The recent collapse of the world’s largest Bitcoin exchange MtGox has been a tremendous loss for the Bitcoin community. The company acknowledged the losses of approximately 744,000 BTC, worth several hundreds of millions of dollars and approximately 6% of all the Bitcoins currently in existence. If stolen, the theft amounts to the second biggest financial theft in history, second only to the Bernie Madoff investment scandal.
This unfortunate development seems to be the biggest in a string of Bitcoin exchange issues. Less than a year ago, European exchange Bitcoin-24 had its trading accounts frozen, causing many people (including myself) to lose access to their investments. It seems that despite the utility of Bitcoin, it will continue to prove prudent to eschew 3rd parties from holding one’s coins until mature technologies emerge, capable of rebuilding the lost confidence of the Bitcoin community.
The exact circumstances of MtGox’s implosion are currently unknown. What is known is that the US have issued MtGox with a subpoena, requesting them to retain certain documents to be inspected, and that Japanese financial regulators are investigating the company. Due to the explosion of the value of Bitcoin in the past 3 years, it could well be the case that MtGox was unable to conform to increasingly demanding legal requirements governing the finance industry. It does not seem unlikely that MtGox, in storing significant quantities of other people’s wealth, was subject to various obligations in safeguarding it – if found to be negligent in this respect, it could be foreseeable that members of the company could face prison. In any case, any legal proceedings could set interesting precedents impacting the future of Bitcoin.
The dent in the public’s perception of Bitcoin will take some time to recover from, but it’s possible that this will not hinder its growth if people continue their adoption of it. It seems to me from reading the comments on news reports concerning Bitcoin that people are already dismissive of the currency (and regularly nonsensically so). A poll on the Telegraph indicates that approximately half of its readers consider the MtGox fiasco the “final nail in the coffin” for Bitcoin – though a naïve view,1 it is nevertheless demonstrative of the public’s continued scepticism.
Still, Bitcoin continues onward. Nature abhors a vacuum, and it’s only a matter of time before another exchange will emerge to replace the transaction volumes previously supported by MtGox. To any person anticipating this development, it seems a more opportune time than ever to invest in the currency, buying in at the affected price before higher volumes of trading resume and restore it. After all, there is money to be made, and someone will surely step up to take it.
I say this because MtGox’s collapse is its own failing, and not one that has anything to do with the security of Bitcoin itself. With or without MtGox, Bitcoin continues to prove useful to people, and for this reason will almost certainly persist. ↩