MtGox has been having some serious issues recently. I will summarize for those who may not know yet, but my primary goal here is not to describe every detail. Rather, I want to respond to these events and explain what I think it means for the future of Bitcoin. The exchange rate has already taken a good hit and we need to know if it will be able to recover. This has also created a negative image of Bitcoin in the eyes of many people, which we hope can be erased for the most part.
MtGox has been suffering from and causing problems for a long time, but the first ripples of this particular wave appeared publicly on February 7. That is when the exchange announced that Bitcoin withdrawals were disabled. Three days later, on the following Monday, the company blamed a Bitcoin feature known as transaction mutability for the problems. They called it a bug and said that people were able to steal funds because of it. While this is probably completely true, the bug is not in Bitcoin. Transaction mutability is a fundamental part of the protocol and the real problem resided in MtGox's own software.
The following weeks were uneventful except for a plummeting exchange rate at MtGox. No one wanted those coins because no one knew if they would ever be able to retrieve them. MtGox coins were worth less than half as much as real coins. Panicking traders sold off their risk-laden assets for just about anything they could get. The exchange released an update or two revealing little or no new information. They said that they had to move to their old office due to security issues and rumors flourished among the Bitcoin community.
The final blow (so far) came on Monday, February 24, when trading ceased and the exchange's website went down. Even the company's official Twitter feed was wiped out. People had been suspecting insolvency since this whole affair began, but this is when it became a real big deal. A document was revealed suggesting that MtGox had lost hundreds of millions of dollars over time, but it has yet to be confirmed. Regardless, many Bitcoin enthusiasts are concerned and many Bitcoin naysayers are trying to pull off an I-told-you-so moment.
So who is right? Will the enthusiasts survive or will the naysayers get the last laugh? As an enthusiast myself, I lean strongly toward the survival of Bitcoin and foresee a thriving exchange rate. I think the facts support this quite easily. For one thing, MtGox and Bitcoin are by no means synonymous. They used to have a much closer connection, but even then, they were not at all the same. In fact, MtGox has crashed before and the exchange rate has always been able bounce back.
To put things in perspective, note that the relatively low numbers we see now are still over 20-30 times the rates seen at the start of 2013. Note also that there are now many, many more Bitcoin users and companies than there used to be. Bitcoin as a network and protocol is still alive and well, and has always been entirely independent of MtGox.
Bitcoin is indeed stumbling a little, but only because people are worried. Things will be fine as long as confidence can be restored and that should be easy given that Bitcoin has not changed! Nothing was ever broken and the network continues chugging along just as it always has! Just because human beings make mistakes and sometimes even steal does not mean that the math behind Bitcoin is no longer valid.
Of course, we also need to remember that Bitcoin is still something completely new to our world. I believe that the decline and fall of MtGox has no chance whatsoever of tearing down the network, but that does not prove that it cannot be torn down. I could list a myriad of reasons that you can and should trust cryptocurrency, but there is no substitute for actual experimentation and experience. Those are things that we do not have yet with Bitcoin because it is the world's first real shot at a decentralized, distributed, limited currency. No one can prove what will happen to it in the future.
Having said that, if you choose to take the risk and trust the experiment, then now may be the best opportunity you have to get involved. The exchange rate is sitting around 50% of its recent peak, and that is a real steal if you have a bit of spare cash. And of course, MtGox is by no means the only way to buy Bitcoins. I am no financial adviser, so make sure you do your research and never risk anything you can not afford to lose, but do not ignore this opportunity either. It is your chance to take part in the future of money.