Is the shutdown of Mt. Gox, one of the major Bitcoin Exchanges, signifying the doom day of Bitcoin?
No. Although $400 million worth of bitcoins, which accounts for 6% of all existing bitcoins, have lost as a result of the heist on the exchange, bitcoin is far from being 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 being 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, bitcoin is also dangerous because it’s untraceable. The double-edged sword that is information privacy makes bitcoin a good choice for trading without the big brother’s watch, and a 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 that 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 governments try to shut it down. At the end of the day, the government has control over the financial tools and it’s an irremovable part in the ecosystem. Bitcoin can’t achieve its goal of “decentralization” without fundamentally alter the economy system and take the government out of the equations. Meanwhile, in order to be strong enough to fight with the government, it has to be accepted by the vast majority, and that’s only achievable after the removal of the government. Simply put, Bitcoin can’t beat the government without first beating the government. This paradox has decided the doomed failure between Bitcoin and governments.