General Question

elbanditoroso's avatar

Bitcoin appears to be collapsing as a result of the demise of one its major exchanges. Is this the beginning of the end?

Asked by elbanditoroso (22420points) February 25th, 2014

Bitcoin has always seemed a bit shady to me – invented currency with nothing behind it but a little bit of software.

Now one of the major Bitcoin exchanges – Mt. Gox – appears to be dying an ugly death.

Can Bitcoin survive? Is this a fatal blow to these synthetic currencies?

Will the people who own Bitcoins ever get their money back?

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21 Answers

bolwerk's avatar

I don’t know if it will survive, but I don’t think this will be what kills it. I’d be more concerned with how bitcoins seem to have a tendency to accumulate in the hands of a Bitcoin 1%.

dougiedawg's avatar

I’ve been waiting to see if it catches on. Heard J.P. Morgan-Chase was starting up a similar affair.

zenvelo's avatar

Will the people who own Bitcoins ever get their money back?

They do have their money, it’s just in bitcoins. Bitcoin is a money.

Consider if one was Japanese and bought dollars the day before Nixon closed the gold window and imposed wage and price controls. Do you think anyone said “will they get their money back?”

But bitcoins sure seem to be moving towards the same place as a Weimar deutschmark.

LuckyGuy's avatar

They sure were popular with the “less than savory” set who used them purchasing all kinds of things they wouldn’t want their mother to know about. That window is closing too.
Someone is even being charged with money laundering.

bolwerk's avatar

@zenvelo: When Nixon dumped the gold standard, at least you could still trade your dollars for whatever someone would buy them for. As I understand the exchange issue, people who are entitled to the bitcoins on that exchange can’t even spend them or trade them elsewhere.

funkdaddy's avatar

The point of bitcoin is that it is distributed. No single exchange will bring it down, there are too many options at this point. The price is a reflection of confidence alone.

The widely acknowledged security flaw is a bigger deal and coupled with recent high-profile thefts are probably affecting the price more. Hopefully the type of folks who are into bitcoin are generally aware of it’s limitations and swings. This is the biggest currency “beta” of the last 100 years. Maybe this dive will kill the media frenzy which is probably exactly what the currency needs. It needs some time without all the investors speculating on their bitcoin millions.

It’s the first real shot at a universal currency, it may fail, but if it does something else will take it’s place. Dismissing that would be similar to dismissing the internet or online shopping because of troubles with SSL encryption and the early association with less than savory characters.

worth noting that other exchanges are trading at 4–5x what Mt. Gox is, and are still a lot closer to the highs than the lows of the last year, play with charts

gorillapaws's avatar

Without a regulatory body like the fed, bit coins are basically 21st century tulip bulbs.

What’s the difference between a bit coin and a tulip bulb?

A: You can plant a tulip bulb after the market crashes and enjoy the flower.

zenvelo's avatar

@bolwerk If you have bitcoins in your bitcoin wallet that you bought on Mt GOX, you can sell them on other exchanges like BTC-E or Bitstamp. The whole idea of bitcoin is electronic portability between markets.

elbanditoroso's avatar

@zenvelo – they don’t have their money in any concrete sense. They have some Bitcoin evidence that they are entitled to <something>, but <something> may or not have any value in a day or a week. It’s all virtual.

If anything, they have the satisfaction of knowing that the own so-and-so-many pieces of something that is not universally negotiable and may have no value.

That’s not enough to buy me dinner.

zenvelo's avatar

@elbanditoroso But you can spend those bitcoins at a restaurant that accepts bitcoin! You don’t have to convert it to dollars first.

You’re right, you don’t have your money in a concrete sense. I don’t have my dollar denominated checking account in a concrete sense either- it’s all electronic entries held by Chase.I can go convert it to paper bills, but then I can’t buy anything online with it.

Yes, the currency fluctuates. So does the Yen and the Swiss Franc and the Euro.

I am not a bitcoin advocate at all, just want to clarify for this thread.

funkdaddy's avatar

@elbanditoroso I believe that completely depends on how they have their coins stored, whether with Mt. Gox directly or not.

Mt. Gox got robbed and they weren’t insured. So people may be out of luck, or there may be some amount that they retrieve in whatever becomes of Mt. Gox and the people involved.

You can buy refrigerators and cars with bitcoin. Not sure how many “real” currencies don’t meet that threshold but a friend in the Congo said he needs bags of government issued money to get a week’s groceries. Two extremes, but bitcoin falls somewhere between that and US dollars (or Euros). Is it less concrete than a “share” of a company?


There’s a lot of misunderstanding in how the whole thing works, and I think that’s probably good for now. Eventually there will be an easy to use layer over the whole thing that will make it like any other currency. For now, bitcoins or whatever comes after have a barrier of entry that keeps people from casually deciding to throw their savings into it. It’s speculative, but so are many things, and most of the people involved know that.

I think people should try to separate the specific issues of bitcoin and the fact that some sort of distributed currency is found to be widely useful. Bitcoin may go away, but non-government currencies of this nature are probably here to stay.

When do you want to take a serious look instead of dismissing the whole idea?


@gorillapaws even tulip bulbs weren’t the bubble that people think they were, so if we have to go back to the 1600’s for an example, maybe bubbles aren’t as horrible as reported? I worked in dotcoms when they fell apart, it’s not like people were on the streets overnight.

