MtGox is Dead, Long Live MtGox!

by Matt Powers on March 18, 2014

MtGox, once a pillar of the Bitcoin exchange market, filed for bankruptcy on March 10. In February, the website had ceased withdrawals before ceasing all transactions at the beginning of March. The fallout from the Mt. Gox collapse will bring up many debates about the need for bitcoin exchange regulations, not to mention the bitcoin network’s long-run viability. It is best to understand what actually occurred with MtGox before jumping into action.

MtGox enabled account holders to exchange bitcoins for dollars and vice versa. Within the bitcoin currency network, there are many different exchanges, but MtGox, at one point, controlled about 80 percent of the market, giving it significant influence over the bitcoin market.  MtGox was created back in 2011, with its name as an acronym for Magic the Gathering Online Exchange, named after a trading card game by the same name. From the beginning the site had trouble with security, and was subject to a series of attacks.

One of the most significant events for the exchange occurred in May 2013 when the U.S. Department of Homeland Security (DHS) seized $5 million worth of bitcoins. DHS argued that MtGox had failed to properly register as a money service business. MtGox followed up by registering with the Financial Crimes Enforcement Network (FinCEN), a government agency that regulates monetary industries such as banking to counteract crimes like money laundering and trade in illegal goods.....To Read More....

 

My Take - I will be the first to admit I never really understood this whole Bitcoin thing, and I’ve followed this story from the beginning.  But one thing seemed clear to me - it seemed risky and required a whole lot of people with a whole lot of money to trust a whole lot of people they never saw and a system they had no control over to work efficiently and honestly. We're stuck with the government doing that with our money, but to create a second monetary system with no controls seemed scary to me.  In short, there was a whole lot of trust and very little verification.  One might call this a financial act of faith!

Back in the 1800’s before the Civil War banks used to print their own currency in the U.S.  At one point there were some 8,000 different currencies issued, “which created an unwieldy money supply and facilitated rampant counterfeiting”. There was a lot of financial faith back then also.  We don’t’ do that in the U.S. any longer and for the same reasons.  So often that currency became worthless.