Bitcoin's Errors: Minor Setback or Final Demise?


Jessamy Nichols, Africa CorrespondentLast Modified: 23:54 p.m. DST, 27 February 2014

Bitcoin Book Plate, Photo by Bitcoin LeatherIn an effort to avoid government regulation and intervention, digital currencies have been created in the last few years and have seen some successes.

The most popular one by far though, has been Bitcoin, which rose from a single coin being valued at $30, to $1100 in the last year alone. This tremendous growth came about from growing confidence and increased usage, as online businesses and electronic transactions switched to accepting Bitcoin as a form of payment.

However, this past Tuesday, 27 February 2014,  Mt. Gox, one of the world's biggest bitcoin trading centers, shut down and stopped trading. This caused a massive ripple effect on the sentiment towards bitcoin as consumers' confidence plummeted in tandem with the currency's value.

Leading up to the abrupt halt in transactions, there had been a few cyber attacks on Mt. Gox in the previous weeks, which may have precipitated Tuesday's events. Different reports are being leaked about the situation, including one that says the halting of trading involved 744,000 bitcoins that were "missing."

The bigger issue in all of this mess? Unlike normal currencies that are covered by government-backed insurance, Bitcoin has no such guarantees. In fact, Bitcoin users may have little to no chance of recovering their funds, and are limited to lawsuits for "negligence" or "breach of contract." Outside of those legal actions, there may not be much else consumers can do, and even if the market can recover, this will ultimately tarnish Bitcoin's reliability forever.

How Bitcoin recovers from this fiasco remains to be seen, but if those who used the currency lose vast amounts of funds without any compensation, the concept of a digital currency without government regulation may be done forever.

Follow Jessamy on Twitter Twitter: @nahmias_report Africa Correspondent: @JessamyNichols