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Virtual money, real woes

So much about Bitcoin seems Utopian: a virtual currency traded online without government regulation or fees charged by banks. Users keep their "money'' in digital "wallets'' or in physical Casascius coins, shown above, that have Bitcoin value embedded inside. But then came Tuesday, when the website for Mt. Gox, the largest Bitcoin exchange, went dark. Its customers were left to wonder what happened to their currency. Unlike the conventional financial system, there's no FDIC to back up Bitcoin losses. Bitcoin trader Kolin Burges hopes to get back $320,000 he has tied up with Mt. Gox. "I may have lost all of my money," Burges said. How it works, what's next, 4A

What is Bitcoin?

Bitcoins are basically just lines of computer code that are digitally signed each time they travel from one owner to the next. They are the basic unit of a new online economy that runs independently of any company, bank, or government. Bitcoins allow people to trade money without a third party being involved. While Bitcoin fans have said the technology could provide a revolutionary new way of moving money around the world, skeptics have viewed it variously as a Ponzi scheme or an investment susceptible to fraud and theft.

What is Mt. Gox?

Created in 2010, Tokyo-based Mt. Gox quickly became the most popular place to buy and sell Bitcoins. But the firm has suffered several intrusions and technological mishaps, which have led to steep declines in the currency's price. Mt. Gox was originally founded as a place to exchange trading cards. The name Mt. Gox is an acronym for "Magic: The Gathering Online eXchange." A leaked Mt. Gox document disclosed Tuesday suggested almost 750,000 Bitcoins ($350 million) had been plundered from the company over three years.

What happened?

It's not entirely clear what happened to Mt. Gox, which has sometimes been criticized for poor security. It suffered a crippling theft in 2011, and several experts have accused the exchange of ignoring warnings about a glitch that could enable hackers to drain the business of its Bitcoins. The glitch was recently fixed, but not before Mt. Gox imposed a ban on Bitcoin withdrawals, feeding speculation that the exchange was out of money. The uncertainty sent the value of a single Bitcoin tumbling to about $470 from a high of $1,200 in December.

Mt. Gox, the largest exchange for the virtual currency Bitcoin, has shut down. Can Bitcoin survive and thrive?

Virtual money, real woes 02/25/14 [Last modified: Tuesday, February 25, 2014 11:38pm]

    

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