Bitcoin, the digital cryptocurrency, is a plausible universal web-based money with two major failure points. One is government regulation, due to Bitcoin’s usefulness in criminal activity and potentially disruptive threat to the dollar and the global financial system (oh, is that all?); the other is its susceptibility to being stolen, counterfeited, or vaporized by virtue of being made of ones and zeros. After a few years of merry trading, Bitcoin is having a moment–speculators are going crazy over it and the mainstream is learning about it. But it’s also facing its first real viability tests.
Mt. Gox was the dominant exchange for buying and selling Bitcoin until last weekend, when a malicious hacker gained access to a database of user accounts and dumped a huge number of Bitcoins into the market all at once, devaluing the currency to less than a penny. Mt. Gox was down for days, continually postponing its relaunch and obviously struggling with repairing the breach and reversing the trades that happened during the flash crash. Along the way, user passwords were leaked and unencrypted. (Alphaville used the leaked accounts to get an interview with a pro currency trader who believes Bitcoin “has not future” but was trying to cash in.)
You would think the complete failure of the main clearinghouse for Bitcoin would cause some investor anxiety and throw some water on the feverish speculation that at one point had the intangible, fiat currency worth $33 a coin.
But Bitcoin is still trading strong, on par with what it was before the hack, at around $17, suggesting that Bitcoiners have kept the faith–or that enough newbies are coming in from the CNN and BusinessWeek coverage to bounce the value back up. And apparently you can buy lunch in Manhattan with it.