As the Mt. Gox debacle unfolds, numerous serious issues are coming to the fore which go far beyond Mt. Gox. The sheer scale of losses incurred at Mt. Gox should never have happened, and the fact it did happen shows that before Bitcoin can become mainstream serious issues need to be addressed. Users were clearly treating Mt. Gox like a bank, and Mt. Gox was likely behaving like a bank operating a fractional reserve Bitcoin system.
In fact it could very easily be said that Mt. Gox were almost operating a Ponzi scheme in that Bitcoin withdrawals were highly restricted, being totally dependant on others selling Bitcoin first. Either way, the legality, morality and business ethics of Mt. were and are highly questionable to say the very least.
This is the reason why Bitcoin has been vilified far and wide because people don’t believe in Ponzi schemes as it is a fraud scheme designed to just mint money off innocent individuals and most folk started putting Bitcoin into the same category even with Mt. Gox’s dubious reputation notwithstanding as bitcoin storm website has the legal papers available for everyone to see.
Mt. Gox appears to have been variously a casino, fractional reserve Bitcoin system, Ponzi scheme and scene of massive incompetence and management failings and possible crime, of the sort reminiscent of the wild west, all of which have, and will continue to cause Bitcoin and the Bitcoin community considerable damage for months or even years to come.
However, Mt. Gox were only able to do this due to the fact that customers were using Mt. Gox as a bank, depositing and storing large reserves of Bitcoin, despite the ongoing serious issues and warning which were ignored, to which extent users must also accept responsibility. This in turn enabled Mt. Gox to get away with their scheme for so long. Had Mt. Gox been used purely as an exchange between fiat currency and Bitcoin and customers has not kept Bitcoin reserves there, Mt. Gox would have almost certainly been insolvent and folded one or two years ago without the damage we see today from the fallout, and maintaining much greater exchange rate stability.
The Bitcoin volatility of the last year or two can be largely attributed to issues at Mt. Gox, and is adverse for Bitcoin in both long and short term as well as for wider spread use.
This then raises some very serious issues about the future of Bitcoin. If sophisticated Bitcoin users can succumb to serious shortcomings and suffer such serious consequences, and what was the biggest and most respected Bitcoin exchange can collapse in such a spectacular and acrimonious way, then clearly very serious issues need to be addressed so that this can never happen again and before Bitcoin can become mainstream. As it is, due to lack of understanding by the general public, fuelled by mainstream media misinformation, the Mt. Gox debacle has caused considerable damage to confidence and adoption of Bitcoin itself.
And this is just the tip of the iceberg.
While Bitcoin itself is very easy to use, the infrastructure currently exposed users to a very wide range of issue, many of which can lead to a complete loss of Bitcoin through theft or fraud, or the complete loss of Bitcoin to the system through negligence and lack of good Bitcoin practice.
There are numerous challenges facing Bitcoin in the future, not the least of which is the threat of regulation. As reported by Bitcoin Reporter recently, the very future of Bitcoin is dependant on it remaining totally de-centralised, peer to peer, distributed and unregulated at every link in the chain, including exchanges, service providers and shops. This is a challenge in itself, but one that the community will rise to.
Another crucial factor for success is Bitcoin user education which is woefully lacking at this time. Users need to understand about the different types of wallet available and issues with each, security of wallets and Bitcoins including the danger of trojans on computers and other devices designed to steal Bitcoin from wallets, how not to accidentally delete Bitcoin and wallets, how not to be scammed by sending Bitcoin and not receiving goods or services and so on.
The mainstream media, government, banking system, critics and many other anti-Bitcoin sectors will be very quick to jump on every last issue, large or small, to scare the general public away from Bitcoin, or as an excuse for regulation.
It is clear then that Bitcoin must look to an independent Bitcoin peer group such as The Bitcoin Foundation to produce a voluntary Code Of Practice and education for both Bitcoin users and businesses that can be referred to by all involved or wishing to be involved with Bitcoin.
In addition, Bitcoin businesses may receive a periodically reviewed “seal of approval” for strictly following the Code of Practice, with a logo that may be displayed so that users can use the business or service with confidendce.
The very last thing that Bitcoin needs is interference and regulation by centralised, self-interested governments and other entities, but on the other hand, without a Voluntary Code of Practice and User Guidelines from a recognised Bitcoin peer group, Bitcoin will remain in the wild west for many years to come.