If you are considering investing in BitCoin, you may want to read this.
One of the biggest BitCoin trading platforms, Mt. Gox, has experienced a major hack that has caused the value of BitCoins to plummet. What happened? Here's the case in a nutshell.
A Hack Attack
The problem with a virtual currency is that it's susceptible to hacking. This is a lesson the the Mt. Gox site learned well recently. Hackers created a sort of diversion that made tracing recent BitCoin transactions nearly impossible to do. How did this happen?
The hack simply makes transactions vanish. Once those transactions are gone, Mt. Gox had no way to figure out who made a transaction or how much transactions were made for. So, users could ask Mt. Gox for money that they didn't get, and the company has to hand over the BitCoins. This could, in theory, continue for a long time. In short, it's total chaos that led Mt. Gox to shut down services temporarily.
The future doesn't look bright for Mt. Gox. BitCoin investors aren't keen on any site that doesn't protect against these kinds of hacks - especially where a virtual currency that's worth nearly $600 per coin is concerned. Some investors are spending large amounts of cash on BitCoins, and to have these investments wiped out can cause a large amount of panic.
This kind of panic is unnecessary, according to BitCoin traders and trackers, and that's why Mt. Gox is not operation at the time being. Will the company rebuild its reputation? It's hard to tell, but I'm guessing that most people aren't going to trust Mt. Gox in the future. Plus, CoinDesk (the BitCoin price index) has removed Mt. Gox from its index.
The newly-formed index stated that Mt. Gox did not meet index standards.
Bigger Problems Today
Reuters has reported this morning that the BitCoin hack is impacting all BitCoin transactions, and not just those happening through Mt. Gox. Representatives from Mt. Gox have told Reuters today that the hack "...affects all transactions where bitcoins are being sent to a third party."
So, I'd hold off on those BitCoin investments until further notice. Or, if you are a real risk taker, go ahead and scoop up a bunch of the coins - prices are sure to keep dropping. It's more likely than not that this problem will be fixed, but investor confidence might not be returned. For that, we'll have to wait and see what happens next.
What To Do
What are your options if you have invested through Mt. Gox? Your profile still exists, and you should not have lost any BitCoins in your account. However, it might be wise to contact the company and arrange to move your investments. At present, Mt. Gox is not taking any additional BitCoin orders.
It's not terribly surprising that this kind of hack has hit the BitCoin investment world. A virtual currency is susceptible to all kinds of virtual problems, like hacks. But, this news may cause some investors to think twice about a BitCoin investment.