LostInParadise's avatar

I find the idea of the bit coin to be intriguing, but I don’t have the courage to invest in them. Imagine a virtual country with bit coin virtual currency, based on manufacturing by networked 3D printers and delivery by drones. Education would be on the Web. The military would consist of cyberhackers.

CWOTUS's avatar

I don’t know if this is the end for Bitcoin or not, but I love your characterization of it as invented currency with nothing behind it but a little bit of software.

Just how does that distinguish it from the $, the £, the ¥, or the €, hmm? What’s “behind” those?

Mimishu1995's avatar

I don’t know, but in my opinion, bitcoin shouldn’t survive. I can’t see any use for it, but it’s already brought too much trouble.

johnpowell's avatar

Backing by the government and protection in the form of the FDIC. That and I can buy a bag of Doritos at 7/11 with that bill in my pocket.

If Mt. Gox is to believed there was ~350 million USD stolen from them over a few years. They somehow didn’t notice. I’m more inclined to believe it was a bit more of a ponzi scheme. It just turned out that in the last few months they noticed they couldn’t pay what was owed and will disappear with a bucket of cash and some nice new passports.

LuckyGuy's avatar

@CWOTUS You wrote “How does it differ from from the $, the £, the ¥, or the €?” (Nice use of special characters by the way.)
in addition to the great answers that @johnpowell gave I will add:
We know who is responsible for the currencies. Head of Fed… and the other countries. We know the organizations with oversight. We can find the people and put them in jail.
Who is running Bitcoin. Anon. Where is it located?. Tor. Where are the majority of sales? I won’t say it but it is a popular site for illegal activities. Want to buy a list of credit card numbers? Drugs? There you go.

Here is my 2 Bitcoins worth of conspiracy theory. There have been more than a $1billion worth of sales of drug, lists, services, money laundering, etc. in bitcoin. The sellers of these illegal services were amassing fortunes large enough to equip a small army. The easiest way to wipe out their power was to take away their money. Poof! Bitcoins into the bit bucket. CTRL + ALT + DEL

bolwerk's avatar

@CWOTUS: well, take it for what it is, but…government backing? BitCoin doesn’t even have that, and may end up having quite the opposite.

sinscriven's avatar

In the end BTC is fiat currency just like the USD. I don’t think it’ll be the end of it, but I do think it will scare off the day-trading types. This is a new market with a lot of potential for profit but a ton of risks, Criminals aren’t the only people to see this take off, especially with governments seemingly more and more obsessed with information control.

As for it being the death knell of all digital currencies, I doubt it. The cream will rise to the top. Dogecoin is doing quite well and it’s use is increasing but it has a different focus. It’s not trying to be the official currency of the internet, but more like the little tip jar or microtransactions of the internet. They are actively controlling the inflation by releasing more keys so it remains small and affordale to stay true to it’s purpose unlike BTC.

funkdaddy's avatar

@LuckyGuy – just for a bit of perspective… Do you know what else criminals like? Guns

Compare your assumptions to those that frustrate you about guns, are there parallels?

LuckyGuy's avatar

@funkdaddy First, Thank you for finding that post! I tried to find it a while back but couldn’t. It is now bookmarked so I have it handy when the next person asks me what I do with firearms. :-)

Yes, there are some parallels. I’m glad you see it. I’m not sure others do.
If bitcoins were only used for legal transactions this would not happen: Silk Road closing has non-negligible affect on Bitcoin.

Silk road shut down by FBI :
“Silk Road, the underground marketplace that made millions of dollars by allowing users to buy and sell hard drugs, firearms, and computer hacking tools, has been shut down by the US authorities.
... Silk Road existed on the “dark web”, part of the internet only accessible via the Tor network – which masked the identities of the computers visiting it.
Silk Road transactions are paid for with Bitcoins, rather than traditional currency, helping to further conceal the true identities of those buying and selling the illicit goods.”
According to FBI, Silk Road generated more than $1.2 billion in online sales during its three years of operation – a truly staggering figure, which gives an indication of the amount of criminal activity that passed through its systems.”

I have no idea what percentage of guns are used in illegal activities. I suspect it is very small, but I admit I have not done the research. Feel free.
Bitcoins on the other hand… $1.2 Billion is a lot of bits. Heck, even one of their trusted exchanges seems to have let $300–400 million disappear. I also have no doubt the absconders have already converted it into “real” currency.

CWOTUS's avatar

@bolwerk & @LuckyGuy I realize that Bitcoin doesn’t have “government backing”, but what IS “government backing” these days?

To @johnpowell all I can say is that FDIC protects banks (to the extent that it can, and to the extent that they don’t become “too big to fail”, and to the extent that the dollar has any value), but it doesn’t protect the currency.

Personally, though I’m no Bitcoin expert; I barely even know where it comes from or how it is transacted in less-than-full-coin transactions, I doubt that this theft or fraud will “break” Bitcoin any more than the Depression caused the dollar to fold. And if it does, then the next private currency to be developed will have to take into account a method to prevent “failure of the system” if a single party, no matter how large, can defraud its own users.

Finally, @bolwerk I understand precisely what you mean by “quite the opposite”, but in the long term I expect private currencies to outlast the dollar, no matter how strongly the government protests and attempts to fight it. In fact, I take the desperation of the fight on the governments’ part to be a measure of their fear of real competition in this arena, not “to protect the little guy”. Not that, no matter how much they might blather about “investor security” and all that other pabulum.

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