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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.
About the Author
Dave has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.