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June 19, 2011 / twobitcents

MtGox Hacked: Is It a Bitcoin Problem?

Today (June 19th PST) many witnessed a huge sell-off in Bitcoin on MtGox. That video seems to summarize the reaction and opinion that many had. Another YouTube video claims a large sell-off occurred at $0.01 – so virtually any buy order was being allowed.

Currently the MtGox website redirects to a support article, which claims a single account was comprimised with a large amount of Bitcoin. Posts on the bitcoin.org forums are challenging the single account theory, since password lists have been released and others say they logged in before MtGox shut it down and saw something irregular.

Now that we’re all up to speed: Did this have anything to do with Bitcoin as a currency? Many are quick to blame BTC as a digital currency, free market, and who knows what else. Let’s get some things straight here:

  • This happened entirely within MtGox. Graphs you’re seeing in videos and trading numbers reflect this one exchange. From what I understand not many actual BTC trades occurred.
  • Security is always a problem. It’s basically an arms race. Bank accounts, entire banks, companies, credit cards, and cash in a vault gets stolen all the time. As long as there is a market to freely compete it will select the best combination of price and quality.
  • “Bailout?” Are you high? There is no central control in the BTC market. MtGox can play guardian angel – by rolling back transactions – and enjoy the risks of doing so. If people don’t wish to associate with how MtGox handles this situation they may move to TradeHill or Britcoin.

In reality we’re looking at a very young market here with little corporate adoption because of the uncharted legal waters it sails. While at the heart it is very decentralized and could support thousands and millions of exchanges – it currently does not. What the community should take from this is that more exchanges are needed to foster more competition, which will improve quality in all dimensions.

Edit: Looks like I’m not alone. Greetings to go1dfish from reddit!

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