Mt. Gox Bitcoin Exchange Goes Dark, Leaving Bitcoin Owners With Questions

Mt. Gox, a well-known Bitcoin exchange, has shut down, leaving investors who had Bitcoins at the digital-currency exchange wondering what’s next.

Bitcoin is a decentralized digital-payment system based on mathematically derived new Bitcoins coming into circulation by so-called “miners” using computers.

News service Reuters reports today that the exchange is down. A message on MtGox.com addresses visitors with the following: “In the event of recent news reports and the potential repercussions on MtGox's operations and the market, a decision was taken to close all transactions for the time being in order to protect the site and our users. We will be closely monitoring the situation and will react accordingly.”

Reuters also reported a document, purportedly to be a crisis plan for the exchange, indicates more than 744,000 Bitcoins were “missing due to malleability-related theft.” The document also says Mt. Gox has 550,000 “verified customers.”

What happens next is unknown. That uncertainty is a hallmark of digital currencies. “One of the lures of Bitcoin, its unregulated nature, is also a downfall,” says Beth Robertson, a Baltimore-based payments consultant. “There is no government backing, there\'s no assurance of value, and there is little oversight of stakeholders.”

That means trading in Bitcoins is a gamble, she says. “When you gamble you have to be willing to take the risk of losing it all. Since Mt. Gox was the most well-known exchange for Bitcoins, the concept—and that of virtual currency as a whole—will take a hard hit,” Robertson says. “Bitcoin has suddenly become a lot less liquid, and it already had a very limited acceptance and trading base. This will make it much more difficult to convince traditional investors and businesses to transact or trade in the currency.”

Bitcoin support has increased in some areas, however. This month, Lamassu Inc. installed its first U.S. Bitcoin ATM in New Mexico; mobile point-of-sale developer Revel Systems added Bitcoin support; and online game provider Zynga began testing Bitcoin payments in January.

Bitcoins still cause hesitation among others. Apple Inc. appeared to have banned Bitcoin wallets from its App Store earlier this month. Person-to-person and mobile payments company Dwolla Corp. is ending support for Bitcoin and other virtual currencies in October.

n

Mt. Gox's difficulties and possible downfall likely won't change the hazards of digital currencies, says Eric Grover, principal at Intrepid Ventures, a Minden, Nev.-based consulting firm. “If Bitcoin’s master ledger is subject to manipulation–malleable–that will dramatically reduce peoples’ enthusiasm for using the system.” Grover says. “It would be far less worrisome with a centrally managed digital currency or payment system.”

n

Grover doubts the long-term success of Bitcoin. “Independent of Mt. Gox’s problems, I think while some folks have made a bundle speculating in Bitcoin and it has wonderful illicit use cases, the much-hyped cryptocurrency was (is) unlikely to be successful as money and highly unlikely to be successful on a large scale as an electronic payment system,” he says.

n