Last week the Mt. Gox bitcoin exchange filed for bankruptcy after 850,000 bitcoins, worth about $460 million, were apparently stolen by hackers. The Tokyo-based exchange issued a public apology, but the incident has fueled calls for regulators to crack down on bitcoin.
It has been speculated that bitcoin will soon become the world’s go-to financial system; it provides a high-tech, low-cost, untraceable way to buy and sell in a worldwide market.
But the massive Mt. Gox loss could throw a wrench in bitcoin’s future by prompting regulation. Mark Williams, a former Federal Reserve official, said, “What’s fascinating and disturbing about the [Mt. Gox] bankruptcy is the size of the loss. There’s no legal recourse. There’s no financial system. . . . In essence, if a criminal gets the coin, the criminal owns the coin.”
Experts say that potential government regulation is the biggest threat to bitcoin — and several politicians have already proposed legislation to control the currency. Senator Joe Manchin III (D-W. Va.) even called for a total ban on bitcoin following the Mt. Gox incident.
Some enthusiasts, however, think that the Mt. Gox debacle will help bitcoin by making it stronger and more durable.
Barry Silbert, chief executive of SecondMarket, an investment fund for bitcoins, said, “The sooner that Mt. Gox goes away, the better for Bitcoin. If you look at the short history of Bitcoin, there’s been a series of bubbles and busts, there’s been a series of disruptions, there have been hacks, there have been thefts. And really, after every single event, Bitcoin has emerged stronger.”
Still, there are several roadblocks preventing bitcoin from becoming insanely popular. For one, the “coins” are relatively difficult for the average person to buy and trade, especially compared with credit cards or other payment systems like PayPal. Additionally, transfers are irreversible — while this is seen as an advantage to many, it also makes returns for unsatisfied customers nearly impossible on online marketplaces.
But perhaps the biggest threat to bitcoin? A new, more popular and easy-to-use online currency.
Ryan Lackey, a computer security expert from San Francisco said, “The thing that will kill Bitcoin is a better virtual currency, or hundreds of other better virtual currencies.”