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Can Bitcoin Survive?

By Edited Mar 14, 2014 2 6

With the recent shattering news of the theft of 744,408 BTC (Bitcoins) from the Mt Gox Exchange having hit the news recently, what is the future of the poster child of cryptocurrency and self-touted future of money?

Bitcoin Currency

Bitcoin Currency
Credit: Photo by Zach Copley

What Happened?

For those of you that are unfamiliar with what has transpired at Mt Gox, I will go through the details. Mt Gox is one of the exchanges that allow investors to convert national currency such as the US$ into BTC. Where the problem has occurred is that someone has corrupted the IT system of the exchange and has been slowly steeling the Bitcoins by taking small amount with each transaction. The main problem that is facing Mt Gox is that this has been happening for seven years and was only now found out. This has led to Mt Gox facing bankruptcy and the investors that used their services are likely to lose all of their money. With total liabilities equalling US$55 million, plus 744,408 BTC that was stolen and has to be repayed customers it does not look good. When you combine this with the fact that they only have US$32 million and 2,000 BTC to repay these debts, Mt Gox has no choice but to declare bankruptcy

How Where The Bitcoins Stolen?

A talented thief has been able to find a whole in the systems of the exchange and has been sifining off the currency slow little by little, similar to what we have seen in early days of electronic banking for national currencies. One of the systems that has been put into place by the creators of Bitcoin is the recording and verification of the transfer of BTC. It appears that not only has the Mt Gox’s systems failed but the Bitcoin processing system has failed to recognise the fact that the coins that where stolen where not legitimately acquired. 

Currency Exchange

Exchange
Credit: Photo by epSos .de

What Is The Future For Mt Gox?’

The CEO of Mt Gox has announced his resignation and will soon be replaced. The company’s board of directors are determined to ensure the survival of the exchange and are actively working to resolve the issue and relaunch the business under the name of Gox, like a Pheonix out of the ashes of what could possibly be the down fall of the this fledgling currency. As part of the relaunching of the business the exchange will be on hold for one month after which it will allow restricted trading. It hopes that it can trade its way out of the debt that it has accumulated.

What Is The Future Of Bitcoin?

With Bitcoin taking a hit after the news dropping to around US$400 per BTC from around US$580 it took an initial hit. With prices returning to around US$580 does this mean that Bitcoin still has a future? I am not so sure, as there are still a lot of people that have money invested into equipment to mine more BTC and they are still requiring to sell the currency generated to make a profit. I am not as optimistic, as I believe that this incident is just the start of some real pain to come for those heavily invested into Bitcoins. Only time will tell but I believe that we may see some more announcements coming in the not too distant future. Stay Tuned!

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Comments

Mar 4, 2014 2:20pm
chinweike
I have always been sceptical about the fundamentals and intrinsic value bitcoin from the very beginning, lets still keep our fingers crossed and see what becomes of bitcoin. Thanks for this provoking article.
Mar 4, 2014 3:22pm
jny986
Thanks for the feedback chinweike
I have an article that I will be writing very soon on what I think will be the future of Bitcoin. I think a lot of people are still skeptical but are starting to accept it as a genuine currency. I think this is dangerous as I believe that there is a fundamental flaw in the design of all of the cryptocurrency including Bitcoin
Mar 13, 2014 11:27am
javrsmith
Bitcoin will survive this. The Mt. Gox theft was related to security holes at the company, not Bitcoin.
Mar 14, 2014 10:53pm
jny986
Thanks for the comment
I understand that but Bitcoin has to accept some of the responsibility as the process of mining is supposed to check the validity of the transaction. What is to stop people from hacking into peoples computers and stealing their Bitcoins?
Mar 14, 2014 9:59pm
EndymionJkb
Much has been written since speculating on what exactly happened at Mt. Gox. One notable contribution is the analysis by Cameron Winklevoss of Winklevoss Capital (one of the twins who funded BitInstant, who has a large personal stake in bitcoin). This InfoBarrel article addresses "transaction malleability," a vulnerability known since 2011 but generally dismissed as impractical. While it's likely some level of this sort of fraud did occur, there is almost certainly more going on.
Any "leak" that large could not possibly have gone unnoticed for long (remember, they lost *99%* of the coins). At some point their "active" trading funds would have run out, forcing them to withdraw from reserves. No matter how grossly incompetent their management, that would have raised some serious red flags. Outright theft of bitcoins is actually quite difficult to get away with, since all transactions are available forever in an immutable public ledger. One theory is that Mt. Gox allowed the U.S. government to seize funds connected to the Silk Road (most of which probably went through Mt. Gox), which effectively bankrupted them. An even worse possibility is that the keys have been lost or destroyed -- in which case the coins are simply gone forever. Whatever happened, it is encouraging that bitcoin and other currencies remain strong. Events like this are tragic for individuals, but in the end these necessary growing pains will only serve to make the community stronger and more resilient.
Mar 14, 2014 10:55pm
jny986
I believe that Bitcoin will be the case study in how to develop the true future currency and I have outlined this in my article titled What Does The Future Hold For Bitcoin. Thanks for the comment and the extra info,
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Bibliography

  1. Kyle Chayka "Everything You Need to Know About the Mt. Gox Bitcoin Debacle Read more: Everything You Need to Know About the Mt. Gox Bitcoin Debacle | TIME.com http://business.time.com/2014/02/25/everything-you-need-to-know-about-the-mt-gox-bitcoin-debacle/#ixzz2uaraxT26." Time. 27/02/2014 <Web >
  2. "Crisis Strategy Draft." Scribd. 27/02/2014 <Web >
  3. "USD per 1 XBT." XE. 27/02/2014 <Web >

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