By now, just about everyone on the planet (and in orbit) has heard about the troubles of MtGox, a Bitcoin exchange that has gone bust. Before filing for bankruptcy protection in Tokyo, the exchange apparently lost 750,000 Bitcoins belonging to customers with a market value of over $400 million. The Wall Street Journal reported that MtGox lost 100,000 of its own Bitcoins.
What I’m trying to figure out is how this could have happened.
As I understand how Bitcoin works, every single transaction where Bitcoin moves from one person to another is logged in a file referred to as a block chain. And, everyone who has a Bitcoin wallet has a copy of the entire block chain on his or her computer. This is what is supposed to make it impossible for me to send you one Bitcoin and then turn around and send someone else the same Bitcoin.
So, if that’s how this is supposed to work, how does a single Bitcoin go missing? If every transaction is logged and everyone has the log, how do 850,000 Bitcoins just disappear?
The logical answer is that there’s a flaw in the system (or, more likely, in the software code) that someone exploited. Indeed, we’ve seen one loss of 4400 Bitcoins as the result of an exploited flaw.
Bitcoins and other virtual currencies are a fascinating new arena to watch, and it’s pretty clear that there are a concerns and bugs to be addressed. This very well may be a shining example of the adage, “Pioneers take the arrows, settlers take the land.”