Although Bitcoin itself is a matter of complex digital cryptology, the use of this currency is greatly simplified by the use of online applications and service providers. Ticos are far from being Luddites; they enjoy technology, and in this regard Costa Rica would actually welcome an alternative to the colon and the USD. The problem with Bitcoin in Costa Rica and its potential spread is that the currency is getting a bad reputation at the time.

Pressure from the United States

The abrupt takedown of Liberty Reserve, a money transmitter business that used its own digital currency, does not bode well for Bitcoin in Costa Rica. Liberty Reserve, which once had its headquarters in the Forum II corporate park in Lindora -not far from Wal-Mart, has been labeled as a PayPal for crooks by U.S. authorities. The U.S. Attorney in Manhattan alleges that Liberty Reserve was a global money laundering system that got away with legitimizing $6 billion in ill-gotten gains over the last few years.

The U.S. Attorney claims that the most wretched criminals made use of Liberty Reserve, including drug peddlers, Ponzi scammers, credit card thieves, child pornographers, hackers, and other assorted scoria. These unpleasant characters allegedly enjoyed the anonymous comfort that the LR digital currency provided in order to ply their wicked trade. This is a problem for Bitcoin, since apparent anonymity is at the heart of the so-called “crytpo-currency.”

Total anonymity is a misconception of Bitcoin. In fact, one of the security features of Bitcoin is that it is fully traceable, which means that investigators can actually follow a transaction and find out the parties involved by looking up permanent online records. In the wake of the Liberty Reserve bust, a Forbes contributor wondered if Bitcoin was in the sights of U.S. authorities as well. The Drug Enforcement Agency (DEA) is also clamping down.

Liberty Reserve is not the only business accused of money laundering by the U.S. The Department of State recently published a damning report that declares the online gambling industry in Costa Rica is also to blame for laundering millions of dollars each year. This statement is probably ominous for an American citizen such as Josh Strike and his online casino Strike Sapphire, which operates in Bitcoin and it is based right here in Costa Rica. According to Bloomberg BusinessWeek, Mr. Strike blocks his own countrymen from playing at Strike Sapphire; he does not want them to get in trouble since online gambling is illegal in the U.S.

Zombie Mining Networks

Computer users in Costa Rica could be helping unscrupulous Bitcoin miners to get rich at their expense without even being aware of it. The complexity of Bitcoin’s digital structure rewards computer operators who put their processing power and resources to work towards strengthening the security of block chains, the digital transaction strings that tell the history of all Bitcoins since their inception. High-tech fraudsters have already figured out a way to minimize their contributions to the Bitcoin network by letting others do the mining work for them.

Recent reports by computer security experts have uncovered the international spread of malware designed to allow a zombie Bitcoin mining network to use up resources of infected computers. This Trojan horse-style of attack, which originates with a Skype diversion, has infected many computers across the world -particularly in Costa Rica. Such news reports will only contribute to apprehension among Ticos towards the use of Bitcoin.

Glimmers of Hope

It is unfortunate that a promising technology such as Bitcoin might not spread in Costa Rica due to external pressures such as the ones listed above. There are, however, a couple of positive signs worth mentioning:

  • Smart Ticos such as software engineer David Alfaro are willing to develop Bitcoin solutions in Costa Rica. To get an idea of the technology-friendly philosophy that Mr. Alfaro subscribes to, read this excerpt from his About Page:

¨Bitcoin represents a financial system that only works only if it is executed in a total free market. As a laissez-faire capitalist, I belong to the Austrian School, and by extension I am a supporter of the Gold Standard. That’s why I am so in love with Bitcoin – it is a platform that enables human development, wealth and well-being.¨

  • Despite interference from the U.S. and malware, Bitcoin use is slowly growing in Costa Rica. A quick search on LocalBitcoins.com reveals that five Bitcoin users located in Costa Rica were ready to acquire or sell currency online on a recent Sunday afternoon. Two others were prepared to negotiate Bitcoin in person and in cash, up to $5,000, in San Jose and San Pedro. As of the publishing of this article the Bitcoin currency exchange rate fluctuated around $72
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