Bitcoin Gains Support as Legitimate Currency

Michael In the News

Since its creation by a mysterious internet user, Satoshi Nakamoto, and subsequent execution by netizens, Bitcoin has grown in popularity. By now, nearly everyone has heard of Bitcoin: the strongest cryptocurrency available. Although the value of this virtual currency fluctuates greatly, as low as $7 and has high as $1000, it is carving a niche for itself in developing countries and in online marketplaces.

Bitcoin Failures

The biggest fault of Bitcoin lies not in its fluctuation of values or lack of people using it, but in the medium through which it is handled: the internet. Over the years many Bitcoin marketplaces and exchanges have disappeared basically overnight. Leaving the people who trusted these ‘financial institutions’ not only scratching their heads, but pulling our their hair.

Many times, the companies blames hackers who infiltrated their vault and virtually robbed them blind. Some of these claims are legit, others seem to be ways to simply allow the vault owners to fade into darkness with hundreds of thousands- sometimes hundreds of millions dollars’ worth of Bitcoins in their possession.

In March of this year, Evolution Marketplace, the holder of $12 million worth of Bitcoins did just that. The owners’ names aren’t even know; they simply go by the aliases Verto and Kimble.

Evolution Marketplace grew exceedingly fast after the previous champion of dark web marketplaces, Silk Road, was shut down and its owner, Ross Ulbricht arrested. Members of the site when it disappeared admitted to losing upwards of $50,000 and its not unlikely that some lost more.

However, this ‘exit scam’ pales in comparison to the mother of all Bitcoin failures, Mt. Gox.

Mt. Gox and their Mountain of Bitcoins

In early 2014 Mt. Gox, the most recognizable Bitcoin vault at the time, went offline. When it closed its virtual doors there was no message displayed on its site, no explanation. Even all of its Twitter posts were deleted.

After an agonizing week of silence a message was posted on Mt. Gox’s website. Then, unsubstantiated reports began to surface that the site had experienced a major hack that had left its stockpile of 850,000 Bitcoins dry.

Those reports, still unable to be verified to this day, were followed by other claims that the company had been victim of a bug that allowed hackers to siphon off the company’s Bitcoins for years.

Interestingly, the company also suffered an attack in 2011 where $9 million worth of Bitcoins was stolen from the company. That amount was small enough that Mt. Gox was able to cover its losses and stay afloat.

However, the 800,000 Bitcoin loss amounted to half a Billion dollars (500,000,000 in case you want to count the zeros) at the time of the loss.

Then, a month later, the company ‘found’ 200,000 Bitcoins in a forgotten virtual wallet. However, that cryptocurrency was swept up into the bankruptcy filing that the company had already filed.

Around that time, hackers took control of CEO Mark Karpeles Reddit account and blog. They subsequently posted a file that contained, along with Karpeles personal information, a spreadsheet that showed company’s vault still contained over 900,000 Bitcoins. Which, if true, would constitute fraud. The file was at least partly substantiated as Reddit users found their own account history in the data.

How to Lose a Bitcoin 850,000 Bitcoins in One Day

Whatever the case is, a few things are definite. The Bitcoins have never been found, the cause of the loss has never been identified, lots of people lost a lot of money, and no one has been held accountable.

However, there has been one arrest.

Mark Karpeles was arrested in Japan on August 1st. Although the charges against him aren’t directly related to the half a billion dollar conundrum, it could land him in prison for five years. The expected charges pertain to embezzlement and illegal bank account manipulation.

Japanese officials allege that Karpeles inflated his account by $1 million in 2013, a year before the disappearance of Mt. Gox.

Following the arrest, Reddit user Ashley Barr- whose real name is Adam Turner- conducted an AMA -ask me anything- session that you should read. Turner was an employee under Karpeles from 2011 to 2012 and was even offered the position of CEO.

In the AMA Turner outlines the lackadaisical operation of the company. He explains how Karpeles insisted that he become CEO and pushed his employees to find investors all without seeing the financial status of the company, had the company bank account directly linked to his own personal account (yea, that’s crazy), and ignored any conversation about the expenditures of the company being far greater than its revenue.

Which seems to point to the fact that bad-no, horrible- business practices are more to blame than any kind of hacking or bug. If it’s true it might even squash the allegations that the Bitcoins were stolen in an ingenious exit scam.

Blockchain: The Strength of Bitcoin

Despite the demise of Mt. Gox and other Bitcoin exchanges, Bitcoins are gaining popularity as a possible substitute for fiat currency (conventional centralized currency). Or perhaps a better way to put it is the technology that makes Bitcoin secure (kind of).

Blockchain is the technology that gives Bitcoins the security that they do have. With blockchaining, a public ledger is instantly updated with every Bitcoin that changes hands. This technology prevents the same Bitcoin from being spent and from an owner claiming that he never spent a particular bitcoin.

Banks are now paying special attention to this rising technology. In an industry that usually resists change and is one of the last to embrace it, this is surprising. Perhaps, because if they don’t incorporate this technology somehow it may very well leave them in the past.

Blockchaining enables a transaction to be instantaneously verified and transferred. Something that financial institutions have yet to master. The concept of blockchains is adaptable: Citigroup has begun to experiment with it through CitiCoin (very original), and Goldman Sachs has invested a report $40 million into a Bitcoin company called Circle.

Bitcoin has even garnered endorsements from politicians- including 2016 presidential candidates. Rick Perry said that there should be “regulatory breathing room” for cryptocurrency. Rand Paul, although skeptical and avoiding in investing in them himself, began accepting Bitcoin donations this year. And Dan Elder who ran for a US House seat in Missouri in 2014 funded his campaign solely with Bitcoins (I guess he didn’t get much because he only received 6.9% of the vote). Here are a few other politicians around the world that endorse Bitcoins.

It’s hard to say how risky Bitcoins really are. At their peak they were worth over $1000 a piece. Currently, however, they are below $300 invest at your own risk.

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