The Mysterious World of Bitcoin

BITCOIN. It’s the confusing crypto-currency beloved by tech geeks and criminals that was supposed to be the future of money.

But five years after it was founded by Satoshi Nakamoto in Japan, a major mystery is unfolding inside the secretive world.

Websites have been hacked, half a billion dollars is missing, global finance ministers are confounded and investors are penniless.

Overnight, the currency claimed its first life with Autumn Radtke, 28, the American boss of a Singapore bitcoin exchange found dead in her apartment. And still no one knows how bad things are or who is to blame.

Here’s what’s happening inside the bizarre world of bitcoin:

In the last two weeks, two major bitcoin exchanges — the online banks where users buy and sell the currency — have disappeared.

The first was Mt Gox, a Tokyo-based website run by Mark Karpeles that had been regarded as the biggest and most trusted site for bitcoin trades.

It filed for bankruptcy in late February admitting a bug in their system had been abused by hackers to steal 850,000 bitcoins with a street value of about $500 million.

The site was quickly taken down and their Twitter feed deleted. All that remains is a letter posted by Mr Karpeles that says “the complete extent [of the alleged hack] is not yet known”.

Adding to panic is a robbery at another exchange, Flexcoin, which admitted to having nearly 900 coins worth about $600,000 stolen from its online vault.

Overnight, the death of Ms Radtke added to the mystery around the crypto-currency.

The events are a blow for bitcoin, which since its inception in 2009 has exploded in popularity among currency speculators, libertarians and criminals, but is still struggling to gain mainstream acceptance.

The mysterious coin is best described as a kind of cash for the internet that is stored in an online “wallet” and can be used to make anonymous payments.

Behind the scenes a public ledger known as the “block chain” is used to verify transactions are valid.

Everything you need to know about bitcoin but were too embarrassed to ask

While bitcoin’s lack of regulation gives it enormous potential, the volatility and freedom mean it’s also easy to get burned.

In addition to concerns over the security of exchanges where bitcoins are stored, online forums reveal a new breed of “coin wolves” who use “pump and dump” schemes to boost the price of a virtual currency before selling it off for profit.

One speculator claims to have made $10,000 through alternative currency telling San Francisco magazine “it’s immoral to let a sucker keep his money”.

Others use online forums or Twitter to plan their attacks.

Duke University School of Business Professor Campbell Harvey said the Mt Gox failure is a reminder of the risks of unregulated currencies.

“There is no Federal Reserve or International Monetary Fund to come to the rescue. There is no deposit insurance,” he said.

The collapse is estimated to have left up to one million people out of pocket, including American engineer Aaron Gotman who lost 463 bitcoins worth more than $220,000 and has no hope of getting them back.

“What happened at Mt Gox was first incompetence, but then it could have gone to fraud at the end if they were knowing they didn’t have the bitcoins they were selling,” he said.

“If that’s true, (Mt Gox CEO Mark) Karpeles should face justice and go to jail.”

It’s unclear exactly what led to Mt Gox failing, but reports suggest it was a combination of mismanagement and inexperience.

A document leaked from inside the organisation known as the “Crisis Strategy Draft” showed more than 740,000 bitcoins had been siphoned off over the years, which could have a disastrous effect if it were to be made public.

“The likely damage in public perception to this class of technology could put it back 5-10 years, and cause governments to react swiftly and harshly,” read the report.

“At the risk of appearing hyperbolic, this could be the end of Bitcoin, at least for most of the public.”

It’s also shown that even some of the world’s most powerful people don’t know what to make of it.

US Federal Reserve chair Janet Yellen has said the Fed is powerless over the currency, while investment guru Warren Buffett has likened its popularity to tulip mania of the 1600s, saying he “wouldn’t be surprised if it’s not around in 10 or 20 years”.

Russia, Vietnam and Thailand have effectively banned the currency, as have banks in China.

Japanese officials have shunted the issue between finance and consumer affairs departments. Finance minister Taro Aso said he expected the currency to collapse but is still unsure what to make of Mt Gox.

“It’s difficult to know whether there was a crime or a simple corporate failure,” he said.

But bitcoin has survived disaster before, bouncing from just $13 to more than $1200 at its peak. Supporters say Mt Gox was unable to cope with its growing popularity and they’ll continue to invest in the currency.

Chinese student Huang Zhaobin lost about $9000 from the Mt Gox closure — money he had made from previous bitcoin trades.

“If it is legal, I will continue to invest for sure as it is the trend in the world.”

Art editor Zhou Ming also said his initial investment of $3200 in 2011 had grown to about $48,700.

“For the bitcoin investors who started early like me, this does not matter too much as we’ve already made much money earlier.”


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