MtGox Finds 200,000 bitcoins

MtGox the bankrupt bitcoin exchange that lost 850,000 bitcoins (valued at around £300M) has found 200,000 (£70M) of missing coins in a digital wallet dated 2011.

This hardly gives one confidence in the efficiency or security of the bitcoin exchanges.

Mt Gox Collapses

As expected, the Bitcoin exchange Mt Gox has gone under and has filed for bankruptcy protection. It has debts of around $63M.

As per Reuters:

"A document circulating on the internet purporting to be a crisis plan for Mt. Gox, said more than 744,000 bitcoins were "missing due to malleability-related theft" and noted Mt. Gox had $174 million in liabilities against $32.75 million in assets. It was not possible to verify the document. If accurate, though, it would mean about 6 percent of the 12.4 million bitcoins minted would be considered missing."

The Risks of Bitcoin

Bitcoin, the virtual currency used by traders, speculators and those wishing to duck under the watchful gaze of the police and financial authorities, has suffered a few setbacks recently.

Aside from Bitcoins falling in value, not great news for those who speculated that it was an easy way to make money, a major Bitcoin exchange platform (Mtgox.com) has gone offline this morning.

Seemingly the exchange has been hit by technical issues, and recently (7 February) halted all customer withdrawals of the digital currency after it spotted what it called "unusual activity". MtGox said that it had found a loophole that thieves could use to fool the transaction process into sending double the correct number of Bitcoins.

To add to MtGox's woes, six other major Bitcoin exchanges (including Coinbase and BTC China) issued a joint statement distancing themselves from MtGox. Quoted by the BBC:

"This tragic violation of the trust of users of MtGox was the result of one company's actions and does not reflect the resilience or value of Bitcoin and the digital currency industry.

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 suspension of the site has exacerbated the decline in value of Bitcoin, as a currency (virtual or tangible) is of no use to man nor beast if it cannot be exchanged for goods, services or other currencies.

MtGox claims that it will resume activities soon. However, wired.com claims that MtGox is "insolvent" and has lost 744,408 Bitcoins (worth about $350M).

As with all tangible currencies, if people lose faith in the currency or the institutions that manage/control the currency then that currency will lose value and people will not wish to hold it or use it.

Bitcoin is unregulated and uncontrolled, ie it is like the Wild West, that is part of its appeal. However, that lack of control and regulation is also its Achille's heel. Those who hold or use Bitcoins do so at their own peril, no central bank will ride to the rescue if people's Bitcoin savings are wiped out.