For those of you wondering at the title of this post, or the lovely image to the right, I’ll not disappoint, just bear in mind that you can’t make this sort of thing up. It’s all fact. The card is known as One with Nothing, and it discards the hand of cards held. As concerns Mt. Gox, Mark Karpales is the One with Nothing, and those with Bitcoins on the site have discarded their hands as a direct result of dealing with Mark and Mt. Gox. The reference in the title to a Magic Bank is something I’ll explain in more detail below, but first, let’s have a look at Mt. Gox.
The Japanese Bitcoin exchange branded as Mt. Gox is often misunderstood to have a name dealing with mountains, or at least some other majestic Japanese landmark or other obscure facet of Japanese culture. Certainly Japan is nothing if not opaque to outsiders, and anyone involved with Bitcoins knows of the mysterious founder, Satoshi Nakamoto, but alas, there is no such mountain, and no ancient secret to be discovered. In fact, there never has been. Nor is there any great financial pillar that the name has been drawn from.
This is unfortunate, as those familiar with the rich culture and history of Japan would agree that the name Mt. Gox certainly has the potential to evoke images of ancient Japanese Samurai legends at the foot of great Mt. Fuji. However, charming as that fantasy is, it’s just that: fantasy. And fantasy, my friends, is exactly what Mt. Gox has always been all about.
The original company was started as Magic the Gathering, Online eXchange, or Mt. Gox. If you’re not familiar with Magic the Gathering, don’t worry, not everyone is. The short explanation is that it’s a fantasy card game where creatures of magic are illustrated on playing cards, and those cards are use in decks by players competing to defeat one another. It’s a bit like a cross between Harry Potter and Texas Holdem, with lasers, as Dr. Evil would no doubt add.
For this article, I chose the reference of Magic Bank because of Magic the Gathering, hence, ‘Magic’. While that game might not be as well known in financially mature circles, Dungeons & Dragons is well known, with both being owned by the same company, and both dealing with fantasy and imagination. The bank reference is simple. No one in their right mind would trust their finances to the 1st Bank of Dungeons & Dragons, yet that’s exactly what happened with Mt. Gox. The financially inexperienced lined up in droves to place their finances and their trust in a rather portly and unorganized dungeon master named Mark Karpales, which Google’s spell checker fittingly tries to correct to spell Sparkles. In the end, it was quite literally just a Magic Bank.
Now, Mt. Gox has filed for bankruptcy, the money is gone, and the game is over. Many players are surprised and dismayed, with quite a few not even having understood that they had essentially joined a financial game of Dungeons & Dragons and Magic the Gathering. The question, however, is what made Mt. Gox so special that people were willing to trust it with millions of dollars?
While there are many reasons people placed their trust in a mirage, the main one is simply that no one did their due diligence. Much like the Dot-Com Bubble, there were a great many believers, showing up in offices and elsewhere in t-shirts, jeans, sandals, or whatever else they felt would adequately express their newly found superiority over traditional business and finance models. These people were championing a cause, and blindly following those who rightly or wrongly were representing that cause. Sadly, as in most causes, corruption is often married to ineptitude, and that ineptitude was championed by Mark Karpales. Today many of his believers are starting over. They’re picking up the pieces of their shattered financial lives, putting their suits back on, and looking for work.
This is because those who didn’t know any better started using exchanges as banks, and Mt. Gox was the devil incarnate. Despite the cries of conspiracy and outrage that have circulated on the internet in recent months, there’s really no mystery to it, just a shocking lack of common sense. No world powers are trying to overthrow Bitcoin, and there’s no secret plot afoot.
People simply stopped thinking. In the IT world, it’s known as user error – when the problem is 100% due to poor decisions made by the user of a system. In this case that system was Bitcoin, and the problem was people trusting an exchange to do more than exchange currency.
Since Bitcoins can be securely stored offline, in what is known as Cold Storage, they’re nearly impervious to theft – provided that the proper security precautions are taken. Conversely, trusting an unprofessional exchange is just like turning over control of your bank account or wallet to someone changing currencies for pennies or less on the dollar. Obviously changing a couple of hundred dollars from one currency to another wouldn’t pose much of a problem, but leaving millions of unsecured dollars on the counter would be absurd without some form of guarantee. Unfortunately, that’s exactly what happened with Mt. Gox.
For those still using shady exchange services to store Bitcoins or fiat currency, this should serve as a very loud wake-up call. Don’t trust shady exchanges, particularly those operating in foreign countries or outside of your own reasonable legal protections. Of course, if you’re doing something shady, then you might want to take risks, but if you aren’t, companies like Coinbase will let you open a secure Bitcoin wallet for free. In fact, Jimmy Wales of Wikipedia has started dabbling in Bitcoins, and has trusted Coinbase to make that happen.
A number of other companies are also embracing Bitcoins, with one example being Tiger Direct breaking a million dollars of Bitcoin sales in two months, but not everyone loves Bitcoin. In fact, Warren Buffet says they’re basically a better way to send a check or money order, and warns investors to stay away. Personally, I find his perspective overly cautious, but then I’m just a writer, not a billionaire investor.
I wholly support the ideas on which Bitcoin is founded, and in particular the much-needed financial reform they have the potential to be a catalyst for. While I’m far from being a Bitcoin evangelist, I see problems like those of Mt. Gox being little more than the growing pains of digital currency. Much like the Ponzi schemes that once plagued the investment world, exchanges like Mt. Gox are no different. Early adopters and brand evangelists are the ones usually burnt first and worst when the inevitable localized failure occurs, but real investment continues. Tiger Direct is an excellent example of that real trade in action, and independent of the folly that was Mt. Gox.
Good luck. And remember, unless you’re a dungeon master or a powerful wizard, you’d do best to avoid leaving your money for any length of time on the counters of any exchange, or at least you should invest it in some lovely Florida swampland.Powered by Sidelines