The Mt. Gox Collapse: Good News for Bitcoin Owners?

The recent news surrounding the Mt. Gox fiasco has spawned all sorts of rumors and warnings about dire straits ahead for the popular cyber-currency. What is missing in most of these stories is that the failures at Mt. Gox were a failures of a business, not of a currency.
A bitcoin is not that different from a Krugerrand, a Swiss franc or a bearer bond when it comes to security. It can be lost, stolen, or destroyed just like gold or paper. If the vaults at JP Morgan were broken into and 744,000 gold coins were stolen, would that make the Double Eagle in your pocket worth less? Of course not. Would it bankrupt JP Morgan? Possibly. Would it cause heads to roll and security policies there and at other depositories to come under a microscope? Most certainly. And that’s where the good news starts.
One of the chief attractions of bitcoin is also a vulnerability. Because bitcoin is largely unregulated by governments, it also lacks the protection of institutions such as the Federal Deposit Insurance Corporation and the International Monetary Fund. Consequently, bitcoin holders have been largely flying solo when it comes to protecting their assets. This is a condition that most bitcoin owners have gladly accepted to maintain the currency’s independence. But with that independence comes responsibility, and many bitcoin holders have shirked that responsibility in favor of convenience.
Mt. Gox emerged as one of the earliest and largest bitcoin exchanges. It was cobbled together by persons more familiar with salesmanship and technology than sound financial practices. Accounting and security measures that are commonplace in even the smallest businesses were overlooked in the structure of Mt. Gox, leaving it vulnerable to attack by cyber-thieves. And attack they did. For two years!
Parties that may never be found figured out that Mt. Gox’s transaction software was flawed and that it would allow duplicate withdrawals on the same account. It was just like going to a bank, withdrawing all your money, and coming back the next day and doing it again. To compound the problem, Mt. Gox didn’t know it was happening until it had been bled nearly dry, leaving its remaining depositors with little hope of seeing their money again.
Bitcoin insiders had long been wary of Mt. Gox’s business practices and many stopped using the service. Stephen Macaskill, owner of Amagi Metals and a major dealer in bitcoins says, “Mt. Gox has been a poorly run company for some time. We stopped working with them back in June of last year (2013) because they clearly had issues. What happened to Mt. Gox should not have been surprising to anyone.”
That’s probably of little comfort to the people who lost millions in bitcoins in the Mt. Gox collapse, but the fallout will likely be positive for the ongoing viability of bitcoin as a currency. Responsible bitcoin dealers have had security measures in place all along, and the recent events in Japan have made them even more vigilant.
“The failure of one business does not mean the failure of a technology,” Macaskill points out. “Poorly managed businesses that have been giving bitcoin a bad name are going out of business, allowing the businesses that are providing value to succeed.”
Dr. Campbell Harvey, an international finance and emerging markets expert at Duke University adds, “Mt. Gox does not equal Bitcoin. Mt. Gox is a third party that interacts with the Bitcoin network. (Its) collapse might represent the end of the ‘wild west’ where anyone can set up shop and deal in crypto-currencies, (but) increasingly sophisticated investors, such as (Netscape founder and e-Bay and Facebook investor) Marc Andreessen, are funding serious ventures. These new ventures will, along with their backers, raise both quality and confidence.”
The Mt. Gox failure points out the need to know who you’re dealing with on the bitcoin network. The prospectors who descended on California in the 1850s knew that they were ultimately responsible for the protection of their gold. Due to the decentralized and unregulated universe of bitcoin, it’s good advice for holders of the cyber-currency, too.
As for Macaskill, he sees the Mt. Gox situation as an opportunity. “The panic surrounding the failure of Mt. Gox created a speculative drop in the bitcoin price. This allowed people who were not initially in bitcoin to start buying it, helping the currency become more adopted which will improve the stability of the currency in the long run. The concept of bitcoins and the technology behind it make it a viable currency that offers more long-term security than government-backed currencies like the dollar or the Euro. We believe that all investments should be treated with that same “responsible” respect. That’s a huge part of our mission here at Amagi. Even with the FDIC and other federal insurers, you should always behave responsibly with your own finances…not just in the cryptoworld.”
Macaskill backs his words with action, too. His online precious metals company, Amagi Metals, is one of the pioneers in trading bitcoins for gold and silver with transactions exceeding $1 million per month.
Learn more about Amagi Metals at www.amagimetals.com.

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