MtGox on the rocks: will bitcoin survive?

MtGox on the rocks: will bitcoin survive?
No longer coining it in

People who are so into the internet they need to prove it by having a special kind of money just for spending on it received a shock this week, when one of the key enablers of recently invented web money format bitcoin shut down.

The MtGox exchange was taken offline without warning, after it was reported that some irregularities may have been found within its operations - it has since filed for bankruptcy.

In short, it seems that some large chunks of the anonymous currency have gone missing, a bit like the time when that silly man threw his hard drive in the bin.

The claim that 744,000 bitcoins worth around $350 million are presumed missing is potentially an enormous blow to the currency. As with more traditional forms of money, a currency is only of value when people trust it - if it turns out someone's been creaming off bitcoins to buy themselves nice things, it could all very well collapse.

Magic disappearing money

The first port of call when dissing bitcoin on the internet is usually to talk of the way in which exchange MtGox was founded. It had a rather niche and nerdy start to say the least, as pointed out by The Register reader Anonymous Coward 101, who said: "The amazing thing is that anyone was willing to trust the Magic: the Gathering Online Exchange with their money in the first place."

He was slapped down within minutes by Pascal Monett, though, who countered with the incisive: "You can create a bank called The Pink Fluffy Rabbit if you want - once you have proven yourself to be reliable and professional, the name doesn't really count. Of course, getting the customers to allow you to prove your reliability might be an issue at the start."

Or just call it PFR and hope no one ever looks too deeply into is, as was presumably the Magic: the Gathering Online Exchange's strategy.

It puts the money in its account

Over on the Telegraph, there were no such niceties. The usual "it's not real" argument was typed out by EconomicMythsAndlies, who spouted: "People are dense. They want to have a secret currency because they don't trust the government. Then when the people exchanging that virtual currency they hope the government will step in and save the day. I actually support bitcoin, but people need to accept the risk when using it. Anybody who didn't see the risk of something like this happening is an idiot."

Steady on, EMAL, using the i-word will get you in all kinds of trouble.

A little further down, people who properly know about how bitcoin works had a debate, offering a nice little primer in how it operates. Realistich started, offering: "This is VERY odd, since the bitcoins are serialised and the logs are well replicated this should be simple to audit, and once the guilty party starts to spend, simple to apprehend."

Oh, so that's how it works. Thanks. Commenter Versus then added a little more information on how the bitcoin chain of command works, replying with: "When the guilty party logs onto TOR and offloads his bitcoins to a bitcoin laundering service in exchange for new ones you will know the guilty party spent them but you won't know who he is and you won't know the serial numbers of his new bitcoins."

Bit lost again now.

Money you can't burn

Over on Cnet, reader SergeM256 is clearly having a bit of trouble working out where to put his savings. He said of the bitcoin drama: "There is no 100 per cent safe way of storing your money. Bank could fail and you may lose lose your money. Government could fail and cash could become worthless. Inflation could make all your money near worthless. Perhaps, only gold provides safe storage."

Or it could catch on fire, which is one big problem with paper money. No one's ever burnt a bitcoin, which is one thing in its favour.

Responding to a question asking if Bitcoin is covered by the US banks' insurance deposit protection scheme (don't laugh), reader Solitare_pax had some wise words. He's been left with untradeable notes before, explaining: "Well, Bitcoins are no different than token coins or gift certificates; if the business issuing them goes belly up, you're stuck with a lot of worthless metal or paper. That's why I use those annoying things up ASAP."

A little further down, reader Lil_Pengy wasn't exactly sympathetic despite saying he was sorry some may have lost their house deposits, saying: "The CEO does a drama rage quit, nukes the site, shuts down the offices, and can't be reached. Pretty common on the internet for forums, games, or other social interactions. Not really what you count on for professional financial stability though."