Analysis: Mt Gox collapse a minor setback for bitcoins

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Reuters

Kolin Burges, a self-styled crypto-currency trader and former software engineer from London, holds a placard to protest against Mt Gox, in front of the building where the operator was formerly housed in Tokyo. Photo: Reuters

Singapore - The apparent collapse of Tokyo-based bitcoin exchange Mt Gox is not bothering Anthony Hope and others who have ditched steady careers in government and finance to build bitcoin companies – and who stand to lose money they have in Mt Gox.

Hope, a former British treasury official and now head of compliance at Hong Kong-based MatrixVision, said that while Mt Gox’s fate was unclear, its troubles formed part of a wider shift as more professional players moved into the bitcoin mainstream.

“It’s good for us as a business, not so good for us as consumers,” he said. “Over the longer term it will be good for bitcoin because over time the entire ecosystem will be made more robust.”

Steve Beauregard, the chief executive and founder of Singapore-based GoCoin, is more blunt about Mt Gox’s woes: “It’s important in the sense of sweeping away a lot of the early unsophisticated folk who got into this and made a name for themselves, but didn’t have the management horsepower to manage a company.”

Mt Gox, at one time the biggest bitcoin exchange, abruptly stopped trading this week amid reports on the internet that more than 744 000 bitcoins – worth about $380 million (R4 billion) at prevailing rates – had been stolen.

If accurate, that would mean about 6 percent of the world’s 12.4 million bitcoins minted would be missing.

Mt Gox chief executive Mark Karpeles said that his company was “at a turning point” and would issue a statement “soonish”.

His LinkedIn profile reads: “I have a long experience in company creation, and experienced almost any imaginable kind of trouble.”

Yesterday, Japan said its authorities were looking into the Mt Gox closure, and The Wall Street Journal reported that the virtual currency’s exchange had received a subpoena from federal prosecutors in New York.

Also, the European Banking Authority warned bitcoin users they were on their own when it came to losses from using unregulated online currencies, noting there was no safety net as with mainstream bank deposits.

“Currently, no specific regulatory protections exist in the EU that would protect consumers from financial losses if a platform that exchanges or holds virtual currencies fails or goes out of business,” it said. Bitcoins rallied more than 10 percent yesterday, trading at close to $580, according to coinorama.net, which tracks the rate on various exchanges.

While bitcoin’s public image remained one of a network of subversive, libertarian geeks, the past year or so had seen a change in the kind of people launching start-ups, said Hope, Beauregard and others in the fledgling industry.

For sure, the crisis surrounding Mt Gox is the worst the young crypto-currency has faced, damaging trust and challenging all bitcoin-related firms to respond.

“Other major players need to show they avoid the mistakes Mt Gox made, which they are trying hard to do,” said Tomas Forgac, who founded Singapore-based Coin Of Sale, a service for merchants to accept bitcoins as payment.

Antony Lewis from itBit said his exchange had seen a steady flow of funds and new accounts, with trading jumping to 10 times normal levels in just the past few days. “itBit represents the next wave of exchanges where we care about customers and want to have a go at this,” he said.

Lewis pointed to key questions that users needed to ask of exchanges before entrusting money to them: how easy are they to hack? How well capitalised is the company? Are the deposits insured? He said itBit ticked most of those boxes.

Hakim Mamoni, a Hong Kong-based chief technology officer at bitcoin incubator Seedcoin, said a new raft of exchanges were set to appear in the months ahead. – Reuters


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