The once dominant Bitcoin trading platform Mt. Gox stopped transactions this week, and the virtual currency’s dollar value dropped. But local Bitcoin enthusiasts saw a silver lining.
“It’s certainly negative in that a lot of people lost a lot of money,” said John Devor, a local Bitcoin enthusiast and organizer of a loose network called Bitcoin Baltimore, which holds monthly meetings and has built an online membership of 64.
“I would say it’s good in a lot of ways, because Mt. Gox has been struggling a long time … it needed to be put down, so to say.”
The Mt. Gox website, which was run out of an office tower in Tokyo, was shut down Tuesday. The site displays a letter which says that it had closed transactions. For people who had virtual currency sitting in the exchange, it was as though a bank had cut off access to their account. A widely circulated report said that the exchange had lost hundreds of thousands of Bitcoin to theft.
Despite the incident, Devor stands by the virtual currency.
“Bitcoin is not Mt. Gox and Mt. Gox is not Bitcoin,” he said. “The price of Bitcoin was affected, but that’s it. The thing that makes Bitcoin special has not changed.”
Devor said he used the Mt. Gox platform for his first Bitcoin transaction. But he quickly abandoned it, opting for exchanges with better technology and customer support.
Tzadik Vanderhoof, another Baltimore Bitcoiner, said he never used the exchange because he was wary of its reputation. When he began dabbling in virtual currency, almost one year ago, he heard in a podcast that the Gox platform was subpar.
Vanderhoof, in fact, sees the shutdown as a positive. It’s bad press for Bitcoin, he said, because Mt. Gox was well known, but “it’s kind of good news in a way because they were run very incompetently.”
According to coindesk.com, the dollar value of Bitcoin dropped as low as $451 Tuesday morning. It had been as high as $637 in the past week and peaked at more than $1,100 in December.
“It’s a setback, but Mt. Gox’s collapse does not invalidate Bitcoin any more than the failure of a bank invalidates the dollar,” said James Grimmelmann, a professor at the University of Maryland Francis King Carey School of Law with a special focus in technology topics.
Because the technology is complicated, he said, virtual currency users must rely on software written by people who may or may not have secure systems.
“It’s like putting your valuables in a safe deposit box at a bank that doesn’t lock the room,” he said. The Gox incident “points out some of the dangers, but Bitcoin can be useful potentially.”
Devor, along with a few members of Bitcoin Baltimore, plan to set out soon on a door-to-door mission to help area business owners see just how useful the virtual coin can be.
They will promote the currency’s lack of fees, irreversible charges and independence from banks, among other features. They will even help companies to set up a Bitcoin payment system. Those who are apprehensive about keeping revenue in a virtual marketplace can use a service that allows nearly instant reconversion of paid Bitcoin to U.S. dollars.
“We really want to build up local Bitcoin excitement here in Baltimore,” said Devor.
The veteran virtual currency user admitted that the system is not yet perfect. But he said the value is becoming steadier, and predicts that it will become less volatile over time.
“It just popped out of the womb,” he said. “I never tell people to put more money than they’re comfortable losing into it.”
But that doesn’t mean businesses need to back away, said Grimmelmann. Go ahead, he says, experiment with Bitcoin. Just be sure to convert to dollars often.
“It’s like if you run a business and people pay you in cash,” he said. “You take the cash to the bank … you don’t just leave it in piles in the back room.”
Virtual currency will eventually require some sort of regulation, said Paul Tallon, a professor in information systems and operations management at the Loyola University Maryland Sellinger School of Business.
“Somebody must be in control of the currency,” he said. “Really, what you have to have is a third party that does everything that the Fed would do” with the U.S. dollar.
Part of Bitcoin’s allure to some users was a lack of government regulation and tracking. It led to popularity among people conducting illicit business activities, such as the Silk Road online marketplace, which used Bitcoin in an illegal drug marketplace.
But it was also attractive to those who have a general distrust of government regulation.
“If the government feels it needs to do something, I’m all for it so that Bitcoiners can feel comfortable,” said Devor. But he’s not thrilled by the idea. “I would just say we have no choice,” he said. “The infuriating part is these laws will be written by people who don’t understand the technology.”
For Vanderhoof, the idea is potentially upsetting because he has enjoyed seeing startups form around Bitcoin trading.
“Maybe it makes sense that the government makes you prove that you have the reserves,” he said, but “it might just limit the opportunities to financial institutions that are already big.”
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