So I read on Samizdata this morning that Bitcoin has encountered it’s first truly serious issue. Control over a substantial fraction of the currency has been lost as popular bureau de change Mt Gox has gone bust. The BBC business editor seems to call this right, or at least nearly:
There is no central authority to step in and give any kind of guidance to Mt Gox customers whether their money is safe or gone. And there’s no compensation safety net.
Bitcoin has been set up on the basis of pure caveat emptor. If its participants take any losses in their stride, and learn the lessons, it can go from strength to strength.
If they are unable to develop any kind of governance system that provides confidence that Bitcoins are where they are supposed to be, then it will disintegrate into fringe territory for loons and wild-eyed monetary anarchists.
I think he is right that this is a big test for Bitcoin and of the committment that the participating companies have to keeping it going, but it is not a choice between centralisation or anarchy.
First it is worth noting some confusion about timing. The BBC date the problems back to 7th February and describe them as technical. The leak that precipitated the crisis (according to this sequence of events) is date stamped 24th February. I will trust that Tumblr datestamp over the BBC fact checkers in this case. Also, I like to beleive I have not been asleep for 19 days, although this is possible.
I have not yet read much of the detail, but the timeline is important because it reflects how survivable the crisis is for the core Bitcoin system. Just as the Dollar would not be systemically affected by a bankrupcy of Travellex, Bitcoin is not directly affected by the closure of one exchange. The problem is of credibility.
If users begin to perceive Bitcoin as a risky and difficult option then they are less likely to buy into the concept, just as you are less likely to by a Ford if you think they suffer from rust (I am neither a bitcoin nor a car expert, do Fords rust?). If we were to find ourselves 19 days into a crisis with no-one stepping forward to sort it out, then we would have a serious credibility problem, but if we are just 48 hours in then there is still time.
If the people involved in Bitcoin are just chasing a quick buck, and regard this as a nice job to have while the fun lasts, a job the can leave to go and work in computer games in 5 years time then they will let Mt Gox and $409 million of Bitcoin just melt away. If, however, they have decided that their life mission is to make Bitcoin work then they should be willing to step up and put forward the funds and manpower necessary to mount an orderly bankrupcy process (or investigate the theft, retrieve the coins, repair vulnerabilities etc), by way of mutual contractual agreements – just like a proper political anarchy.
We are about to discover what kind of people are running this system.