Categorized | Bitcoins

Bitcoin’s Weak Link: The Exchange

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The fall of Mt. Gox has certainly been the biggest news in the world of cryptocurrency for the past few months. Although the mainstream media often portrays the downfall of an exchange as something that the bitcoin is to blame for, the true blame should be put at the exchanges as they certainly are the weakest link in today’s bitcoin trading network.

“He likes to be praised, and he likes to be called the king of bitcoin”
–Mt. Gox insider

Insufficient protection

Since the rise of the bitcoin there have been several exchanges that were hacked and lost a part or all of their coins in the process. Mt. Gox was certainly not the first exchange that got hacked nor will it be the last. The main problem seems to lie with the fact that anyone can build an exchange and for outsiders it’s virtually impossible to determine which exchanges can be trusted.

No regulation

Part of the problem also lies in the fact that bitcoin exchanges thus far have never been regulated. There is no one overseeing what happens at the exchanges and customers are not protected while using them. More information should be disclosed and there should be an organization that makes sure an exchange is adequately protected and that the cryptocurrencies that are traded and stored at an exchange are not being misused.

Bad publicity

In the meantime, every time an exchange loses or claims it has lost coins in a hack, it eventually just leads to bad publicity which definitely puts a dent in bitcoin’s image. And while one could blame the mainstream media for not educating themselves about bitcoin and misunderstanding the problem, it can also not be denied that the need for trustworthy bitcoin exchanges is higher than ever.

“I created mtgox on a lark after reading about bitcoins last summer. It has been interesting and fun to do. I’m still very confident that bitcoins have a bright future. But to really make MtGox what it has the potential to be would require more time than I have right now. So I’ve decided to pass the torch to someone better able to take the site to the next level.” – Jed McCaleb

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