Right now, the Bitcoin community is going collectively insane trying to figure out what this all means. In one sense, this is about Mt. Gox and only directly impacts users who relied on that particular exchange.
Bitcoin is facing the biggest crisis of its short existence this week as Mt. Gox—the Tokyo-based Bitcoin exchange that was once the largest in the world and often held up as the baseline for establishing Bitcoin's exchange price—has gone belly up. In fact, it isn't just that Mt. Gox has gone belly up, it's the manner in which it did so that is particularly dramatic (and worrying for supporters of the online cryptocurrency).
It all happened late Monday night when a “Crisis Strategy Draft” by Mt. Gox was leaked to the internet. It admitted that 744,408 BTC (about $880 million dollars calculated at Bitcoin's peak price of $1200 USD) went “missing” from the exchange due to a “transaction malleability” problem with the exchange that left transactions open to theft. And apparently someone (or someones) took full advantage of that loophole.
Right now, the Bitcoin community is going collectively insane trying to figure out what this all means. In one sense, this is about Mt. Gox and only directly impacts users who relied on that particular exchange. Determining what happened (was it a hack, as some are claiming, coordinated theft by the exchange owners, or something else?) will be vital in order for Bitcoin to move forward and for the general public to have any hope of believing in the currency again. Because as much as this is a problem specific to this one exchange, it impacts on public perception of the fledgling currency itself. As the leaked Mt. Gox document itself notes:
“At the risk of appearing hyperbolic, this could be the end of Bitcoin, at least for most of the public. We believe in the value of Bitcoin, its potential to change the world, and its principles of transparency. Most importantly we care about the customers of MtGox and other bitcoin-based businesses who will be affected. The likely consequences will be larger than this localized financial damage, and we believe that the benefits of keeping MtGox stable and running outweigh the risks. This isn’t about saving MtGox anymore.”
Bitcoiners are gathering at various online forums to commiserate and swap stories of how much “money” they lost in this fiasco. There is one completely unconfirmed (and highly suspect) story on Reddit.com of a man committing suicide after losing 900 BTC.
Of course, some of Bitcoin's most enthusiastic proponents are actually calling this a victory for the currency. After all, this is what SHOULD have happened to JPMorgan, BoA, AIG, and all the other insolvent institutions during the 2008 financial crisis. The fact that it didn't happen in that case shows the mainline financial system is a fraud. The fact that Mt. Gox did go under shows it's a free market. Try telling that to the person who just lost a notional million dollar fortune in the blink of an eye, or an already-skeptical member of the public who is looking for a reason to put his money into Bitcoin.
It seems clear that whatever the case, there are going to be huge ramifications for the Bitcoin community in general over this incident. There is no getting around it, how the community reacts to this incident (and if governments are motivated to step in with further regulations) will determine the future course of the currency.