The catastrophe at MtGox doesn’t come from a flaw in the bitcoin protocol. It is a manifestation of the broken, old models of wealth management creeping into this new economy. Lazy habits are emerging as people pass the responsibility of managing their wealth to third parties.
These are issues and flaws stemming from old ways of managing wealth, and the systems that ensnare it. The very thing the protocol is built to overcome! Satoshi Nakamoto would be rolling in his (or her) grave (or hammock) if s/he saw the way we were callously centralising our funds, leaving ourselves vulnerable to another bad actor.
In fact the only difference between MtGox and traditional institutions like banks and investment vehicles is that it is not entrenched enough in the existing oligarchy to be bailed out at the expense of its citizens.
Firstly: the MtGox failure does not show that bitcoin is too risky, it merely affirms that trusting financial institutions to store wealth is too risky.
Secondly: the protocol was built to facilitate the normal person being able to manage their own wealth, without trusting anyone, not banks, not companies, no one.
Every consumer has the power to manage their own locally hosted or offline wallet. While this requires the tiniest amount of technical skill, it is the price paid for empowerment.
Exchanges have a place in this market, but by putting all our eggs in one basket, and being complacent with the standards we hold them too, we leave ourselves open to the same risks we aim to escape.
Where did the MtGox issues stem from?
Government intervention: Money controls imposed on MtGox by the US government were the first issue. The government used its control of fiat to quell something that was a risk to their current monopoly on wealth.
Look at the capital controls they imposed on Wikileaks for examples of the risks of operating in a fiat based economy when you aren’t towing the line.
Greed and incompetence: MtGox were accused of offering trading capacity not reflective of its reserves. Whatever happened to the lost coins (from frapucino stains to federal pressure), Gox should not have continued allowing orders to be made that couldn’t be filled.
We trusted them: this is where people fucked up. You may as well keep your money in Paypal, or phone credit, or worse, a bank.
Blockchain > Banks
Banks take your money and spend it, invest it, manipulate it and control it. What got lost during all the noise of the 500 million lost at MtGox was the 5.3 billion lost at The Reserve Bank of Scotland through poor financial management the very same week.
The only difference is that the central banking authority has got the art of media manipulation and population control down to a T.
Consider the bailouts, golden parachutes and general nothingness that emerged from the global financial crisis. Think of the devastation to our global economy that ensued thanks to the banking cartels manipulation of our wealth.
Very few bankers went to jail for the criminal negligence that lead to the loss of so many retirement funds and nest eggs.
But they keep my money safe!
While they charge you to make money off your money, they have no regard for your property rights; they limit how much you can access, how often and why.
You know that security you feel when you see their fortress like walls and business suits? That will dissolve if the powers that be decide it is time to exercise their control over the monetary supply to maintain their political control. The walls become the bastions and ramparts keeping you from your money and those suits become the uniform of the ruling elite.
Consider the current withdrawal limits being rolled out right now in Ukraine, where all users are limited to $100 a day, and certain banking customers can’t withdraw at all, with those limitations clearly linked to certain ethnic groups.
How much are you allowed to withdraw at your bank? Have you ever considered that it wasn’t just for your protection?
So to say MtGox’s failure is a breakdown of bitcoin is foolish. It is just another example of how centralised institutions can and will fail us.
Is there a solution to the problems like MtGox?
Yes… It’s bitcoin!
When Satoshi Nakamoto and the community of core developers built the original client, and the principles that found the network, they built something amazing.
- It allows you to generate systems to manage your wealth with no exposure to a centralised party.
- A decentralised network means no points of failure.
- After the release of the original algorithms no changes can be made without majority adoption by the whole network. This is the closest thing to true democracy we’ve seen in a while.
- It is protected by elliptical curve cryptography (we’re talking heat death of the universe time frames to crack without keys).
- You can manage a client on your own computer that generates wallets and passwords, then take the measures to secure them.
These systems are within your grasp. In fact if you know how to manage a few passwords you can probably do a much better job managing your wealth than Karpeles did.
Bitcoin didn’t fail, people failed, by allowing bank-like institutions to take control of their wealth, for convenience, for greed, who knows?
If you create an offline paper wallet properly, no one can touch your money, no one. Not dopes like Karpeles, not banks, no one.
I’m not saying all groups are bad actors, exchanges like Kraken, Vault of Satoshi, CoinJar and Bitstamp all act with transparency and honesty. But the power of bitcoin means you don’t have to rely on these parties or trust them with your life savings. Just use them as part of your wealth management system.
The monopoly on the power to transmit value is over. The power structures that depend on the manipulation and control of money are dissolving. The same thing happened to the monopolies on knowledge and communication, which dissolved with the internet, empowering you, the reader. That power is being handed to you again today. Stop handing that power back, educate yourself about the function and potential of the protocol, or continue to be manipulated and exploited by the old models.
Buy bitcoin, hold your spendings in a hot wallet, your savings in a cold wallet, back up your keys properly and trust no one.
Fail to do any of the above steps and at some stage someone will be able to tamper with your wealth.
If it’s too hard then learn.
If you don’t, then don’t complain.