Bitcoin: Brace! Brace!

Submitted by Pivotfarm

Speculation involving the possible bankruptcy of Mt. Gox are building momentum and becoming a viable option today. The virtual currency Bitcoin slumped Tuesday morning by 20% and it looks as if the Japanese-based exchange will issue a statement amid growing fears that have been mounting for a number of months now.

The Mt. Gox internet site is no longer working and the chief executive of the company Mark Karpelesresigned on Sunday from the Bitcoin Foundation Board of Directors. The resignation took immediate effect.

Bitcoin is a digital currency that is not backed by any form of government, central bank or even a company in the event of financial difficulty or loss in value. There has been a whole list of problems that have occurred over the past year including the resignation of Charles Shrem, a board member of the Bitcoin Foundation, who was arrested in connection with drug-trafficking allegations involving a Bitcoin currency exchange. Mt. Gox only a few weeks ago decided to halt the exchange of Bitcoins via its servers due to what they classed as ‘unusual activity’. In early February the Bitcoin Foundation stated that “the issues that Mt. Gox has been experiencing are due to an unfortunate interaction between Mt. Gox’s implementation of their highly customized wallet software, their customer support procedures, and their unpreparedness for transaction malleability, a technical detail that allows changes to the way transactions are identified”.

Has there been widespread theft via Mt. Gox or is the internet site going bankrupt? Bitcoin may consider that Mt. Gox is no longer a trusted partner. One previous statement from Bitcoin stated the following: “This tragic violation of the trust of users of Mt.Gox was the result of one company’s abhorrent actions and does not reflect the resilience or value of bitcoin and the digital currency industry. There are hundreds of trustworthy and responsible companies involved in bitcoin. These companies will continue to build the future of money by making bitcoin more secure and easy to use for consumers and merchants. As with any new industry, there are certain bad actors that need to be weeded out, and that is what we are seeing today”. However, earlier versions (that were subsequently changed by Bitcoin) stated that Mt. Gox was ‘insolvent’. The wording was changed and the statement reissued.

Some are skeptical as to whether Mt. Gox has gone bankrupt today but believe that the problem stems from the system used by the company which enabled theft of bitcoins and subsequent tricking of the system into believing that the transaction had not occurred, thus allowing them to get paid a second time. The question remains however if the judges in the insolvency courts will be able to face the issue of someone who has gone bankrupt ad who owes someone else bitcoins. Dealing in dollars is easy as the value of that dollar is known. How will they solve the bitcoin issue of insolvency?

The fall in the price of Bitcoins this morning means that investors are worried that the problem is larger than being announced and they bankruptcy may not be far off. At least, if it doesn’t happen because of a real problem, then it may well happen because of the investors off-loading bitcoins. In September 2013 bitcoins cost $150. By December they had risen to $1, 000. Today they stand at $491.82. Yesterday the price of bitcoins stood at $550 for most of the trading day. It fell as low as $546 towards the end of the day.

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