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Bitcoin exchange failures don't mean anything in the long run

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It’s a great set of stories for the media and an illustration of the need to employ boring old-fashioned secure electronic transaction consultants when designing new systems, but the Bitcoin exchange failures don’t really mean anything.

The media fascination with Bitcoin continues. The Sunday Times magazine led with a “who is Satoshi” this weekend (they don’t know) and the BBC’s Business Editor, Robert Peston, said last week that

What excites is the development, by Bitcoin enthusiasts, known as miners, of a super-efficient money transmission network on the internet,

[From BBC News – Bitcoin’s life-or-death moment]

I would put it slightly differently: it’s a digital asset transmission network, and electronic cash is only one of the kinds of digital asset that might be transferred and quite probably not the most interesting one (if you can transfer digital assets efficiently then you have no need to use cash as an intermediary). But some people are using it for cash, and having handed over that cash to people they had never met before and had no reason to trust, they are predictably upset that it has vanished.

Citing an unnamed company lawyer who also spoke at the press conference, The Wall Street Journal reported that MtGox had lost 750,000 bitcoins (around $412.5 million) belonging to customers, and over 100,000 bitcoins (around $55 million) of its own money.

[From Having lost $468 million in bitcoins, MtGox files for bankruptcy protection | Ars Technica]

On twitter, I couldn’t help remarking on the coincidence of the amount, which rather neatly matches the amount that seems to have gone missing from Citi at the same time.

as much as $400m was misappropriated throughout the course of the fraud

[From BBC News – Citigroup profit hit by Mexican fraud]

Imagine trying to get $400m out of Citi by robbing branches with a shotgun! It is inconceivable. As the old saying goes, if you want to rob a bank, work for it. Which, in the absence of any verified facts whatsoever, leads observers to the natural speculation that Mt. Gox’s money may have walked out of the back door rather than the front.

But I digress. Oh wait, another Bitcoin exchange has just been robbed and shut down. The question I am being asked repeatedly is what the Bitcoin exchange shenanigans mean for the long run. As I said when interviewed for the BBC Today programme, I strongly suspect that it means nothing. And the reason I say this is because as I have long and boringly maintained (starting back in 2011), I don’t think XBT makes sense as a currency and I think the activity around the currency is a speculative bubble (as does Nobel Laureate economist Robert Shiller). I do drink the cryptocurrency kool-aid, but I see the advent of cryptocurrencies that embed values that make sense to wider communities. XBT is different. It isn’t about values, it is about belief.

Bitcoin can’t survive without manufacturing consent for its ideology.

[From The Bitcoin personality cult lives on | FT Alphaville]

That may be true of the currency, but I don’t think it is true of the technology, a genuine breakthrough. Right. I promise not post anything about Bitcoin for at least a week.

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