According to the media one of Bitcoins exchanges got hacked so badly they had to go off air as a result. Which is quite shocking when you think about, one act of hacking took down a whole monetary exchange system…
For those of you wondering what on Earth Bitcoin is – it’s a purely virtual digital currency based on cryptographic techniques, there is no direct physical exchange to actual money – rather you have to convert into and out of it like any currency – you cannot carry it directly in your pocket. Even the wallets are virtual..
“Bitcoin’s value fell close to 23% from its already battered price to around $418 at its lowest point Monday night as the oldest and once-largest Bitcoin exchange went offline completely, showing a blank website and even deleting all messages from its Twitter feed. That dramatic drop in Bitcoin’s price, in fact, doesn’t even factor in the digital currency’s exchange rate on Mt. Gox itself, where Bitcoins were selling for less than $200 as users feared that they wouldn’t be able to retrieve coins they’d bought due to the company’s potential bankruptcy.”
To me this is the core problem with Bitcoin and the whole eco-system, it is wholly and completely dependent on the security and integrity of those operating it to provide a valid market using Bitcoin as the currency. As soon as the virtual currency is stolen right out of any part of the infrastructure the whole is at risk.
Now, you can say the same with the current generation of currencies, but at some point it has to either be converted into physical money or go via a bank or other similarly accredited and monitored body. The odd’s of being able to virtually steal this money on a large scale and actually get away with it are rather limited as what is held in the computer records have no inherent value in of themselves, rather its a ‘tally’ that is part of the total banks obligation at any given time – based on physical assets (i.e. money in the bank and other assets like loans etc). Virtual currency has no such separation of value from what is held in the computer – you are literally stealing virtual coins..
So, will Bitcoin implode? I think it is unlikely in the long term, the value of the currency as an unregulated & unmonitored means of exchange almost guarantees it’s future. Well it keep going up like crazy?, I think that is unlikely as well.
My advice would be that if you have to use Bitcoin, use it as a medium of exchange and minimise any positions you have in the currency in the short term.