For bitcoin to succeed, Mt. Gox had to fail, and government regulation may be a blessing for the digital dinero Credit: Shutterstock Bitcoins are back in the news — at first glance, not in a good way. The latest scandal centers on the Mt. Gox bitcoin exchange, of which Mark Karpele is the currently bullet-sweating CEO. The exchange has suffered a number of minor bumps in recent months, but was forced to close again after admitting it’s lost more than 774,000 bitcoins over the last few years. That translates into up to $400 million in Madoff-style meatspace bucks. Apparently Mt. Gox suffered numerous security breaches, probably from sinister Ukranian hacker syndicates or, alternatively, middle-schoolers bored with Candy Crush Saga. These occurred over a long period of time, however, and the exchange has been operating as though it were fully solvent and operational, happily taking in customer bitcoins, but now unwilling and apparently unable to give them out. No one, including Mt. Gox or the beleaguered Mr. Karpele, have any idea where the missing bitcoins are, and even if they had suspicions, there’s no way to prove it. Meanwhile the bell is tolling for Mt. Gox, and those who were once advocates are falling silent or degenerating into downright bitcoin bashing. Bye-bye to bitcoin? Which brings us to the most obvious question: What happens to bitcoins now? Are they doomed to fall on the ash heap of financial history along with the travelers’ checks and tasteful displays of wealth? The scandal has once again proven that bitcoins are about as safe as playing Russian roulette with a two-barrel Derringer or giving Lindsay Lohan the keys to your car. However, it doesn’t mean the currency is dead — but Mt. Gox sure is. From a mountain to a molehill Why this grew to be the biggest exchange of a potentially world-changing emerging financial market is a bit of a mystery to me. Apparently, it began as an online venue for fantasy geeks to trade Magic: The Gathering playing cards, hence the name: Magic the Gathering Online Exchange, or Mt. Gox. I think I’ve been pretty public about my long-term devotion to Dungeons & Dragons; even so, there’s no way I’d give my shadily earned shekels to a grinning dungeon master who, by way of his Monster Manual training, decided he’s now a banker. A few die-hard bitcoin advocates are downplaying the scandal, saying that Mt. Gox will suffer only temporary dings to its reputation and be back up and around before we know it. I’m not one of those. Bad reputation is one thing — this is terminal. Karpele is either hiding from authorities in Eric Edward Snowden’s guest room or sitting in a Japanese sake bar, drunk off his keister, and writing his autobiography, tentatively titled “Pointless Meat.” You can stick a fork in Mt. Gox, but unlike the hordes of new bitcoin haters, I think this scandal might actually be a good thing for the currency as a whole. Near as I can tell, bitcoins have thrived on regular kicks in the crotch. When the technology first arrived, crypto nerds loved it, but the financial community thought it was a joke. Time passes and news emerges that the unregulated currency isn’t a joke, but has instead become the de facto purchase platform for every criminal from gang bangers to Extenz salesmen. Surprisingly, that spooks some speculators but actually attracts others. Then the NSA and FBI bulldozed Silk Road and bitcoins hit the PR main stage again with a story that had everything from hitmen and drug cartels to teenage digital pirates and frozen Norwegian data mines. Add Emma Stone in a gratuitous nightie scene, and you got a hell of a movie. That scandal turned out to be a blessing for bitcoin. Basically it went viral. Suddenly everyone was hopping on the bitcoin express — mainstream etailers like Overstock, car dealerships like Lamborghini and Tesla, swampland salesmen, and space vacation hawkers like Virgin Galactic. ATMs popped up in California and New York, and the financial wizards in Cyprus began to use it when their own banks started to fail (bet they’re pissed). For a while, everyone who was anyone wanted to become part of the bitcoin scene. Its value skyrocketed for a short time, but then started the up-and-down valuation dance indicative of a volatile commodity in a completely free market. People got smart and realized that bitcoins probably aren’t the place you want to keep the down payment for that eventual old-age condo in Boca — everyone outside of Mt. Gox anyway. Still, that didn’t slow down massive venture investments in bitcoin mining operations or the enthusiasm with which traders approached the market probably because, hey, it’s more fun than Wall Street. Anything can happen. But get past the Mt. Gox faceplant, and the fun is going to end. The Goxxers spoiled the party. Or did they? Head I win, tails you lose It depends on whether you wanted bitcoins to stay the fun-loving, wildly fluctuating crypto curiosity they are today, or evolve into an actual currency on the same level as meatspace dollars and euros. If you’re in the latter camp, the Goxxers gave you a leg up. When someone loses $400 million of a pie our government suddenly realizes it doesn’t have its grubby fingers in, you can expect only one thing: regulation. Bitcoins weren’t that high on Washington’s to-do list until this happened. Partially because if drug dealers and assassins were using it, politicians had an image problem; more likely, it’s techie and a little difficult to understand, and boning up would have burned valuable time better spent on golfing and booze naps. But now that we’ve exposed good, old-fashioned white collar criminals/incompetents burning that kind of cash, that’s a whole lot of graft, reelection, and escort money floating around without a regulatory siphon. We can’t have that! In all probability, armies of leather briefcase-clutching legislators are now drafting bill upon ill-informed bill each designed to regulate bitcoin trading and valuation, ineffectively protect your investments, and get their snarfing noses as deep into the currency’s taxable trough as possible. Believe it or not, this might be a good thing. You may have noticed that I lean ever so slightly toward the opinion that our slavering big brother already regulates too much, but for bitcoins I think it’ll be a boon. As long the bitcoin community is really looking to make the technology a viable currency, being regulated is like showing a little ankle at the cotillion. It says you’ve arrived, you’re legitimate, and you’re being run by stodgy, reliable men in Brooks Brothers suits, not pot-toking dungeon masters. It’ll rob bitcoins of some of the fun, but it’ll also add a perception of stability that can make bitcoins a mainstream financial instrument. Maybe you love that, maybe you don’t, but there’s no way around it: The lawyers have found bitcoin. It’ll never be the same again. Technology Industry