As you may have already heard, Bitcoin is closing the year of 2016 on an epic “bull run” that has not been seen since 2013, since the rise and fall of Mt. Gox. Bitcoin values, market capitalization, and positive publicity haven’t been higher since that important time in Bitcoin’s history. Today, I’m going to walk down ‘Memory Lane’ and write about how the loss of Mt. Gox may have been the best thing that ever happened to Bitcoin.
For those of you who were not members, Mt. Gox was the ultimate Bitcoin exchange from around 2011 through the end of 2013. It serves as a very important part of Bitcoin’s development and history, as it was the place where Bitcoin developed a level of relative price to national currencies. It put Bitcoin’s relative value on the global map and gave the Bitcoin community a place to discover this level of value in real economic terms.
Regardless of how it met its demise, Mt. Gox’s positive influence on the development of Bitcoin can never be diminished or forgotten.
The dissolution of Mt. Gox in the first two months of 2014 caused a domino effect that was not fully understood until the next year, in January of 2015, when the value of Bitcoin had fallen from approximately $1100 USD to less than $190 USD. The losses over that year were more than just a relative value but in global confidence in the currency. People who live in Japan, where Mt. Gox was based, actually thought bItcoin had died with Mt. Gox. In a manner of speaking, they weren’t completely wrong. (For more details on the fall of Mt. Gox, click here for an excellent article in Wired.)
The collapse of Mt. Gox was a lot like the terrorist attacks of 9/11, and the destruction of the World Trade Center, like Mt. Gox, also clouded in mystery and speculations of conspiracy. New York City and the United states at large took a long time to recover from what happened on 9/11, but after a year or two, they began to rebuild. Life must go on, for New York, for America, and for Bitcoin.
Since that time, Bitcoin has become a much less centralized unit of exchange. Mt. Gox alone was doing almost the amount of business that the three largest Bitcoin exchanges are doing today. Today, it would be considerably more difficult to undermine and destroy three exchanges over one three years ago. That alone is a tangible improvement in the long-term stability of the global Bitcoin market.
Other benefits include greater security measures by the leading exchanges to protect their fiduciary responsibilities to their clients. Users also have become somewhat savvier and self-conscious about how much leeway to give an exchange when holding one’s digital funds. Exchange risk is still the biggest weakness and threat to Bitcoin users, but new apps, regulations, and best practices have helped the greater community get stronger and smarter, together.
Back in 2013, there was Mt. Gox, Blockchain.info, LocalBitcoins.com and not a whole lot else as far as major companies influencing Bitcoin worldwide, from the inside of the community. Now, there are better apps, wallet providers, websites, and exchanges to choose from. The frauds and weak have been weeded out of the market, and the global Bitcoin community heads into 2017 stronger, more valuable, and more secure than ever before.
For Bitcoin to reach its full potential, and to act like a truly decentralized global currency, a central hub like Mt. Gox, controlling over two out of every three Bitcoin transactions, needed to go under. This is much the same as a mining pool that controls over half the mining community would. It would have been nice if its end was met through competition, not an implosion costing 800k Bitcoins to be “lost” in the process, but the fact that this happened fairly early in Bitcoin’s history, not today, is a much better time to take one’s medicine.
The lessons the users should have learned from Mt. Gox does not keep funds inside of an exchange that you aren’t willing to lose, period. Personal wallets and hardware wallets, even more so, are the best way to hold any cache of Bitcoins worth saving. Trusting any third party is a fool’s game, and no third party should be trusted. The fall of Hash Ocean this summer is another example that no company can be trusted with the growing value of Bitcoins, in any significant amount.
The ethos of Bitcoin has always been to provide you and I a mechanism to be our own banks, not to just create new banks inside of Bitcoin. We should have learned from the many, many transgressions of the legacy banking system that they are not to be trusted to look after your interests. I learned this from the inside, in my four years as a Wall Street banker. The various lawsuits, instances of collusion, and price rigging scandals in the five years since should have gotten you up to speed on this inalienable fact of life.
Use exchanges exactly what they were meant for, to exchange currencies, not to store them. If you do, you really deserve what naturally follows next, even though fewer and fewer exchanges fold, it is a risk you shouldn’t take. The smart investors take the little extra time and effort to protect their investment, personally. Go and do likewise, gents. Exchanges are not banks, and Bitcoin does not need a bank. It needs you and me to do what banks never could, or would. Invest in a currency that is rigged in our favor, not to our detriment. And take full responsibility for our investments by right, earning healthy doses of peace of mind and total control in the process.
If we properly police ourselves, there will be no need for regulations from nations, unless they do so out of fear of their own obsolescence. He who holds the private keys owns the Bitcoin. Don't be that guy or girl who calls on a national government to step in because you did not take responsibility for your own investment. Be better than that. You are your own bank. Act like it, and take an interest in your own economic sovereignty. If you do that, and never forget these tenets, you will live a very happy Bitcoin life in 2017, and beyond.