TOKYO -- Bitcoins, the favored digital currency of the criminal, the paranoid and paranoid criminals, appear to be in serious trouble. Whatever dreams the creators had for bitcoin-op appear doomed, or a long way off. The currency's largest exchange, MT Gox, has vanished, along with some 774,000 bitcoins, reportedly worth $409 million in real money.
The bitcoin was created in 2009 as a peer-to-peer digital currency outside of a single nation by a company called Bitcoin. The value of bitcoins is established by complex computer models that would increase or decrease their value against actual money, as well as the use of the digital currency. A favorite among online criminals, including the now infamous drug dealing operation called Silk Road, there was always a "back alley" quality to the cyber-money. However, some companies seeking to lay claim to the cutting edge, such as OKCupid, began accepting bitcoins as payment.
With the collapse of Tokyo-based Mt Gox, the value and credibility of the cyber cash seems in peril. For those unfamiliar with Mt Gox, it stands for Magic: The Gathering Online eXchange. Started obscurely as an online venue to trade Magic trading cards in 2009, it morphed into the bitcoin equivalent of the New York Stock Exchange, responsible for an estimated 70% of the world's bitcoin trades. Plagued by problems, including hackers, nearly from the start of its bitcoin adventure, mtgox.com eventually went offline in mid-February.
Not surprisingly, advocates of the cyber-money remain optimistic. Millions have already been invested by the likes of the Winklevoss brothers, the twins who gained dubious notoriety by suing Facebook founder Mark Zuckerberg. Former Treasury Secretary Larry Summers recently offered cautious optimism about the currency. "I am very mindful that there have been other things that came out of Silicon Valley that seemed very flakey to people on the outside and then proved to be an enormous deal," Summers said in an interview with Politco. "Very serious economists thought that the Internet was going to be no more important than the fax machine, so I'm not willing to dismiss Bitcoin."
While Mt. Gox's fate is unclear, its troubles may not stop more professional players from moving into the bitcoin mainstream. SecondMarket, a small New York company, still plans to launch a regulated exchange to facilitate trading in bitcoin. Given its successful track record -- SecondMarket became a force on Wall Street by conducting trading in shares of Twitter and Facebook even before either company was publicly traded -- some say it has the heft to push Bitcoin past recent problems and make it a legitimate rival to major currencies, such as the U.S. dollar and stores of value like gold. | SEE STORY