The stop this week and the possible collapse of Mt. The exchange of Gox may or may not be the beginning of the end for Bitcoin – but to use Winston Churchill's expression, it is certainly the end of the beginning.
Mt. Gox had already lost its place as the first exchange of bitcoins before the obscure chain of events that led the Tokyo-based site to shut down. An apparently leaked internal document indicates that the site may have been the victim of a major theft, during which perhaps more than $ 300 million of Bitcoin "disappeared" from the stock exchange accounts. I put "disappeared" in quotation marks because, of course, Bitcoin has no physical manifestation.
Bitcoin exists only as a product of a computer algorithm whose origins are unknown and whose ultimate goal is not clear. It has attracted a diverse collection of users, including people who want to keep suspicious transactions confidential, people who may want to keep some of their hidden wealth from authorities who have access to traditional financial accounts, and end-users who think civilized society is on the road to hell and that, for whatever reason, it will be better to own bitcoins when we get there.
Bitcoin lovers like to call it a digital currency, or cryptocurrency because of its encrypted nature. But it is clear now, in the midst of the huge fluctuations in Bitcoin's price, that it's not at all a real money. It is actually a commodity whose price fluctuates according to its quality and supply and demand.
As of this week, there are two grades of Bitcoin. One of the mountains. The Gox variety, which no one can access when the site is out of order and no longer exists at all, was only worth one sixth of bitcoin yesterday.
Some people are always willing to offer value, even if it does not have much value, to try their luck on a potentially worthless asset. That's why stocks of companies that are obviously about to go bankrupt can trade at a price greater than zero. But at least we know that actions exist in both tangible and intangible form, and there are government authorities available to ensure their validity or value. Bitcoin, sponsored by no government and banned by some, does not enjoy such support. Ask any mount. Gox users today, whether it 's an asset or not, have been maintained. (Tokyo authorities in New York are already investigating the collapse of Mount Gox and a follow-up action seems likely.)
Real money has two functions: as a store of value and as a means of exchange. To date, Bitcoin only gets fair marks as a medium of exchange because there are only a few places where you can spend it freely. You can trade your bitcoins (non-Gox) for real money, but you can do the same with any merchandise, such as diamonds or Hondas. Diamonds and Hondas are worth the money, but they are not money.
Bitcoins completely miss the value store test because their wild price fluctuations do not store value; according to blind luck, they create or destroy it. The collection of bitcoins is a speculation, not a backup. There is a big difference.
Bitcoin tackles some real-world problems, such as the sometimes exorbitant cost of foreign currency exchange and the cumbersome modern banking system, which is laden with regulations to try to prevent everything from insolvency to money laundering and theft of money. 'identity. But the regulation exists because insolvency, money laundering and identity theft also exist. As Mt. Gox rightly shows, a system without such guarantees is likely to create much more serious problems than those it is supposed to solve.
Mount Gox's debacle may or may not permanently undo the credibility of Bitcoin. We will not know until we know what happened in these computers in Tokyo. The crisis, however, should strip all that remains of the security that the supposed cryptosecurity of Bitcoin was supposed to provide. Bitcoin is not more secure than the structure designed to contain it. Lacking all the reinforcements that have evolved over time in the traditional financial system, that's not at all sure. Either we recreate these backstops in the Bitcoin world, in which case we have to wonder why we have bothered Bitcoin, or we live dangerously without them.
There will always be people who do not trust the banks and the government to secure their savings. They used to stuff money into mattresses. Maybe some will continue to use Bitcoin instead. In my opinion, Bitcoin's chances of becoming a traditional form of payment, such as debit cards or PayPal, are virtually nil. This may not be the beginning of the end of Bitcoin, but we have definitely seen the end of the beginning.