Rumors are swirling that Mt Gox is in trouble. The top three stories on Coindesk right now are about Mt Gox.
If the rumors are true, it’s a sad day for the Bitcoin sector as Mt Gox was the first Bitcoin company I transacted with and probably was for many of us.
But the wonderful thing about a globally distributed financial network is that if one of the nodes goes down, it doesn’t take the system down. Bitcoin’s architecture is similar to the Internet’s architecture. There is no centralized control point. No single point of failure.
Our portfolio company Coinbase and a bunch of the other leading platforms in the Bitcoin sector put out a joint statement last night. You can read it on the Coinbase blog. Here is the critical paragraph of the statement:
Bitcoin operators, whether they be exchanges, wallet services or payment providers, play a critical custodial role over the bitcoin they hold as assets for their customers. Acting as a custodian should require a high-bar, including appropriate security safeguards that are independently audited and tested on a regular basis, adequate balance sheets and reserves as commercial entities, transparent and accountable customer disclosures, and clear policies to not use customer assets for proprietary trading or for margin loans in leveraged trading.
There is a lot of venture capital being invested in the Bitcoin sector right now. Much of that investment is going into the infrastructure, processes, and technology to provide the kind of safeguards that are mentioned in that paragraph. We are witnessing the maturation of a sector and part of that will inevitably be failures, crashes, and other messes. Almost every technology that I’ve watched come into a mass adoption has gone through these sorts of growing pains. One big difference is that in addition to technology, we are also talking about people’s money when we talk about Bitcoin. To me, that doesn’t change the discussion and the implications, but it sure does amplify the emotions around it.
Full disclosure: I bought a little Bitcoin today. Not much. But I always feel good buying when there is blood in the streets in any market. It is my favorite time to buy.