The Mt. Gox Debacle: What Happened, What It Means for Bitcoin
EspañolThe recent shutdown of Mt. Gox, once the world’s largest trading platform for bitcoins, has sparked, as expected, a flurry of flashy headlines in the mainstream media warning that the event portends nothing less than an apocalyptic end for the cryptocurrency.
This is, of course, a natural consequence of the institutionalized worldview that axiomatically and uncritically assumes market dynamics as chaotic, socially destructive forces, only to be tamed by a benevolent governmental apparatus in charge of watching over the interests of the wider public.
Take, for instance, the headline from Joe Paglieri at CNN Money:
“Mt.Gox site disappears, Bitcoin future in doubt” (emphasis mine).
It’s one of the clearest examples of the phenomenon. The bankruptcy of a key player in an industry is assumed to inexorably imply instant doom for the industry as a whole. A very similar logic to what the whole “too big to fail” meme meant towards justifying the enormous bailouts handed out to the banking industry during the latest global financial crisis.
But upon reading the body of the article, it is clear — at least for anyone with a minimally consistent view of how markets work and their role in the evolution of a sustainable economic systems — that there’s nothing in it that warrants such an alarmist conclusion.
What the article does say is that Mt. Gox’s competitors immediately stepped forward to collectively condemn the company’s practices that allegedly led to its failure and the loss of its customers’ assets:
This tragic violation of the trust of users of Mt.Gox was the result of one company’s abhorrent actions and does not reflect the resilience or value of Bitcoin and the digital currency industry.
Furthermore, Paglieri writes that “although Mt.Gox’s shutdown was unexpected, its piling troubles were no surprise,” at least for other key industry players, such as Evan Rose, president of Bitcoin ATM company Genesis:
The people running the systems right now are not necessarily business men.… For the most part, they’re people who came into this digital project without grasping the value or risk of it. The ecosystem is maturing, but it’s a little scary for everyone involved.
If anything, candid statements by key players about the evolving nature of an infant industry and its inevitable weeding out of bad actors, appear to be positive signs that it is healthy and most probably able to sort out this mess relatively unharmed. (Erik Voorhees’s recent delcaration is also an interesting example in this regard.)
Meanwhile, at Reuters, a news story by Joseph Ax and Karen Freifeld published today does a great job of showing how the regulatory bias works, and how it may become what ultimately stunts the growth and development of bitcoin as a sound medium of exchange to a fraction of what it could have been.
First off, the nub of the story, what makes it newsworthy, is that Mt. Gox customers “might be out of luck” because, well, they may not be able to get their money back should the company finally declare bankruptcy.
This already shows how entrenched the notion is that no one ever, under any circumstances, should take final responsibility for what he does with his own money.
What’s even more telling, though, is that the article cites James Grimmelmann, a professor at the University of Maryland who focuses on Internet law. He says that “customers would have the same avenues of legal redress as anyone who entrusted property to an institution that failed to keep it protected, such as negligence, breach of contract or even fraud.”
In other words, the current state of the law would allow customers to handle the issue in the same way that responsible adults would handle any other problem related to their fairly acquired property in the marketplace.
But for the state apparatus, of course, there is simply no way that rational, responsible adults would be able to evaluate for themselves the quality of the businesses they deal with: the article warns us that “New York State’s top banking regulator is exploring licensing requirements for bitcoin exchanges.”
And if the licensing requirements are finally implemented, these artificial barriers to entry will of course allow for the cartelization of the bitcoin industry into the hands of a few giants. Not so many years from now, they will surely be characterized by the media, in typically Orwellian terms, as “the inevitable result of cut-throat market competition.”
But despair not, dear non-statist, or even minimally-rational Mt. Gox-debacle spectator. There’s plenty of content in the tubes taking a good shot at a non-inflamatory, market-oriented perspective at the whole thing.
Do your own Googling, but allow me to suggest my two favorite pieces so far:
Khadim Shubber’s “Good Ridance to Mt. Gox,” at Slate:
[Mt. Gox’s] death poses serious questions about how long advocates of the digital currency can resist regulation. But it also offers a glimmer of hope that bitcoin’s reckless youth may finally be behind it.
Tom Knapp’s “Future Of Bitcoin ‘In Doubt?’ I Doubt It,” at c4ss.org:
If Bitcoin falls to zero in perceived value today or tomorrow, it will still have been a smashing success: Proof of concept that a non-government, peer-to-peer, self-organizing currency with no central authority can be done.
And yes, Bitcoin proper could fade away into irrelevance as better, stronger, sounder, more easily anonymized cryptocurrencies replace it.… cryptocurrencies are here to stay.
Why? Because they work. They serve several vital functions: Not just protecting their users from government and private thievery, but also making “micropayments” — the holy grail of Internet commerce in very cheap things — feasible and making borders economically superfluous.