Bolivia, where bitcoin users risk arrest

Authorities in Bolivia are trawling social networks and websites for people promoting the purchase of virtual currencies after banning the practice in the country.

Financial system regulator ASFI says, by law, virtual currencies cannot be used or circulated, and it maintains a blacklist containing bitcoin, namecoin and devcoin, among others.

Authorities arrested 60 people at a virtual currency investment workshop in Santa Cruz department recently.

ASFI head Lenny Valdivia said investment schemes in the area of virtual currencies have the attributes of pyramid scams and that Bolivians risk losing their savings if they invest, state news agency ABI reported.

"Here at ASFI we're also using our technological risk supervisors, we're conducting searches of all pages on the social networks to detect these types of web pages," Valdivia was quoted as saying. She added that ASFI, in collaboration with law enforcement authorities, will take action against those found to be breaking the law.

In many other countries the most well-known crypto-currency, bitcoin, is legal. In Japan it is even accepted as an official payment method.

However, according to one industry specialist, bitcoin (the crypto-currency), at least, is not a pyramid scheme.

"Bitcoin is an unusually risky investment – if you treat it as an investment," Holland-based bitcoin journalist Aaron van Wirdum told BNamericas by email.

He added: "Given that there is limited supply as well as [non-speculative] demand, bitcoin should have a market price. Whether that's 1 cent per bitcoin, or US$1mn per bitcoin, this already makes bitcoin categorically different from a pyramid scheme. A pyramid scheme adds no value, and only moves money from late adopters to early adopters.

"How much a bitcoin is 'actually' worth is very hard/impossible to tell. The market has been going through rough periods of price discovery over the years, with much volatility. And who knows, maybe something better will come along or bitcoin fails for some reason ... but that doesn't make it a pyramid scheme."

Bitcoin was trading above the US$2,200 mark on Monday afternoon. The crypto-currency is used for payments for online activities such as gaming, for cross-border transfers – and for investment.

Van Wirdum added bitcoin provides "real-world" utility and that officials in Bolivia may struggle to stop citizens using virtual currencies.

"As long as people can run the software on their own computers or phones, they can use it. And even if there is no option to buy or sell them online, people can trade virtual currencies in person," he said.

In Venezuela, the government has cracked down on bitcoin mining, where computers produce bitcoins by creating complex algorithms. The hardware employed uses a lot of electricity - which is heavily subsidized in Venezuela - and state authorities have accused miners of electricity theft.

In Mexico, central bank governor Agustín Carstens has suggested the development of rules on crypto-currencies like bitcoin should be handled with particular care. The central bank has already begun using bitcoins in small amounts on an experimental basis.