Welcome to the CoinDesk Weekly Review 8th November 2013 – a regular look at the hottest, most controversial and thought-provoking events in the world of digital currency through the eyes of skepticism and wonder. Your host … John Law.

Bitcoin's price keeps going up, and nobody knows quite why. The Chinese are still in the frame, just because, as are a string of strong stories on investment in, reliance on and general official warming to, the cryptocurrency.

And of course, there's the ever-present chance that it's a bubble about to burst. You can find all opinions available out there. Pick your favourite.

But there could be another reason, and it's rather sinister. You may have heard of a piece of malware called CryptoLocker – a nasty piece of work that, once it gains access to your computer, promptly encrypts all your documents and pictures and then issues a demand: Send money to get a key, or your files will be deleted.

That's been around for a while, but over the past week the number of reported infections has increased enormously, to the point that email disinfecting companies say it's the most prevalent malware of the moment.

John Law can confirm this, as he knows victims and has tales of hundreds more.

There are also tales of stores running out of MoneyPak prepaid cards – one of the two methods that the CryptoLocker criminals demand payment with. The other, of course, is bitcoin.

Quite a lot of bitcoin, as it happens. You get to pay two BTC if you want to recover your file within 72 hours, or 10 BTC afterwards. (The official advice from security bods is – don't pay, recover your files from your backups. You have got backups, right?)

Nobody knows how many people have been infected by CryptoLocker, nor how many have paid up. But there are millions of infected emails out there; it's a major attack – and at two BTC per hit, that's pretty good payback for the bad guys.

They're being quite careful, too, with every ransom going to a different bitcoin address, and running their main servers out of the Ukraine and on the Tor network.

Is this one of the factors driving the bitcoin price up? Well, with well over 200,000 bitcoins traded per day at the moment – a very large increase on a week ago – it's certainly feasible that a good chunk of those is panicked hostage traffic.

And Mt. Gox, which had just lost its crown as top exchange to BTC China, has roared back into the lead – as you might expect for an exchange with multiple currencies, if lots of people from around the world suddenly needed bitcoin in a hurry. Nasty.

John Law recommends you spend fifty quid on an external hard disk instead, and make some backups. It's much cheaper, and you should be doing it anyway. And for heaven's sake, don't click on any links in emails you weren't expecting. And if you can, run anything but Windows.

Are we going to see more of this sort of thing? Yes. There has been ransomware before, but it was never easy to send the money anonymously and securely.

Now it is, and every bad hacker on the planet can see how to do it. The good news is, if you have a secure computer and don't do silly things with it, you'll be safe: the bad news is, most people don't and do.

Don't be most people.

You're the boss of an organisation that makes its money by moving other people's money around; in this case, by having a system to send dosh through email.

What do you do when someone invents another system that not only does that, but does it much cheaper and more flexibly? And which you can't buy out or shut down?

You could try asking John Donahoe, who runs eBay, which owns PayPal. The Financial Times did. Answer: “We're watching it.”

Which is roughly what you'd get if you asked the CIA what they thought of the KGB: an answer that was utterly true and utterly useless, at least as far as finding out what you wanted to know. So, let's see if a bit of logic can do better.

If bitcoin is widely adopted and people get used to spending it directly with people they don't know, then why go through PayPal?

All those fees, all that hassle. If eBay refuses to allow bitcoin for auction payments, which would win? Ebay is lovely, but probably not bigger than a global currency. Worst case – could happen.

Best case – from PayPal's point of view – is if bitcoin just goes away quietly. Which isn't going to happen, but it might end up as just too weird for ordinary people. At which point, someone will have another go at digital currency and get it right. Best case, in the end, isn't going to happen.

So yeah, you bet he's watching it.

Given that bitcoin or something like it has a good chance of disrupting PayPal, what's the best option for it?

Well, PayPal isn't just a rent-collecting money transfer agent: it adds layers of consumer protection, which despite the bad press when it messes things up, it takes very seriously.

If you get ripped off on a PayPal mediated transaction, you've got a very good chance of getting squared away.

[post-quote]

People who abuse PayPal find themselves off the system. Can PayPal do that if it accepts bitcoin?

Well, possibly: depends how much it thinks the market is prepared to pay for it (you don't get to choose your PayPal charges, but bitcoin services will be a very competitive market).

How about the other ways people make money from money? There are currency transactions – PayPal already does those, and not because they make it feel warm and fuzzy. People want to do those with bitcoin.

And then there's all that other stuff that people want to do with bitcoin – merchant services, safe deposit boxes, easy to use walletry – which upstarts like Circle are very publicly going for.

There's no reason, once bitcoin is on firmer regulatory ground, that PayPal couldn't do some or all of that, and help keep lots of transaction profit in-house for its eBay masters while providing useful amounts of profits on top. It'd be a good brand to do it, too.

Which means we know now what 'watching it' means. It means having a number of strategies ready to go – sets of homegrown services, buying someone like Circle, a strong message – to keep its business and even encouraging newbies in, the moment the stars are aligned.

Goodness only knows what conversations are going on between PayPal and the banks, all of whom will also be doing something similar (if they're sane, which they may not be), because you can't just throw that switch without them on board, but that the conversations are happening? Does John Law like claret?

Watch it.

Brace yourself for a week of 'Isn't bitcoin broken?' questions from the less well-informed of your friends.

The problem is papers – first, the technical paper that claimed in a screaming heading that “Bitcoin Is Vulnerable!'. Which, because it came from a respectable pair of researchers at Cornell, was picked up by the mainstream press – such as the Daily Telegraph – who were happy to report on the paper's claims.

It turns out bitcoin isn't broken, and doesn't need fixing. Indeed, if you read down the paper a bit you'll find as much admitted.

John Law doesn't propose to go into the technical side of the arguments – basically, if more than a third of miners get together, they can get something of an advantage in mining – but will point out that it's long been known that if 50 percent of miners get together they can do much the same and, oddly, nobody has.

Something to do with not actually wanting to damage the cryptocurrency they're spending all that time and effort on, probably. Or the limited extra returns. Or the fact it doesn't actually affect bitcoin trading, just mining, and mining is pretty high-risk anyway. There are plenty of technical reasons why it's not a problem, too.

The trouble is, although there are now plenty of cogent refutations out there a couple of days after the original paper came out, you won't see 'Bitcoin safe after all, due to complex social and technical issues' in the Daily Telegraph.

Not because the writers can't hack complex stuff, but really, there's the Twitter IPO. There's the bitcoin price hike! There's Silk Road 2.0!

“Something you didn't understand about something else you didn't understand not quite what it seemed, for reasons you won't understand” is, to be fair, a hard one to get past the editor.

And so, Daily Telegraph readers who aren't up for following technical discussions online – insert cheap but accurate dig about ageing demographics here. I SAID, INSER... oh, never mind. Get your butler to explain it to you – otherwise you will carry around a vague feeling that this bitcoin thingy, well, it's a bit shaky.

There is nothing to be done about this, except to recommend a good website with all the latest cybercurrency news and, of course, a dogged commitment to following a story through.

John Law is sure you'll think of something.

John Law is an 18th century Scottish entrepreneur, financial engineer and gambler. Having reformed the French economy, invented paper currency, state banks, the Mississippi Bubble and other ideas essential to modern economics, he took three hundred years off in a small cottage outside Bude. He has returned to write for CoinDesk on the foibles of digital currency.