Bitcoin has taken a bit of beating in the last few weeks. Just as the dominant form of digital currency was becoming more widely accepted, highlighted by a new Bitcoin ATM in Boston, its main exchange platform was liquidated amid scandal. Some $500 million went missing from MtGox over a protracted period of time, with no obvious leads or explanations made available by the firm aside from simple ineptitude. Many are wondering if this was the nail in the coffin of the controversial new-currency age. For others it is just the beginning. Either way, there are vital lessons here for aspirational digital currencies and associated platforms.
A currency exchange must be legitimate
Although the collapse of the Japan-based exchange has been highly damaging to Bitcoin, and especially to the balance of the Bitcoin market in general, the profile of the company leaves little surprise this was how it ended. MtGox was originally a trading card exchange, its full name based on the dungeons and dragons style game “Magic: The Gathering Online eXchange”. To put this into perspective, it’s as if Blizzard Entertainment ran the IMF. The company was clearly a victim of circumstance and early success. For Bitcoin and other digital currencies to truly become mainstream, they must be controlled and exchanged via highly reputable organisations. However, the MtGox fall is an opportunity for better organised platforms to step up and lead a more organised growth of Bitcoin, legitimising it in the eyes of many unconvinced financial brokers and consumers.
State and corporate approval is key
Despite the obvious advantages of a single global currency that requires no multiple exchanges, especially for business transfer agents, trades, mergers, acquisitions and even state loan deals, Bitcoin continues to hold the image of an underground monetary system utilised by tech geeks and counter-culturists. The currency must crossover into a new age of legitimacy, though the traditional financial order will not welcome it with open arms. After all, banks make a fortune from exchange rate transactions. Yet a successful product can only be kept out for so long, as seen by mobile and fixed operators’ early attempts against VoIP services such as Skype and music companies’ efforts against online music platforms. Working with state apparatus and high-profile banking structures, as opposed to shunning them in favour of the online community, is the logical route to maturity for all digital currencies.
Security is the foundation of currency stability
A digital currency, especially one as exposed and complicated as Bitcoin, must be wholly secure. The perceived risks of a currency without physical shape will always invoke nervousness among potential users. The only way to combat this is by complete and wholesale guarantee of protection and fall-back insurance. Those who lost Bitcons in the MtGox bankruptcy are unlikely to see them ever again. If the currency survives, these years could be dubbed as the trial and error processes, though finding willing participants in such experiments is likely to become increasingly difficult.
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