With all of the press they’ve been getting lately, there’s a good chance you’ve heard of bitcoins, a form of online currency introduced in 2009. Considering how easy it is to digitally transfer money with bitcoins (almost zero processing fees and you don’t need to change your IP address), a number of institutions have recently considered using them. While most banks initially mocked or dismissed bitcoins when they first appeared, financial professionals have been seeing their merits more and more. A New York firm known as SecondMarket has recently been drafting plans for major banks to begin using the currency. In New York and California, you can even buy bitcoins from a physical vending machine.
However, the demise of Mt. Gox, the largest bitcoin trading place, raises questions owns about the future of bitcoins. Mt. Gox revealed that 744,000 of its bitcoins were taken in a malleability-related theft, and no one noticed for years. According to the New York Times, this theft accounts for about 6% of all bitcoins in circulation. The fact that such a large amount of money was stolen and went unnoticed for so long definitely raises questions about the security of bitcoins. Mt. Gox is now of businesses, and some early supporters of bitcoins question whether investing in the currency is feasible. Here are a few details regarding the bitcoin theft.
Mt. Gox Collapses, Some Investors Lose Faith
The bitcoin theft is not the only problem Mt. Gox has encountered. Mt. Gox had been the largest bitcoin trading place since 2010, but it has had its fair share of technological and privacy problems, many of which have caused the bitcoin value to go down. In the past several weeks, the company has seemed to be on the verge of collapse. Initially, Mt. Gox announced that it had discovered a flaw in the bitcoin code and could not allow users to withdraw funds. Similar companies were impacted by the problem, but they were up and running again soon. Mt. Gox did not reopen, and a few weeks later its Twitter was dismantled. Then, the website went down.
Perhaps unsurprisingly, many Bitcoin supporters are rather shaken by the demise of Mt. Gox. Those who had bitcoins on Mt. Gox are unable to retrieve their funds, and some of them had the equivalent of hundreds of thousands of dollars invested. These investors will probably need some dental work for all the distressed teeth-grinding their doing over the misplaced funds, but who can blame them?
According to Reuters, Mt. Gox had about $32.75 million available when it shut down, but it owed $174 million in liabilities. Now, with the site vanishing from the Internet, investors are looking for answers. Fearing that similar problems will occur elsewhere in the bitcoin world, some investors on other sites are cashing in their bitcoins for good. They worry their money could be there one day and vanish the next.
A Volatile Market
One problem with bitcoins is that their value can change very quickly, which is part of the reason investors may worry their funds will disappear overnight. Even before the collapse of Mt. Gox, Bitcoins were classified as a high-risk investment. In February, the value of the Mt. Gox Bitcoin plummeted from $828.99 to $135. Other exchanges also took a hit — for example, United Kingdom-based Bitstamp saw its shares dive 40% percent, though it has since recovered some of the wealth.
Can Companies Restore Faith?
Bitcoin Foundation, a nonprofit that supports digital currencies, is working to repair the damage done by the Mt. Gox scandal. The CEO of Mt. Gox, Mark Karpeles, has resigned from his chair on the board, and the foundation is doing its best to repair trust among investors. The six other bitcoin exchanges are distancing themselves from Mt. Gox and are emphasizing that the company’s actions do not speak for bitcoin as a whole. Venture capitalists are also voicing support for the bitcoin industry.
In the long run the Mt. Gox incident may even benefit bitcoin. The exchange’s collapse has helped bring to light the necessity of oversight in bitcoin trade, and more regulatory agencies will need to get on board for the bitcoin to bounce back. Over time, his could help make bitcoin sales safer and more transparent.