Despite a string of setbacks, bitcoin proponents say their currency is on the path to mainstream success.
Backers of the virtual money deny that the collapse of a major exchange and a call from Congress to ban the currency in America amount to bitcoin’s death knell.
In a recent letter to Sen. Joe ManchinJoe ManchinDems struggle with abortion litmus test Senators push 'cost-effective' reg reform Congress nears deal on help for miners MORE (D-W.Va.), one of the leading voices for prohibition, Bitcoin Foundation chief counsel Patrick Murck said “the bitcoin ecosystem is still very much in its infancy,” and America would be shortsighted to abandon it so quickly.
“We do not believe that this is the right time in U.S. economic history to turn away from innovations that offer improvements in the jobs picture and the economy,” Murck wrote. “If bitcoin does not flourish in the United States, it will flourish elsewhere, and the United States will cede leadership to the countries with the more foresighted approach to innovation and economic progress.”
Manchin on Wednesday told federal financial regulators that bitcoin was appealing to criminals and could do damage to the U.S. economy.
“The clear ends of bitcoin for either transacting in illegal goods and services or speculative gambling make me weary of its use,” he wrote in a letter to Treasury Secretary Jack LewJack LewWhite House divide may derail needed China trade reform 3 unconventional ways Trump can tackle the national debt One year later, the Iran nuclear deal is a success by any measure MORE and other financial regulators. He noted that foreign governments in China and Thailand have essentially banned the money and worried that Americans “will be left holding the bag on a valueless currency.”
Supporters say bitcoins, which exist only online, have the potential to revolutionize the way people send and spend money. Trying to ban it now would likely be impossible, they say, but could easily cut off the nascent currency before it had a chance to blossom.
“The call to ban something this early in its infancy as a medium seems silly to me,” said Ryan Posey, a lawyer at Bode and Grenier who has focused on issues relating to bitcoin.
“There are, of course, terrible things that people use any technology in its infancy and throughout its life to do, and those get lots of headlines. People were crying foul about the use of the Internet for child pornography and all sorts of terrible things, but it’s grown up, and now people use it for doing great things around the world.”
As Manchin was calling for a regulatory ban, a major bitcoin exchange was biting the dust, taking hundreds of millions of dollars with it.
For weeks, users of the bitcoin exchange Mt. Gox had been unable to withdraw their money, due to what the Tokyo-based company claimed was a bug it had detected.
Early last week, the site essentially disappeared from the Web, and on Friday the company filed for bankruptcy.
Chief executive Mark Karpeles said that about 850,000 bitcoins had gone missing, adding up to more than $475 million.
Bitcoin watchers have pointed to a series of troubling signs from Mt. Gox, previously the Internet’s top bitcoin exchange. Problems with the one particular site should not be interpreted as the downfall of the currency writ large, they said.
“The collapse of Mt Gox is part of a shakeout that is weeding out some bitcoin companies that have weaker procedural and technical controls,” Edward Felten, a computer science professor at Princeton University, who has studied bitcoin, said in an email to The Hill. “Consumers always need to be careful about which companies they rely on to store and handle their bitcoins.”
“This is not a major crisis for bitcoin as a currency and technology. But it is likely to lead to further regulation of bitcoin companies,” he added.
So far, the federal government has more or less adopted a wait-and-see approach for bitcoin.
Staffers on the Senate Homeland Security and Governmental Affairs Committee are currently working on an analysis of bitcoin and other virtual currency, which could pave the way for future government action. The report is due out this spring.
“I think what this means is that regulators now can be able to point to Mt. Gox and say, ‘See, this is why we need strong consumer protection laws, and this is why we need licensing,’ ” said Jerry Brito, a senior research fellow at George Mason University’s Mercatus Center.
As bitcoin has gained in popularity over recent months, the major players have evolved from sites like Mt. Gox, which began as a platform for trading Magic: The Gathering cards, to venture capitalists like Marc Andreessen.
“What’s going to happen is, it’s slowly going to professionalize,” Brito told The Hill last week. “The first wave of bitcoin businesses is dead, I think, at this point, and now the second wave is going to be much more professional.”
Troubles at Mt. Gox over the last several weeks have eroded bitcoin’s value from an early January peak but haven’t sent the exchange rate crashing to zero. As of late Friday, one bitcoin was worth approximately $550.
That’s a sign that the money can stand on its own two feet, supporters say.
“When Mt. Gox has failed and the network still stays strong and other businesses are still trying to come into the space, it doesn’t feel like it’s failing to me,” Posey said. “It seems like it’s just going through growing pains.”