Bitcoin in Crisis: How a Trade Group Defended a Currency Under Fire
The cryptocurrency has a rough road ahead after the shutdown of its most prominent exchange, but the Bitcoin Foundation has taken steps to protect it from the downfall of Mt. Gox.
The future of Bitcoin is on the line, with the budding cryptocurrency facing some of the worst press in its short history this week. What’s a trade group to do?
In the case of the Bitcoin Foundation, the answer appears to be to do everything possible to help.
After the Mt. Gox currency exchange folded dramatically this week, the group acted quickly to assure all that the behavior of the Japanese exchange did not reflect the currency’s potential. A few examples of how the foundation has handled the crisis:
Defend the currency: When the Mt. Gox exchange reported the theft of millions of Bitcoins, the exchange’s owners blamed deep-seated flaws in the Bitcoin software. “A bug in the Bitcoin software makes it possible for someone to use the Bitcoin network to alter transaction details to make it seem like a sending of Bitcoins to a Bitcoin wallet did not occur when in fact it did occur,” the company wrote. The foundation disputed this assessment, saying that the exchange’s own technical flaws were to blame. “The issues that Mt. Gox has been experiencing are due to an unfortunate interaction between Mt. Gox’s implementation of their highly customized wallet software, their customer support procedures, and their unpreparedness for transaction malleability, a technical detail that allows changes to the way transactions are identified,” Foundation Chief Scientist and Board Member Gavin Andresen wrote on its blog.
Accept a resignation: On Sunday—just before the exchange’s total shutdown—Mt. Gox CEO Mark Karpeles resigned his seat on the foundation’s board and removed his company from it entirely. The group said in a short statement on its site: “We are grateful for their early and valuable contributions as a founding member in launching the Bitcoin Foundation.” This is not the first time the foundation has lost a board member amid negative press this year: Last month, BitInstant founder Charlie Shrem resigned after he was arrested and charged with money laundering.
Work with authorities: On Wednesday, Bloomberg reported that immediately after accepting Karpeles’ resignation, the Bitcoin Foundation shared a document with the U.S. Attorney’s Office in Manhattan that described the theft of as much as $400 million from the exchange. “The Bitcoin Foundation proactively reached out to the Southern District of New York to offer assistance,” the foundation told the wire service in an email. “We are continuing to help them and we are cooperating fully with their investigation.”
Provide reassurance: While the Mt. Gox situation remains fluid, the foundation has offered statements to the press emphasizing that the failure of Mt. Gox does not mean the end of currency’s potential. “This is certainly not the end of Bitcoin. Perhaps the end of one chapter, but certainly not the end,” Foundation Spokeswoman Jinyoung Englund said to The Hill. “As our industry matures, we are seeing a second wave of capable, responsible entrepreneurs and investors who are building reliable services for this ecosystem.” Meanwhile, Foundation Executive Director Jon Matonis emphasized that Bitcoin’s future may be one without large exchanges like Mt. Gox. “These large exchanges that are international and global are more important in the early stages of Bitcoin when we need price discovery,” Matonis told The Verge. “You don’t need them in the long run because in a true Bitcoin economy you’ll have a closed-loop system.”
The Bitcoin Foundation might still have an uphill battle ahead in Washington. On top of the heavy media coverage, Sen. Joe Manchin (D-WV), has proposed a Bitcoin ban in the United States, according to The Washington Post. That suggests the foundation’s progress helping the cryptocurrency gain acceptance from legislators could face a major setback.