First off, what are Bitcoins? In short, they are a form of virtual, electronic money. Since their emergence in 2009, this decentralized financial network has allowed people to buy and sell Bitcoins using traditional U.S. currency. People have been drawn to Bitcoins and prices have been increasing at an aggressive rate, especially in the last six months. The price of a Bitcoin in 2010 was less than 10 cents. Only three years later, the value of Bitcoins reached a high in December of 2013, selling for over a thousand dollars per Bitcoin.
Bitcoins have since gone from virtual to highly tangible. Companies such as: Overstock, WordPress, Reddit, and Tesla, among others, accept Bitcoins as payment for products and services.
And then comes the controversy. Overnight, one of the most prominent trading platforms of the wildly emergent digital currency went dark. MtGox, run by CEO Mark Karpeles, until he resigned this Sunday, has been facing issues for the last few years. It appears that they have culminated in suspension of all trading activity and an overall shutdown of the site late Monday night. As it is one of the largest Bitcoin exchanges, this development had left many scratching their heads.
After much speculation, Karpeles came forward earlier today and announced that MtGox is filing for bankruptcy after around 10,000 of their own Bitcoins and nearly 750,000 of their customers’, valued together at over $450 million, disappeared after some technical weaknesses in their system. Over the course of several years, the exchange has lost an estimated 6% of all minted Bitcoins. This calls into question the security of offsite data storage companies.
Other established Bitcoin services have dissociated themselves from the alleged insolvency in a joint letter stating, “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,” and that, “as with any new industry, there are certain bad actors that need to be weeded out, and that is what we are seeing today.”
Despite the assurance by these organizations, the disappearance of MtGox has many investors apprehensive. The price per Bitcoin began to dip when the site went blank. At a 3% decrease on Monday, Bitcoins reached their lowest value since November. There has been some recovery since, but a relatively small amount.
While it may be concerning for some investors, it is important to remember that, as a whole, the Bitcoin system is still extremely young and is bound to be more susceptible to an influx of changes. Since its inception, MtGox had been riddled with hacks, scams, and other issues that face transaction malleability. Although unsettling, this may still be indicative of an awkward growth stage as Bitcoins and their exchanges enter maturity. Furthermore, new Bitcoin exchange platforms are emerging to fill the void left by MtGox.
Part of the appeal of Bitcoins is their elusiveness and the high-risk, high-reward factor. As of today nobody can say with certainty the future of Bitcoins. Those who are unfazed by the lack of guarantee are still hoping for long-term benefits of gambling with volatile currency.
Want to learn more?
Here is some more information on how to protect yourself and your business
- Managing your Business Risk Effectively
- Should You Be Worried About Your Business’s Online Security?
- Safer Internet Day: A Reminder that the Internet is Good for Small Businesses
Photo Credit: Jason Benjamin, Flickr