Japanese officials are studying ways to regulate the virtual currency Bitcoin after a prominent Tokyo-based trading house shut down suddenly on Tuesday. The unexpected closure of the Mt. Gox exchange is the latest setback in the currency’s attempts to gain worldwide acceptance.
In a packed news conference, Japan’s Chief Cabinet Secretary Yoshihide Suga said authorities - including the Japanese Financial Services Agency, Finance Ministry and the police - are looking into Bitcoin trading in Japan.
“Regarding the concerned issue, I am aware that the related ministries, such as the Financial Services Agency, the Economic Ministry and the Finance Ministry, are gathering information. If necessary, I believe they will act on this once they have the grasp of the situation. But at this point, they are still gathering more facts and information,” said Suga.
The sudden disappearance of Mt. Gox - once one of the largest Bitcoin exchanges - has dealt a blow to the credibility of the virtual currency. Earlier this month, Mt. Gox imposed a ban on withdrawals. On Sunday, CEO Mark Karpeles resigned from the board of the Bitcoin Foundation, which seeks wider acceptance of the currency. Tuesday, the Mt. Gox website was blank, with only a brief statement to investors.
Reports emerged that the company had lost more than 750,000 Bitcoins due to what was called transaction malleability. Hackers were able to discover that they could track Mt. Gox’s software by creating a Bitcoin transaction and then changing its identifying codes. Funds were taken from Mt. Gox, but because its computers were looking for the old identifying code, the losses went unnoticed.
Several other Bitcoin exchanges issued statements Tuesday that said they are working to reestablish the currency’s credibility.
Nonetheless, Bitcoin’s future remains questionable. Emily Spaven, the Managing Editor of Coin Desk, told the Associated Press that Mt. Gox’s failure will probably lead to more government oversight of the virtual currency.
“I think what we’ll see from this is that governments will try and enforce some kind of regulation because, as we’ve discovered, there’s around $350 million worth of bitcoins that have been stolen. So that’s a lot of money to go missing, so I’m pretty sure that governments will try and step in to protect their citizens from suffering something like this again,” said Spaven.
Moshe Cohen, an Assistant Professor of Finance and Economics at the Columbia Business School, told AP that this incident could have one of two results for Bitcoin.
“One of two things will happen: either the Bitcoin community will convince us that it is a one off, and a new form of maybe partially regulated exchange can solve these problems and take the good and get rid of the bad, or people will start losing faith,” said Cohen.
Several large firms- including Overstock.com, Zynga, the online retailer TigerDirect and the National Basketball Association’s Sacramento King’s team - have announced they will accept Bitcoins. Billionaire Richard Branson has announced his Virgin Galactic will accept Bitcoin for space flights.
As of this writing, Bitcoin’s value was nearly back to where it was when the Mt. Gox crisis began. It may be that Mt. Gox’s will help Bitcoin in the long run by eliminating an unsound player from the virtual currency game.