Bitcoin is a buzz word in the news lately. Almost half a billion US dollars worth of bitcoins vanished into thin air last week when the bitcoin exchange Mt.Gox went dark. It helps to understand what bitcoins are to understand why customers are upset about the disappearance of virtual funds.
What are bitcoins?
Bitcoins are virtual currency that approximate cash on the internet. The coins are purely digital and not linked to any government entity. The coins are not backed by any bank or government. The virtual coins are mathematical algorithms that are exchanged directly between two parties online with no middle man. That means no bank, no government, and no other authority over the printing, distributing or mining of the coins.
What is a bitcoin worth?
According to a Simple Bitcoin Converter, 1 bitcoin is worth $657.60 USD at the time of this post. The exchange rate does fluctuate.
What is the idea behind bitcoins?
The idea behind bitcoins was to create a currency that is completely segregated from a country’s government. For example the United States has no control over the creating, distributing or backing of bitcoins as it does with American currency. Bitcoin was aiming to become a universal currency that changed the current economic system.
A rumor appeared that several hundred thousand bitcoins disappeared from one of the dominant exchanges for bitcoin trading. Slowly the rumor unraveled to become fact. Mt. Gox CEO Mark Karpeles bowed in apology at a news conference in Toyko after revealing that it had lost almost 750,000 of its customers’ bitcoins. On top of the large amount lost, which equates to almost half a billion dollars in US currency, Mt. Gox also lost 100,000 of its own bitcoins.
Karpeles said that technical issues and “some weakness in the system” opened the way for the fraudulent withdrawals. He did not delve into detail about what the “weakness” or address what the technical issues were.
What is being done for victims of the fraud?
Customers who lost bitcoins have assumed a risk by using a currency not backed by any central bank. There are no regulations in place. Mt. Gox has shut its operation down and is filing for bankruptcy protection. Some victims are attempting to bring about a class action suit against the once popular exchange.
According to Wall Street Journal, Gregory Green filed a claim with an Illinois District Court seeking damages and restitution. The claim alleges that Mt. Gox engaged in “unlawful, deceptive, and unfair conduct that is immoral, unscrupulous, and causes substantial injury to consumers.”
Recourse might be very difficult for the victims of the vanishing bitcoins because the exchange was never regulated and never backed by any government or bank. In the meantime, bitcoin enthusiasts believe that the missing coins can be found and are hunting them down themselves.