Was the shutdown of Mt. Gox, one of the major Bitcoin Exchanges, signifying the doomsday of Bitcoin?
No. Although $400 million worth of Bitcoins have lost as a result of the heist on the exchange, Bitcoin is far from a failed attempt. As an up and coming cyber currency, Bitcoin is going through the roughness during its infancy of being a “cyber product” and a “currency” at the same time.
Like every other cyber product, flaws and bugs are inevitable. Therefore Mt. Gox’s incident is not completely unforeseeable. Sooner or later, another bug will be exposed, some people will be hurt, some agency will lose its reputation, and some superhero will come to save the world. The release-bug-fix-release loop of software development has defined the imperfectness nature of bitcoin from day 0.
Bitcoin as a currency, although rebellious in nature and virtual in existence, is still exposed to the risk of being stolen. In fact, the $200 million heist is not the biggest heist on currencies. Beside no firearms involved and nearly untraceable, I don’t see the Mt. Gox meltdown any different from other bank robberies.
So, does Bitcoin have no problem at all?
Absolutely not. When it comes to security and trustworthiness, Bitcoin is much inferior to the dollar bills. In terms of security, in good days, Bitcoin is safe because it’s untraceable. When things go south, however, Bitcoin can be very dangerous, also because of the untraceablility. In the Mt. Gox’s incident, no one can find the suspect, let alone reclaim the money. The double-edged sword of information privacy makes Bitcoin a perfect choice for illegal transactions, and the worst option ever for people who want to secure their money.
In terms of trustworthiness, since Bitcoin is decentralized by design, there’s no institution backing it up. Columnist Megan McArdle explained this very clear in her article:
“… as yet, no currency exchange (for bitcoin) like the ones we use for regular currency — backed by large institutions that can be sued if things go wrong. … for folks in the regular old economy, that’s a problem. It’s hard to get enthusiastic about saving in a system where hundreds of thousands of dollars can disappear overnight, leaving you with no recourse.”
Now, what’s Bitcoin’s future?
I’ll argue that Bitcoin will continue to exist, but not as a full-fledged currency. On one hand, a currency must be durable, divisible, transportable and uncounterfeitable. Although Bitcoin satisfies the latter three, it fails to be durable in terms of retaining the same value over time, which is the most important characteristic of money. On the other hand, even if someday Bitcoin managed to stabilize its price-to-dollar and became a reliable currency, it’ll receive enormous pressure from the government. The better it does at evading governments’ surveillance, the harder the governments try to shut it down. At the end of the day, it is the government that controls the ecosystem, and never will it allow the existence of a currency that poses a potential threat to the homeostasis.
As a result, for Bitcoin to be a successful currency, it has to fundamentally alter the economy system and take “government” out of the equations. Ironically, in order to be strong enough to fight with the government, it has to be accepted by the vast majority first, and that’s only achievable without the big brother’s interference. Simply put, Bitcoin can’t beat the government without first beating the government. This paradox has decided the cryptocurrencies’ defeat: you can be either a crypto product, or a type of currency, but you can’t be both.