Bitcoin: Is it dying?

Posted by David Gomez

Bitcoins were slowly increasing in value. Then some issues came along and they might kill the current version of Bitcoin before it catches on with the public.  

The ideology behind Bitcoin is revolutionary. Theoretically, if it were to be accepted by a large audience it would take power away from governments and central banks and put it in the hands of the people. The idea could change the way the world works.

The dreamers will have to keep on dreaming for now because multiple issues have come along and threatened the viability of Bitcoin as a digital alternative to government controlled fiat currency.  

First there were the malware attacks on Bitcoin users where malware authors used Trojan searches to find the user’s wallet.dat file. This file contains information about the user’s Bitcoin balance, and the malware attacks were finding people’s Bitcoin balances and uploading it to the attacker.

One user lost 25,000 Bitcoins in a hacking attack which was worth around $500,000 at the time of the theft.

Next the value of the Bitcoin crashed because its largest exchange, Mt. Gox, was compromised. This caused the value of the Bitcoin to fall from about $17.5 to just a few cents. Bitcoin has no central authority, but Mt. Gox is important in the world of Bitcoin because they allow people to convert bitcoins to US dollars and back.

Mt. Gox's owner Mark Karpeles explained to the New Scientist that, the site itself was not hacked, but someone gained access to a computer used by one of Mt. Gox's auditors and stole a read-only copy of its database containing details of over 60,000 accounts.

The thief also tried to sell off all of the Bitcoins in a large account but was stopped by the $1,000 per day limit. This sale caused people to lose faith in the Bitcoin.

The third development is possibly the most troubling.

Gavin Andresen, Bitcoin's main developer has become a spokesperson of sorts for the currency. He was just down in Washington D.C. at the CIA presenting Bitcoin to a digital currency conference. He's also been meeting with his Congressmen to teach them about the system, and why the company should be seen as a way to cut transaction costs, instead of an evil organization responsible for money laundering and drug deals.

And then there’s Donald Norman, the co-founder of Bitcoin Consultancy. He advocates for Bitcoin's regulation, according to CNBC: "Norman is pushing to bring Bitcoin away from its roots and closer to a traditional currency — he is reaching out to regulators, looking to get legislation to oversee the system".

You have to wonder, why are they taking it upon themselves to do this? Don’t they realize that the whole reason that Bitcoin is appealing is because it allows them to buy and sell online anonymously? Getting the CIA and legislators involved will strip Bitcoin of that advantage. Do they really think that the government will allow transactions to remain anonymous if they get involved?

Getting the government involved in regulating Bitcoin will pretty much make it useless.

Bitcoin’s supporters might want to start thinking about using its open source nature to being building a Bitcoin 2.0. This initial version will probably be corrupted by the very forces its creators were trying to keep it away from.