The next time the deposed prince of Nigeria has a massive inheritance to send you, will he offer to give it to you in Bitcoins? Cornell associate computer science professor Emin Gün Sirer has written a lengthy post that details why we shouldn’t believe bankrupt Bitcoin exchange Mt. Gox’s official explanations for how it lost nearly $500 million worth of Bitcoins. Essentially, Sirer just doesn’t think incompetence alone can’t explain such a stunning loss and alleges that there had to have been at least one person working within Mt. Gox who was either masterminding or aiding and abetting the theft.
“Human history is full of people who were entrusted with valuables, who then absconded with them,” he writes. “Whenever anyone is in a position of trust, whenever the illegal gains to be obtained from breaking that trust exceed the value of one’s reputation, there will be a temptation to steal. Jail is not quite a deterrent in this case, where the jurisdiction is Japan and the technology is too new for the justice system. Chances are that this is a simple case of theft, involving at least one insider.”
And there’s even more gloomy news: Sirer thinks that Bitcoin owners are doomed to get ripped off again and again because Bitcoin exchanges simply aren’t designed to handle sophisticated attacks that criminals have devised to steal the cryptocurrency.
“What Nigerian scams are to your grandfather, Bitcoin exchanges are to the 20-30 semi-tech-savvy libertarian demographic,” he writes. “Even if the Bitcoin protocol were perfect, and it isn’t, our computing infrastructure is not up to the task of handling high-value transactions. The exchanges are built on the latest hyped technologies that have incredibly poor guarantees, and routinely run into technical problems. They require full trust for their operation and are open to attacks from insiders and out.”
The question, though, is how many times will Bitcoin true believers get ripped off before they lose faith in the currency? As we’ve observed in the past, currencies will keep existing as long as enough people believe they have value and agree to use them as mediums of exchange. Given how rabidly devoted many in the Bitcoin community are to making it work, we expect that Bitcoin won’t ever die until its staunchest advocates lose everything are forced to beg on the street for food.