Bitcoin started 2015 sharply down. According to coindesk.com, one bitcoin, worth $319.70 on New Year’s Eve, fell to below the $300 mark over the first weekend of 2015.
One likely explanation: news from Tokyo, Japan. The police department there continues to investigate the meltdown of Mt. Gox early last year, and the police don’t believe the cover story that the problem there was a hacker attack.
Recall that the exchange, which once dominated the Bitcoin market, shut down in February 2014. Management issued a press release on February 10th saying that “someone” had learnt how to use “the Bitcoin network to alter transaction details” in nefarious ways.
Two weeks later, Wired was headlining stories about a “$350 million hack.”
Two months further on, and Mt. Gox entered liquidation proceedings under Japanese law.
So: what is new, in January 2015? Police have decided Mt. Gox’s collapse was an inside job. Their search of the pertinent records has uncovered “at least two suspicious accounts with balances that continued to grow despite no records of Bitcoin purchases,” and they believe funds were siphoned into these accounts from customers’ accounts in a way that could only have been accomplished by “people familiar with the system.”
Seasoned observers of how markets behave might well respond with a shrug of the shoulders. After all, markets by their nature look forward, not back.
Indeed, one economist (Jeffrey Tucker, publisher of Laissez-Faire Books) has made some news in the alternative-currency world by declaring that there is a “silver lining” to such news, because scams tend to develop around industries with a lot of growth potential.
That line of reasoning is a bit of a stretch, although it certainly makes me an optimist about the future of the Brooklyn Bridge. Sometimes one has to look beyond the silver lining, at the looming dark cloud.
The reason to refrain from shrugging, then, is that the Tokyo police seem to have added confirming evidence to many of the fears of skeptics of Bitcoin, and indeed of the whole industry.
And this brings us to Josh Garza. Garza has become a very controversy-generating figure in the crypto-currency world in recent days.
He presides as CEO over GAW/Paybase, and thus over one of the many cryptocurrencies now in the marketplace: PayCoin. He distinguishes PayCoin from the others largely on the grounds that Paybase/PayCoin is bringing ‘mining’ to the masses.
Garza and Paybase have come under fire on a number of bases: threatening lawsuits to quiet critics; a broader lack of transparency; and allegedly unfounded claims about partnerships with prominent merchants. The hotter disputants claim that the whole PayCoin operation is a cover for a Ponzi scheme.
A heartening track record would protect it from such complaints, but PayCoin doesn’t have a track record yet, heartening or otherwise. It only launched on December 12th. Still … it didn’t take very long for PayCoin to be hit by the sort of ‘security malfunction,’ the sort of a ‘glitch’ in the ‘cloudfare,’ that creates a sense of déjà vu for anyone who has followed this industry for some time. Or even just through the year 2014!
Now about that lining….
I’ve been looking at the storm amidst Tucker’s silver lining, and yes: it’s dark and nasty.
Having acknowledged that, I can look back at that silver lining. Dissatisfaction with the fiat money decreed by sovereigns is not going to go away. The future of alternative currency as a field turns on how and when that dissatisfaction shows itself in the transactions on the front lines of any economy, that is, in the transactions between retailers and their customers.
What we can safely say about those transactions is that they will continue to change. Indeed, at an accelerating pace. Consider the following two facts, which may appear unconnected to cryptocurrencies. First, in September 2014, Apple announced a range of new products. One of these was iPay, a feature of the new iPhone that will support popular credit cards. Second, in October, Groupe BPCE created a system that will enable its customers to tweet money to one another.
These events, and many others of recent months that may be cited, show that the infrastructure for front-line exchanges is getting more complicated, that intermediaries are getting cut out of various loops, indeed that the very idea of money is changing in ways that favor individual (consumer) autonomy. The way to bet is that these trends will continue.
Cryptocurrencies remain a way of placing that bet, and that is the silver lining.