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Bitcoin near total collapse?

A major bitcoin exchange based in Japan has gone bust after secretly racking up catastrophic losses, a potentially fatal blow for the exotic new form of money. (Feb. 25, 2014)

It was supposed to revolutionize the global monetary system. Instead, the bitcoin virtual currency that has captured the imagination of investors and financiers is on the verge of collapse.

In a stunning blow to a novel way to buy products and services, the world’s largest exchange for trading bitcoin currency shut down Tuesday, triggering a massive sell-off and sending many prospective investors away — perhaps for good.

“This is extremely destructive,” said Mark Williams, a risk-management expert and former Federal Reserve Bank examiner. “What we’re seeing is a lot of the flaws. It’s not only fragile, it’s fragile as eggshells.”

After saying users could not withdraw their funds, Mt. Gox suddenly ceased all operations, including shutting down its website. Mt. Gox users may have lost more than $300 million worth of bitcoins in what was the latest and biggest in a series of recent setbacks for the virtual currency.

The mysterious circumstances that triggered the failure of the exchange, Mt. Gox in Tokyo, is only adding to the renewed anxiety over the virtual currency, which just a month earlier had been gaining momentum and supporters.

The currency exists only online, and its value is based on an algorithm. Investors buy bitcoins with dollars, euros and other real currency. A purchase with bitcoins typically involves transferring an amount from the buyer’s bitcoin “digital wallet” to the seller’s wallet on the Internet. The blow to bitcoin’s credibility has highlighted all the fears critics have been trying to raise. Because it is unregulated and anonymous, there is probably no way for users to know who may have seized the thousands of missing bitcoins — and no way to recover them.

This sudden reversal of fortune is particularly painful for enthusiasts who believed just a few weeks ago that bitcoin was on the cusp of mainstream acceptance because of growing support from venture capitalists, banks and regulators.
Instead of triumph, the bitcoin community is now focused on repairing the damage. Mt. Gox is nothing more than a “collapsed tower of toxic sludge,” said Williams, who is also a finance professor at Boston University School of Management.
The recent weeks have been troubled ones for bitcoin. In late January, the chief executive of another bitcoin exchange was arrested on money-laundering charges, Russia banned the virtual currency, andApple Inc. pulled a popular bitcoin app from its App Store over concerns about its legality.

But the fall of Mt. Gox trumps all of these stumbles in size and scope, and has clearly left many in the bitcoin community stunned and confused. Although there are other exchanges where people can buy and sell bitcoins, Mt. Gox was the biggest.
“Having Mt. Gox shut down is to bitcoin what having the New York Stock Exchange shut down is to our equity market,” said James Angel, a professor of finance at Georgetown University.

Problems at Mt. Gox first surfaced earlier this month when the exchange stopped letting users make transactions because of what appeared to be a glitch that was also affecting other exchanges. But although the other exchanges came back online, Mt. Gox remained dark through last weekend.

On Monday, users noticed that the site seemed to be disabled and the home page was blank. Later that day, a “Crisis Draft Strategy” document was obtained by somebody and posted online, purporting to be from Mt. Gox.
The document, whose authenticity has been questioned, raised further alarms because it indicated that Mt. Gox may have lost 744,000 bitcoins to theft over several years. It also explored whether to shut down Mt. Gox completely or re-launch it under a new name.

What really happened? Mt. Gox issued only a short statement Tuesday: “In light of recent news reports and the potential repercussions on Mt. Gox’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.”

Across the bitcoin community, Mt. Gox faced swift and harsh criticism for its handling of the crisis.

“This tragic violation of the trust of users of Mt. Gox was the result of one company’s actions and does not reflect the resilience or value of Bitcoin and the digital currency industry,” read a joint statement from several bitcoin companies posted on the Coinbase blog. “As with any new industry, there are certain bad actors that need to be weeded out, and that is what we are seeing today.”

Created in 2009 by a programmer using the pseudonym Satoshi Nakamoto, bitcoin is based on a software standard that runs across a wide number of servers around the world for regulating the creation and trading of bitcoins. It is not controlled by any nation, governing body or business. …

http://www.latimes.com/business/la-fi-bitcoin-collapse-20140226,0,5968430.story

I think they were hacked and robbed by some organization with big resources who sees them as a threat. Mt. Gox didn’t buy enough protection. I’d buy a Bitcoin… for a dollar, just for the novelty of owning one.

But it was only 7% of all bit coins that are missing…. Only….

Mark Karpeles, the 28-year-old French CEO of Mt. Gox, which once handled around 80 percent of the world’s bitcoin trades, filed for bankruptcy at a Tokyo District Court late on Friday. His lawyer said that nearly all the bitcoins in the exchange’s possession – 850,000 of them – were missing. Karpeles blamed hackers.

At current bitcoin rates on other exchanges, that would mean $473 million is lost – around 7 percent of all bitcoins minted.

“If the theft is true,” said Campbell Harvey, a professor at Duke University’s Fuqua School of Business, “it’s the biggest bank heist in history,” aside from when Saddam Hussein ordered his son to withdraw $1 billion from Iraq’s central bank in 2003.

How this happened remains a mystery. But most observers say Mt. Gox’s laxness played a key role in the debacle.

http://www.reuters.com/article/2014/02/28/bitcoin-mtgox-heist-idUSL3N0LX2SP20140228

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This entry was posted on February 26, 2014 by in Money, Technology.
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