The Rise and Fall of MTGox

It has not been a good few weeks for Bitcoin.  MTGox, the primary exchange for Bitcoin has filed for bankruptcy with reports of thousands of depositors coins stolen from its system.  It was also the benchmark for the dollar comparison price of the currency.  It has been a perfect example of ‘buyer beware’ in any new and volatile market or technology.

The fundamental problem with MTGox seemed to be one of scalability.  It had been an exchange virtually from the outset of the Bitcoin ecosystem’s creation and like many businesses started small.  With the popularity of Bitcoin increasing, it appeared that the structure of the business and technology behind it remained unchanged.  If I was a buyer and seller of coins using their site, I would have been put off by the very basic home page and infrequent comments and news reports.  This suggested that the core team was very small, not having resources to improve the customer experience whilst it struggled to cope with amount of transactions it needed to handle.

MTGox has had all kinds of accusations of fraud leveled against it, but I don’t subscribe to that one. I believe it just became a victim of its own success.

One of the main things leading to the downfall was security issues.  It’s alleged that live storage servers were hacked, leading to the theft of the coins.  This is analogous to a bank robbery!  if banks are robbed with no backing or finance to recover, they close!

So what now?  In order to run a good reliable exchange, security and customer confidence are vital.  There are already one or two initiatives underway, including  atlas ATS, an exchange being built by people with Wall Street experience and connections.  This could be the next chapter in live Bitcoin exchange.   This video at fox shows the CEO explaining more, as well as a lively debate on whether Bitcoin should be treated as a currency or not.

A final word about MTGox.  Whilst it no longer trades, it should get the credit is deserves, for being an essential early adopter and pioneer in the coin’s development and popularity.




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