The last few days have seen some interesting developments in the world of crypto-currencies which has led many to think beyond the practicalities of Bitcoin (BTC/USD) as a medium of exchange and instead how the crypto world will manage its journey to the mainstream.
The major event which everyone, bitcoin fan or not, will have heard of was the fall in the price over the past few days. However it was what caused the fall in the price, rather than the fall in the price that has created ripples in the bitcoin coverage.
This is interesting as it shows that bitcoin and the crypto-currency world around it has moved onto a new stage. No longer is bitcoin seen as just a virtual asset that you can make a quick buck or two on, or use as a protest against the fiat system. Instead it is being put through its paces as a currency, a commodity and as an acting public ledger for the monetary system.
Let’s get the bad (but unexpected) news out of the way first. Some of the price fall was blamed on the announcement in Russia that bitcoin was illegal and that arrests in Miami were blamed on bitcoin activities. Neither of these will have shaken the bitcoin community too dramatically. The people who operate bitcoin are significantly ahead of such developments.
Major problems at Mt Gox exchange
The price fall came as Mt Gox, the grandpa of bitcoin exchanges, halted withdrawals. Blaming technical glitches and a bug in the bitcoin software, a war-of-words began between the useless PR messaging from the major exchange and those who have been wary of Mt Gox’s stability for some time. For a while Mt Gox convinced users it was thanks to bitcoin that the exchange had come under some pressure and they had had to freeze withdrawals. However, it soon became apparent that there were issues in how the trades were being processed and a clear possibility that double-counting was going on.
In effect, Mt Gox had left themselves wide open to any accusation that they were no different to any other system operating on a fractional reserve basis. It has become clear that MtGox and later Bitstamp fell victim to DDOS attacks which caused a haze on confusion over what was happening on the exchanges and which trades were going through.
What is interesting here is that whilst the price of bitcoin fell, it did not fall as dramatically across all exchanges. This is where bitcoin is able to hold its head above other currencies. Its price comes partly thanks to the integrity and security of the exchange on which it is traded.
But, as I explained above the twitter and even mainstream chat did not focus on the price fall. No-one questioned if the price had been in a bubble. Instead, it was clear that most have moved past this stage and are now focussing on what exchanges have to offer and what they need to offer in order to keep the system transparent yet secure. Bitcoin has been accepted, it’s how it is currently traded will be the next question. Mt Gox has a crippling trust issue now, something which people are familiar with and hence why they have turned to bitcoin over fiat.
The launch of Maxcoin
This brings us nicely to possibly the biggest development in the crypto space for some time. The launch of Maxcoin, the cryptocurrency fronted by Max Keiser. This was probably one of the few success stories of the last week. For many of us non techno-heads, we failed to see the point of yet another crypto-coin. Those of us who follow and comment on monetary matters are often approached with new currencies, rarely do we see the potential in them as they come with little legacy and little else to offer that others don’t already.
However, once I sat down with Stacy Herbert and heard about the unbelievable effort and technical development that was going into Maxcoin I felt reassured that this would certainly break free from the herd of teenage geek developed crypto-currencies. Whilst I didn’t understand the majority of the technical details in Maxcoin, I was impressed at how much has been learnt from bitcoin’s flaws. These have been considered in the Maxcoin design and (to a simple geek like me) have apparently set it up as a serious contender.
Once again, there has been little talk of price in the Maxcoin community. Instead it has been about the possibilities that can arise from the currency. As with bitcoin, its ability to act as a public ledger, how the block chain can be used, how it can decentralize the internet and the financial system and (my favourite) how decentralized autonomous corporations can operate.
These new developments take crypto-currencies beyond the flash-in-the-pan, quirky and counter cultural news stories. The cryptos are undergoing significant maturations at this point. Rapid and global creative destruction is occurring in the monetary world, right in front of our eyes. Don’t blink or you’ll miss the action.