Bitcoin’s buckets of media attention — way out of proportion to its roughly $6.9 billion in value (assuming there are 12.34 million minted Bitcoins trading at $556 a piece) – leads me to conclude that the force is strong with the argument that it’s a cult.
After all, this week Tokyo-based Mt. Gox, Bitcoin’s once-dominant mechanism for exchanging real money for the virtual currency, appeared to have collapsed — in the wake of a reported theft of 740,408 Bitcoins worth about $414 million — which represents about 6% of all Bitcoins.
With Mt. Gox ceasing to process transactions, anyone with an account there is probably out of luck — after all Tokyo financial regulators are declining to help Mt. Gox customers, saying that since Bitcoins are a product rather than a currency, the regulators have no authority over it.
And that collapse is reinforcing my basic belief about Bitcoin — it’s a cult that is almost completely immune to logic. I would have expected that Bitcoin proponents would view Mt. Gox’s collapse as great news.
That’s because it would draw more media attention to Bitcoin. And that media attention would make people who own Bitcoin feel even more special — probably causing their brains to release a reinforcing dose of Dopamine.
What would it take to deprogram Bitcoin cultists? I could imagine that if I had sunk most of my savings into Bitcoin and lost it all to the Mt.Gox collapse, my wife would not be very happy with me. And perhaps there are some individuals out there who have been shaken out of their Bitcoin reverie by the realization that losing all their money would cause their personal life to collapse.
Bitcoin believers view as good news that Mt. Gox has lost market share over the last year. While it handled 80% of all Bitcoin transactions at one point in 2013, Genesis Block, a virtual currency research firm, reports that newer exchanges such as Slovenia’s Bitstamp and Bulgaria’s BTC-e have taken over where Mt. Gox left off.
I would derive less comfort from dealing with an exchange in Bulgaria — famous for its skills at hacking — than one in Tokyo. But obviously hackers know no geographic boundaries.
It’s just that if you wanted a legal authority to help you get back your Bitcoins if they were stolen, you might prefer an exchange in a country with a well-developed legal system. But if you think that way — you aren’t a Bitcoin believer.
Bitcoin has a long history of volatility due to hacks — after which its price seems to rally. After all, back in June 2011 a hacker crashed the crypto-currency — bringing its value from $17.50 down to pennies. Anyone who bought Bitcoin after that is now sitting on huge profits — even after Mt. Gox’s collapse — it trades at $556 according to CoinDesk.
But I have interviewed many Bitcoin enthusiasts and they view all bad news as good. Consider my April 2013 interview with Kent Liu – a Master’s in Material Science student at Cornell. He told me that Bitcoin has superior “fundamental principles” and prefers investing in Bitcoin to stocks “because no company can change the world.”
Another believer is Rick Falkvinge, the founder of Sweden’s Pirate political party who told the New York Times, “My thoughts and my heart go out to all of those others in the community who lost a lot more than me today. [Despite losing $80,000 in Mt. Gox I remain] absolutely bullish on Bitcoin.”
Despite all this bad news, electronic currencies could become mainstream. On the surface, they appear to be cheaper to produce than paper and coins. But governments would only adopt electronic currency if they could control its creation, assure that it could not be hacked — a feat that may be impossible to achieve, and encourage businesses to accept it as a means of payment.
But a central tenant of Bitcoin believers is that it is a stateless currency — meaning that no government can control how it is created, traded, or used.
The consequences of that belief are becoming clear to anyone who used to be able to access their Bitcoin account at Mt. Gox.
Still — the possibility that there are people who bought their Bitcoins for pennies on the dollar after the price collapsed in June 2011 and have stored them on an exchange that has not been hacked suggests that there is money to be made.
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