Bitcoin trader Kolin Burges, right, of London and American Aaron (only his first name was given) hold protest signs as they conduct a sit-in in front of the office tower housing Mt. Gox in Tokyo.(Photo: Kaori HItomi, AP)

 

Questions swirled Tuesday about the future of embattled Bitcoin exchange Mt.Gox after reports that its chief executive had resigned from the board of a key advocacy group and its website has been disabled.

Mark Karpeles, chief executive officer of Mt.Gox, the Tokyo-based Bitcoin exchange that froze withdrawals earlier this month, submitted his resignation from the board of directors at Bitcoin Foundation, the group that manages the currency.

In a statement posted on its website, the foundation said a "tragic violation of the trust of users of Mt.Gox was the result of one company's actions and does not reflect the resilience or value of bitcoin and the digital currency industry."

Mt. Gox confirmed all Bitcoin transactions have been closed temporarily, but did not cite a reason for the shut down.

"In the event of recent news reports and the potential repercussions on MtGox's operations and the market, a decision was taken to close all transactions for the time being in order to protect the site and our users," read a statement on the Mt. Gox website. "We will be closely monitoring the situation and will react accordingly."

On Bitcoin exchanges, the currency's value has fallen below $490 from about $545 where it opened trading Tuesday. At one point it traded as low as $418. For most of the currency's history, each digital coin had been worth less than $10.

The New York Times reported number of leading Bitcoin companies jointly announced that Mt. Gox was planning to file for bankruptcy after months of technological problems and what appeared to have been a major theft. A document circulating widely in the Bitcoin world said the company had lost 744,000 Bitcoins in a theft that had gone unnoticed for years, the Times reported.

The Wall Street Journal was among the first to report that the mtgox.com website was not able to be accessed.

At the Tokyo office tower housing Mt. Gox, bitcoin trader Kolin Burgess said he had picketed the building since Feb. 14 after flying in from London, hoping to get back $320,000 he has tied up in bitcoins with Mt Gox.

"I may have lost all of my money," said Burgess, next to placards asking if Mt. Gox is bankrupt. "It hasn't shaken my trust in Bitcoin, but it has shaken my trust in bitcoin exchanges."

Darren Hayes, assistant professor at Pace University's Seidenberg School of Computer Science and Information Systems in New York, said the Mt. Gox episode underscores a major concern surrounding Bitcoin: its lack of regulation and backing by governments or major financial institutions.

So far, Japanese authorities have not signaled their involvement in the incident, meaning the money will likely never be recovered, he said.

"This has been a tremendous blow to the confidence of those who believe in the currency," Hayes said.

Even if a government agency chooses to look into the incident, it will be much harder to investigate than traditional financial schemes due to the anonymity of users and lack of paper trail, he said.

Bitcoin's saving grace could be the U.S. government, who has so far not given much guidance on the crypto-currency but has not denounced it either, Hayes said. "Until we see the U.S. come out with an actual position on the currency, we're not going to see it thrive without concerns," he said.

Mt. Gox was one of the first exchanges for the virtual currency that has been inching toward broader acceptance despite wild swings in value.

When it froze withdrawals earlier this month, the company cited a software bug that allowed people to "use the Bitcoin network to alter transaction details to make it seem like a sending of bitcoins to a bitcoin wallet did not occur when in fact it did occur."

"The problem we have identified is not limited to MtGox, and affects all transactions where Bitcoins are being sent to a third party," Mt. Gox added in a statement on its website.

Several Bitcoin exchanges released a joint statement saying that funds under their control are held securely.

Prominent members of the Bitcoin community — including San Francisco-based wallet service Coinbase and Chinese exchange BTC China — sought to shore up confidence in the currency by saying Mt. Gox's collapse was an isolated case of mismanagement. They said it had abused users' trust, but did not offer details on how.

"As with any new industry, there are certain bad actors that need to be weeded out, and that is what we are seeing today," the statement said.

The Bitcoin operators said they are working to "re-establish the trust squandered" by the failings of Mt. Gox, which should not be considered a reflection of the value of Bitcoin or the digital currency industry.

Though a blow to Bitcoin, the latest episode won't mean the end of the currency, so long as enough users continue trading the crypto currency, said David Wolman, a journalist and author of The End of Money: Counterfeiters, Preachers, Techies, Dreamers – And the Coming of Cashless Society.

"For people who were already believers, this is a hiccup and frustrating and problematic," he said. "But I don't think any of those people are going to divorce themselves from bitcoins."

For the currency to truly go mainstream, however, more oversight may be needed. "This episode is a very clear example that regulation matters," Wolman said.

Source: USA TODAY

 

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