Mt.Gox Collapse: A Bit Worrisome Financial Scam!?
Make Quick Money has now become a hackneyed phrase among the latest generation which never dares to bother about the authenticity or actuality of the investments they make out of hard earned money. This attitude has made the financial scams of the 21st century, only a continuing saga. The latest story of the Mt.Gox Bitcoin bankruptcy opens up a range of yet another possible online fraud. I was quite amused by this ‘bitcoins’ which began to surface in the newspapers around 2010 as a small news item in the business sections. But I wasn’t much interested in it then.
Soon after the Bitcoins hit the news more recently I was hooked and began to dig in. The digital (crypto) currency created by open source software is called Bitcoin that is transferable online. It is basically a payment system but can only transact ‘bitcoins’ (The capitalized ‘Bitcoin’ refers to the technology and ‘bitcoins’ refer the coins used, conventionally.) Bitcoin was developed under a pseudonym Satoshi Nakamoto by 2009. Soon the bitcoin currency became a trend online.
Anyone, an individual or a firm,, can buy or sell bitcoins. For purchases of bitcoins the currency of any country can be used and bitcoins can also be exchanged for real currencies. To many of us, including me, it sounds like business game. But bitcoins were a huge hit soon after introduction. The transactions are compiled every few hours and are called ‘block’ (25 bitcoins make a block). These blocks are then compiled with the ‘blockchains’. With every block added the user is entitled a bonus bitcoins.
Tracing an individual here is bit tricky as no one has names but is identified only by Bitcoin addresses. Besides the transaction fee is quite less compared to those charged by credit card companies. Such special attractions seduced many. The versatility of bitcoins made many to think it to be the global currency. It became the safe zone during inflation and was found a better way to circumvent capital control monitors. Owing to the popularity and stardom status that bitcoin managed to attract paved way for multitudes of digital clones. Since last April the market watchers have reported at least there are 54 such digital clones.
Many economic forecasters warned this might possibly become the next big Ponzi financial scam and now it’s almost there. We’ve to wait for the investigation reports to tell whether the prophecies are true. For information, Ponzi is a scheme designed to lure investors with fanciful promises and rewards which cannot be realized. The initial investors get paid from the capital raised from new investors. But, when the requests for payments outnumber the rate of new investors the whole system downslides like a pack of cards. Few years back there were an array of online scams, based on the Adsense.
Though bitcoins gained popularity, federal laws in different countries over different times reacted otherwise. Even the Bitcoin-friendly US had moved back. Last October FBI investigations ultimately lead to the shutdown of the online black market named ‘Silk Road’ (started in 2011) and seized bitcoins worth US $28.5 million. People’s Bank of China has prohibited bitcoin exchange for its currency since December last.
Mt.Gox, short for Mount Gox has been the most widely used bitcoin exchange platform. The market was closed on Feb 25, 2014. The note released in the site dated Feb 26th, 2014 seen below now greets anyone who enters the site. The CEO of Mt.Gox Mark Karpeles, blaming on potential hacking into various bitcoin accounts as the main reason for the temporary (!) shutdown of the exchange.
Karpeles in his open press statement (http://www.businessinsider.in/Watch-Mt.Gox-CEO-Mark-Karpeles-Tell-Japan-That-All-Of-The-Bitcoin-Are-Gone/articleshow/31179580.cms) in a confessing tone ( though I don’t understand Japanese, the tone was) had divulged that about 850,000 ( some sites refer 750,000) bitcoins vanished from the exchange – worth around half-a-billion dollars in terms of real value. Mt.Gox has filed bankruptcy yesterday, blaming it on hackers.
Thousands of investors have lost their money and peace; have nowhere to run for the answers. Though the senator Joe Manchin has urged a ban on bitcoin in US, the Federal Reserve has made it clear on 28th Feb, that it has no authority to ban bitcoin.