Despite this supreme blow to the industry and its users, Bitcoin is not dead. It’s not even dying. But it is licking its wounds. And the question now is, when the bandages finally come off, will average people still want to look at Bitcoin?
Bitcoin is not dead. It’s not even dying. But it is licking its wounds.
How Mt. Gox lost these Bitcoins remains a matter of debate. An apparently authentic document leaked by Bitcoin entrepreneur Ryan Selkis (aka “Two Bit Idiot”) entitled “Crisis Strategy Draft” says the Bitcoins were stolen over a period of “several years.” (If that’s true, the heist of Mt. Gox would rank as one of the largest bank robberies in history.) Others speculate that Karpeles simply lost access to the private encryption keys to the digital wallets, or that the keys were stored in a bank vault that was seized by the U.S. government in 2013 after authorities found that the company was operating without properly registering with federal and state authorities.
By most counts, the impact of Mt. Gox’s supreme failure could come in two forms: The first is a hellfire of government regulation, which already includes a call for an outright ban on the cryptocurrency in the U.S. – something Federal Reserve Chair Janet Yellen correctly says is essentially impossible thanks to Bitcoin’s decentralized nature. (No one bank, country, or other entity controls Bitcoin.) That said, the European Union and China have already imposed greater limitations on Bitcoin – and a further twisting of the knife could send the digital currency into a tailspin.
The second possible impact is much more promising, if risky for average investors: The Bitcoin industry, which is currently subject to relatively limited regulation in the U.S., U.K. and much of the world, will simply sort itself out. Indeed, many see the purging of Mt. Gox from the Bitcoin ecosystem as the push the industry needed to mature, and reestablish the trust of current and potential Bitcoin users.
“’That which does not kill us makes us stronger’ very much applies to Bitcoin, and the downfall of a single (though large) Bitcoin business is not enough to ‘kill’ Bitcoin,” writes Tom Robinson, a well-known software engineer and Bitcoin expert. “This type of event has happened before. We learn a tough lesson and carry on, strengthening the weakest links as we go.”
A number of companies have already begun to embody the second generation of Bitcoin business. Many would count Coinbase, Kraken, and Circle among the “good” Bitcoin businesses. And it is no accident that these companies, along with BTC China, Bitstamp, and Blockchain.info, were the first in the industry to formally respond to the collapse of Mt. Gox.
“This tragic violation of the trust of users of Mt. Gox was the result of one company’s actions and does not reflect the resilience or value of Bitcoin and the digital currency industry,” the companies wrote in a joint statement. “There are hundreds of trustworthy and responsible companies involved in Bitcoin. These companies will continue to build the future of money by making Bitcoin more secure and easy to use for consumers and merchants.”
You could read that statement as simple damage control – but it also reveals that these companies know exactly what the Bitcoin industry needs if it is to survive: Trust, security, and greater transparency.
“‘That which does not kill us makes us stronger’ very much applies to Bitcoin.”
Another promising player is a soon-to-launch new exchange created by Barry Silbert, founder and CEO of SecondMarket. Unlike the current breed of Bitcoin exchanges, which allow anyone to buy and sell Bitcoin, Silbert’s yet-unnamed new exchange would only deal with authorized members, which he says would be subject to a great of scrutiny.