Simplified MtGox Breakdown

Simplified Breakdown of MtGox
 
Many people have been asking me recently on what I think about the recent developments in Bitcoin, especially the MtGox issue, so I figured I would write this to share my knowledge and my opinion.
 
There is abundant sensationalist information online about the stability of Bitcoin in light of recent events.  First and foremost Mt.Gox is a historic landmark for Bitcoin.  Before we had many competing exchanges such as Bitstamp, BTC-e, BTCChina, MtGox was the authority on pricing and exchanging Bitcoin.  At this point in history, MtGox was very successful in stabilizing Bitcoin’s price and making Bitcoin trading publicly accessible around the world.
 
 Mt.Gox has shown signs of resiliency when they were robbed in 2011; they reimbursed around 400,000 Bitcoins (worth around $9 million at the time) to users.  In this event, public apology, personal responsibility, and reimbursement of funds somewhat strengthened MtGox’s support in the long run.  MtGox was not able to reproduce the same crisis management with the recent 700,000 Bitcoin loss for two main reasons: the amount far exceeded the value of the company, and MtGox has lost support from the Bitcoin community.
 
I will not go into technical detail about Transaction Malleability, which MtGox claims to be a fatal error in the Bitcoin protocol.  A great explanation of this issue can be found here: https://twitter.com/bitfundllc/status/438780844107632640
 
The issue here is that Transaction Malleability is not an issue in the protocol.  In fact, the supposed error in the protocol actually allows more flexibility within the way Bitcoin transactions are handled.  It is a useful tool and asset that is being misused and being turned into misinformation.  Again, see the link above for a clear explanation of Bitcoin Transaction Malleability.
 
MtGox’s stance that this disappearance of coins was the Bitcoin protocol’s fault, and not their own was the first sign that this was the end.  Bitcoin’s value comes from the hegemony that the protocol is not flawed.  This is a critical time in Bitcoin’s integration into the mainstream.  Having (historically) the biggest exchange in the world losing hundreds of millions of dollars, as well as shifting blame to the integrity of the protocol, is very aggravating to Bitcoin supporters, hence all the pitchforks and sensationalist media.
 
So where does this leave us?  Well luckily for Bitcoin, MtGox has not been the only pricing market for a while.  In fact, MtGox has had a steady 10-15% variance from its competitors before its total collapse.  I have bought, sold, and traded Bitcoins, and Coindesk, BTC-e and Bitstamp were always the conversion rates agreed upon, and not MtGox.  Ever since MtGox was blacklisted by most American financial institutions, they were no longer a strong representation of the market value of Bitcoin.
 
All in all, considering 700,000+ Bitcoins have been taken off the market, a 30%ish drop in price is not anything we should be particularly alarmed about.  MtGox has joined SilkRoad as a relic of the past.  MtGox pioneered an exchange service, while SilkRoad did the same for a marketplace as validation to the cryptocurrency.  However it is time for the next wave of developers and entrepreneurs to create new exchanges on innovative technology, which we will undoubtly see a rise of in the near future.

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