Where have all the Bitcoins gone?
MtGox, one of the largest Bitcoin registries, the equivalent of an online bank for the Bitcoin cryptocurrency, has collapsed, taking with it almost one tenth of the world's Bitcoins.
The Tokyo-based MtGox was founded in 2010, and by 2013 it was handling around 70% of all Bitcoin transactions. However, at the end of February, it discovered that somewhere between 750,000 and 850,000 Bitcoins had "gone missing" from its acccounts, an amount which represented around $450m of investor money on the day of the announcement, and was forced to suspend operations. It has subsequently closed its doors, leaving Bitcoin investors realising how little security they had in an unregulated offshore investment with no collateral.
Subsequent reports say that the coins have been stolen by persons unknown exploiting holes in the MtGox software over a period of many months. The MtGox board are presenting themselves as victims in this episode, but few investors are likely to offer much sympathy. Some good news for investors though is that MtGox auditors have discovered some bitcoins stored in "old format wallets which were used in the past and which MtGox thought no longer held any bitcoins". Quite who owned those bitcoins though remains a mystery and is just one more example of poor management, poor financial regulation, and poor software design and testing.
MtGox is not the only bitcoin exchange to have suffered irregularities. This month also saw the Canadian service Flexcoin shutdown permanently after it lost $610,000 worth of Bitcoin to hackers. A statement on the company's website pointed users to the clause in its Terms of Service which says it is not liable for any loss of Bitcoins. On the same day, New Jersey's Poloniex also admitted that 12.3% of its reserves had been stolen by hackers. Commendably, the Poloniex CEO said that all affected investors would be repaid. However, to pay for that, Poloniex has increased its transaction charges from 0.2% to 1.5%.
Cryptocurrency enthusiasts dismiss these incidents as mere teething troubles and say Bitcoin is the future. If this is the future, we are all in big trouble.
24th March 2014
This article comes from the SKILLZONE email newsletter, published monthly since January 2008, and covering topics related to technology and the internet. All articles and artwork in the SKILLZONE newsletter are orignal content.