The Bitcoin community may not exactly be dancing on the grave of Mt. Gox, the oldest and once-largest cryptocurrency exchange, which officially filed for banktrupcy in Japan Friday morning. But it’s happy enough to step over Gox’s corpse and go about business as usual.
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As of Friday afternoon, Bitcoin’s exchange rate with the dollar remained at close to $550 according to the Coindesk price index average across the currency’s exchanges, virtually the same as the currency’s exchange rate a week earlier despite Mt. Gox’s sudden disappearance from the web Monday and final bankruptcy announcement four days later. In fact, the currency rose more than 20% from its lowest point after Mt. Gox’s vanishing act, showing signs of relief after years of suffering from the exchange’s outages, hacks, and delays rather than the catastrophe some predicted after Gox’s demise.
“The Bitcoin community responds well when bad actors are removed from the system,” says Ezra Galston, a venture capitalist with Chicago Ventures who has considered investing in Bitcoin startups but doesn’t yet hold stakes in any. “Whether the price in a year is $400, $800 or $2,000, I’m not smart enough to predict. But there doesn’t seem to be a huge risk of Bitcoin not existing in a year.”
The last so-called “bad actor” to be removed from the Bitcoin economy, Galston argues, was the Bitcoin-based black market for drugs known as the Silk Road, whose takedown by the FBI in early October resulted in the seizure of more than 1.5% of all Bitcoins in existence. Although the Silk Road seizure spark an immediate 20% drop in Bitcoin’s price, it quickly recovered to reach values over $1,000 per bitcoin just weeks later.
Though Mt. Gox’s initial signs of distress took a similar chunk out of Bitcoin over the past weeks, shaving hundreds of dollars off its price, the worst is over, says Andreas Antonopoulos, chief security officer of Bitcoin wallet Blockchain.info. “The market had pretty much priced in Gox’s failure,” he says. He points to new entrants in the Bitcoin industry who he believes will offer more stable exchanges, such as SecondMarket, Circle and Coinsetter. “This was an amateurish and incompetently managed company…it will be replaced by competent operators who run better exchanges.”
In fact, Antonopoulos and others blame Mt. Gox for no less than five prior crises in Bitcoin that often had much more dramatic effects on the digital currency’s value. When the exchange was first hacked in the summer of 2011, the news led to the first Bitcoin sell-off, plummeting its price from $35 to just a few dollars. Antonopoulos argues that Mt. Gox’s hour-long delays in trading in April of last year was the cause of the currency’s second major crash from a value of $266 to around $50. Mt. Gox’s problems had become frequent enough that to be “goxed” has become a verb in Bitcoin-speak, meaning to be “fooled or trolled repeatedly” according to the Urban Dictionary.
Compared with those earlier price drops, the latest from the final death of Mt. Gox seems relatively tame. But Gox’s problems still highlight real problems with Bitcoin, namely the ease with which it can be stolen from companies that don’t take strict security precautions. Mt. Gox says its problems stem from a hack that made off with 850,000 Bitcoins that belonged to its users, worth more than $450 million. That reminder that Bitcoins can be stolen from an insecure vault–like any cash or commodity–no doubt played into the currency’s slide from earlier in the month.
But Bitcoin startups are wising up to the security measures necessary to keep thieves hands’ off their coins. Mt. Gox has been criticized for improperly safeguarding its coins in “cold storage”–the majority of its savings should have been held offline, where it would be impervious to even the most clever hacker. Instead, as my colleague Kashmir Hill points out, it seems to have held them in “lukewarm storage” that allowed the private keys to leak onto Internet-connected systems; That’s not a mistake other legitimate players in the Bitcoin economy are likely to repeat.
“This has been tragic for the people who lost money, but we’re putting it behind us,” Antonopoulos says. “The silver lining is that we won’t be goxed again.”
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