22 October 2014

MT Gox goes up in smoke. Is this the end for bitcoin?

25 February 2014  |  5185 views  |  5 Bitcoin

Bitcoin prices have cratered again after troubled Japanese exchange operator MT Gox suspended trading amid reports that it has allegedly lost almost $350 million to a year-long cyber-theft and is technically insolvent.

A crisis strategy draft for MT Gox, leaked on the Web, reveals large amounts of bitcoin have gone missing from the exchange.

"At this point 744,408 BTC are missing due to malleability-related theft which went unnoticed for several years. The cold storage has been wiped out due to a leak in the hot wallet," the document posted by bitcoin blogger Ryan Galt reads. "The reality is that Mt. Gox can go bankrupt at any moment, and certainly deserves to as a company."

Once the world's largest bitcoin exchange, MT Gox went offline within hours of suspending trading, as the scale of the losses rocked investors in the crypto-currency. As panic spread, Bitcoin prices hit a low of $419 before stabilising.

The leaked document paints a bleak future for the Bitcoin ecosystem: "With Bitcoin/crypto just recently gaining acceptance in the public eye, the likely damage in public perception to this class of technology could put it back 5-10 years, and cause governments to react swiftly and harshly. At the risk of appearing hyperbolic, this could be the end of Bitcoin, at least for most of the public."

Comments: (5)

Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 25 February, 2014, 10:36

"The cold storage has been wiped out due to a leak in the hot wallet". LOL. He may be a Bitcoin blogger but, going by his exhibition of humor to describe this pilferage, I can wager my last dollar - er, Bitcoin - that Mr. Ryan Galt doesn't own any Bitcoin.

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A Finextra member | 25 February, 2014, 12:16

Well, not any more, no.

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A Finextra member | 26 February, 2014, 03:29

1 - Bitcoin now 560$ - less volatility in recent days than we saw 6 months ago.  The BitBashers would have like to have seen a much bigger crash.  But it seems the community still sees value in Bitcoin.

2 - Users were crazy to deposit Bitcoin with MtGox, thus requiring trust.  The whole point of Bitcoin is that it is trustless and therfore requires no access control and is open to all.  Please keep your Bitcoin in your own secure wallet or hosted with a reputable service like blockchain.info or coinbase.

3 - If gmail closed would email be dead ?  No because gmail is a service and email is a protocol.  MtGox was a service and Bitcoin is a protocol.  These days there are many ways of converting between fiat and cryptos.  Weeding out the poorly managed services is actually a good thing in the longer term.

Appropriate governance obviously required, but that will ultimately need to be supra-national otherwise we end up with a rats nest of regulatory arbitrage.

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A Finextra member | 27 February, 2014, 01:09

Wow - part of my post was tweeted by @kkoolook:

#MtGox=Service #Bitcoin=Protocol. If Gmail closed would email be dead? No because Gmail is a service & email is a protocol. via @henry_young

and has since been retweened by over 200 people.  I should attribute that part of my comment to @aantonop who is one of the key evangelists within the Bitcoin community.  He also retweeted it himself.

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A Finextra member | 27 February, 2014, 01:25

http://www.youtube.com/watch?v=6phynr2fdVU

 

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