Does collapse of MtGox spell the end for Bitcoin?
MtGox, the world's largest Bitcoin exchange, went offline Tuesday amid reports that it lost track of 740,000 of customers' bitcoins. As risks of the digital currency become more apparent, other Bitcoin operators try to reassure investors.
Mt. Gox, once the world's biggest Bitcoin exchange, went dark Feb. 25, 2014, with its website down, its Tokyo office empty, and a cryptic comment from its chief executive that the business is at 'a turning point.' Some Bitcoin enthusiasts have recommended coins and paper vouchers, often called 'paper wallets' (shown here), as a way to store bitcoins offline.
Jim Urquhart/Reuters/File
MtGox, once the world’s largest Bitcoin exchange, has gone dark amid reports that the exchange lost track of 740,000 bitcoins, dealing a major blow to the validity of the cryptocurrency.
The MtGox.com url was returning a blank page Tuesday morning, and now offers only the following message:
“In the event of recent news reports and the potential repercussions on MtGox's operations and the market, a decision was taken to close all transactions for the time being in order to protect the site and our users. We will be closely monitoring the situation and will react accordingly.”
According to a purported internal “crisis strategy” document that has been widely circulated online, hackers siphoned bitcoins from the exchange over the course of several years. MtGox acknowledged “unusual activity” earlier this month and responded by freezing withdrawals indefinitely and by implementing new security procedures. That unusual activity, it seems, amounted to the theft of 6 percent of all bitcoins in circulation.
According to the “crisis strategy” document, which has not been authenticated, the shutdown of the website is part of a planned strategy and is temporary. The plan calls for a month-long shutdown, followed by a rebranding and relaunch of the exchange under the new name Gox. The document also states that customer support will remain active for existing customers wishing to access their account histories.
So far, the company has not released an official statement reporting the theft. However, MtGox CEO Mark Karpeles resigned from the board of the Bitcoin Foundation on Sunday, raising concerns among bitcoin holders.
Bitcoin advocates, including the billionaire twins Cameron and Tyler Winklevoss, have long touted the currency’s cryptography as a shield for theft or counterfeiting. However, security experts have cautioned that any digital financial system is only as secure as the platforms that manage it. The revelation that the world’s largest Bitcoin exchange has been hemorrhaging bitcoins for years lends those warnings additional credence.
Still, some bitcoin holders, including those who have lost money, maintain that the apparent security breach of MtGox should be viewed as a blow to exchanges rather than to the currency itself.
Bitcoin trader Kolin Burgess has $320,000 tied up in bitcoins and doubts that he will ever see that money again, but he refuses to give up on Bitcoin.
“I may have lost all of my money,” said Mr. Burgess, while picketing alongside a handful of protesters at MtGox’s Tokyo headquarters, according to The Associated Press. “It hasn’t shaken my trust in Bitcoin, but it has shaken my trust in bitcoin exchanges.”
The long-term success of the currency hinges on the ability to establish some form of consistent and secure infrastructure that makes it possible to exchange bitcoins for dollars, yen, or any other physical currency.
Other exchanges are waiting in the wings to fill the void left by MtGox’s apparent implosion.
“This tragic violation of the trust of users of MtGox was the result of one company’s actions and does not reflect the resilience or value of bitcoin and the digital currency industry,” reads a joint statement issued by executives at six other Bitcoin operators. “In order to re-establish the trust squandered by the failings of MtGox, responsible bitcoin exchanges are working together and are committed to the future of bitcoin and the security of all customer funds.”
Whether investors will be interested in pursuing bitcoin after this major failing remains to be seen. While the price of bitcoins dipped after the MtGox shutdown, it has floated slightly upward throughout Tuesday morning. However, Tuesday’s high (as of 11 a.m. EST) of $545.19 is a far cry from previous highs above $1,000.
Bitcoin has traveled a rocky road since its inception in 2009, but the past six months have been particularly bumpy. In October, Bitcoin made headlines when it was revealed to be the preferred currency used for illegal transactions on the online black marketplace known as Silk Road. Despite concerns that lack of government regulation could render the digital currency a tool for illegal trade, the price of a single bitcoin soared to $1,200.
In December, the currency's value nosedived after China’s central bank refused to acknowledge Bitcoin, plummeting to $800. Two weeks later, the announcement that China’s largest bitcoin exchange had frozen all yuan deposits sparked a selloff that drove the price down further, to $455. The price had rebounded to $800 by early February.
Material from The Associated Press was used in this report.