Bitcoin on the Verge of Collapse?

BitcoinBitcoin may be on the verge of collapse after the largest exchange company ceased operations. Mt. Gox made an announcement earlier this month that it would stop allowing people to withdraw their virtual currency, and suddenly closed down the website on Tuesday.

Users may have lost over $300 million from the decision to close the site down and it has thrown the virtual currency into uncertainty. There have been previous setbacks recently, including the removal of various Bitcoin wallets from the Apple App Store.

The virtual currency can be purchased with real money, and can be gained through mining. It is only worth the value that an algorithm gives it, and that can change much quicker than the value of real currency. It has only been recently that the currency has gained value to the point where many people have decided to invest in it.

Just weeks ago, people started to believe that this type of money was going to become a mainstream method of paying for things. The microjob site Fiverr started offering Bitcoins as a way to purchase gigs, and many other online networks have moved in the same direction.

However, there has always been an issue. In November, there was a loophole reported through the mining techniques, which could have meant hackers were able to access thousands in the currency before anybody realized it was not available. This loophole would only be overcome by limits set by the administrators of the systems.

So, are Bitcoins really on the verge of collapse already? Mt. Gox has certainly made it seem so. The company gained a large following just last month and has suddenly closed business without an explanation. So far, only a vague announcement was made by Mark Karpeles, CEO of the Tokyo-based company that stated the business was at a turning point.

Closing the business is the same as a bank closing. People are unable to get their money and it has led to protests outside the headquarters for Mt. Gox. Those investing can only invest and withdraw through specific systems that their e-wallets are set up through.

According to Reuters, a document currently circulating, shows that the company has $32.75 million in assets but liabilities calculating as much as $174 million. This was based on 744,000 Bitcoins being irretrievable. The document has not been verified and there is no source for where the information came from. If it is correct, it is not a good sign for those waiting to get their money back.

All transactions on the virtual currency have been stopped, according to the Bitcoin website. This is to protect people, while more is understood about the future for the currency.

The initial decision for Mt. Gox to stop withdrawals was due to questions over security. There have been concerns about money laundering through this currency. There are limited ways to track who has sent and received the money. The company noticed that there was some “unusual activity” on some of the wallets, so they needed to investigate. However, the sudden closure has raised questions over whether Bitcoin is on the verge of collapse already.

By Alexandria Ingham

Los Angeles Times
Decoded Science

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