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In the aftermath of the grim Bitcoin news about the collapse of the Mt. Gox exchange, it's clear we're going to need a lot of answers about how so much money could have gone missing without being noticed.
The chief executive officer of Japan-based Mt. Gox, Mark Karpeles, has admitted to the loss of a total of 850,000 bitcoins – 100,000 of its own and 750,000 belonging to customers. At current Bitcoin prices, the lost currency would be worth $480 million and represent about 7% of all bitcoins in existence.
Bitcoin prices have weathered the crisis remarkably well – they've recovered to above $600 as of today (Monday), almost back to where they were before Mt. Gox went dark on Feb. 24, a testament to the resilience of the digital currency.
But such a huge loss will need a better explanation than what we've already gotten from Karpeles to reassure a public already skeptical of Bitcoin.
So far Karpeles has blamed the Mt. Gox losses entirely on a "transaction malleability" flaw in the Bitcoin code that allowed hackers to make double-withdrawals from their accounts.
While the flaw is real, many in the Bitcoin community can't understand how the loss of such massive sums went completely unnoticed by Karpeles and the Mt. Gox team until just a few weeks ago.
It seems there must be much more to this story – and those details will have a lot more to do with human failings than issues with the Bitcoin code.
The full story of what happened at Mt. Gox will almost certainly vindicate Bitcoin as a technology.
But at the same time, this episode has shown that Bitcoin is susceptible to the same kinds of issues as other types of financial instruments and needs some degree of regulation to make it more trustworthy.
Looking at what we know so far, the Mt. Gox problems were at minimum the result of neglect, although some have suggested more sinister motives.