Bitcoin’s reputation, it’s brand, is approaching crisis mode.
People keep asking me “When will Bitcoin go mainstream?” or “Why hasn’t the world jumped on Bitcoin yet?” There are a lot of issues holding Bitcoin back, from the general complexity of the technology, and it’s use, to the questions about it’s legal status. For the newbie, it’s not as easy to get as it should be. And many developed nations don’t need a better currency at this very moment (but that day fast approaches.) The real problem with Bitcoin is where the money meets the Blockchain, the Bitcoin exchanges. The biggest issue facing Bitcoin is trust.
I don’t blame someone new to Bitcoin for not investing because the Bitcoin ecosystem is very volatile, from price to national regulation, to taxes. Bitcoin is all over the place; very unstructured. Very “Wild West”. An economic revolution logically would be very chaotic in the early years, and it reflects the chaos in the fiat currency markets as well. As fiat currencies and national economies are exploding in a downward spiral of bail-outs and “quantitative easing”, Bitcoin is experiencing plenty of growing pains in its ascent.
The biggest pain right now is the inability of the Bitcoin community to police itself, and the largest organizations within the ecosystem, the Bitcoin exchanges. As a Bitcoin journalist, I see much too often the biggest news stories in this space are either:
A. An exchange has been hacked and has lost thousands of Bitcoins
B. An exchange has shut down, and the unknown owners have stolen the Bitcoin
Days ago, the United Kingdom said they will step in and begin regulating Bitcoin exchanges more strictly, at least how they interact with British citizens. What about the rest of us? Is it really Britain’s job to regulate the Bitcoin exchanges? Britain has generally been on the positive side of Bitcoin, and it’s development. Some countries like Britain, Japan, The Isle of Man, and Singapore have taken the side of Bitcoin, and it’s development. My question is why leave it up to national governments? This is something the community should be able to handle internally.
Also read: Jim Harper: The Bitcoin Foundation Hasn’t Reached its Potential
Organizations like The Bitcoin Foundation should show some leadership and an interest in this serious issue plaguing the community. They go to Washington and lobby politicians. Politicians should be asking them “What are you doing about the rampant thefts and Bitcoin exchange closures?” That anybody can open an exchange, where you are handling other people’s funds, and is unaccountable to anyone in the community is a crime. At any point, any exchange owner can disappear like a thief in the night with thousands of Bitcoins. This not only badly hurts Bitcoin’s reputation, but it hurts all exchanges. Just like when a baseball player takes steroids. Now, who knows who is clean? The trust of the entire group is badly compromised by the deception of a few.
Ever since Mt. Gox, exchange closures and thefts have increased, not decreased. Call it “The Mt. Gox Effect”. Now “bad actors” are infecting the Bitcoin community like a cancer, and it all started at Mt. Gox. It’s like the community learned the wrong way to do things from it’s mentor, and now it’s running with it. Maybe Mark Karpeles and unknown accomplices stole 800k+ Bitcoins and got away with it? We may never know. Maybe this is a game of Follow The Leader, and this is the way Bitcoin scammers will work until they are stopped. Open an exchange, collect BTC for a year, close the exchange, and say you were hacked or don’t even bother! Just close up shop with all the BTC you can carry!
It is clear as day that the Bitcoin exchange industry has not done much to police itself, and needs oversight. They are too important as a point of contact for new Bitcoins users. There is too much money on the line, and there is too much at stake. As Bitcoin value continues to increase over time, this problem can only get worse, as the stake in this economic game rise, potentially exponentially. This issue needs to be addressed, internally. Now.
The Bitcoin Foundation or other collective community body needs to get on this issue post haste. Every exchange should be cataloged as far as their leadership’s names, addresses, identification, legal status, etc. Just like the Institute for Highway Safety does with automotive crash tests; each exchange should be reviewed and judged for how safe they are to process funds. What security measures they are using, and then publicly list them, grade them, for effectiveness and safety. Create an ideal community standard for all participants to strive for. They should be accredited by a third party, like the Better Business Bureau, and consumer reviews should be added to the governing website for further confirmation. And community leaders like Blockchain.info, Andreas Antonopoulos, Marc Andreessen, The Bitcoin Foundation, and the Bitcoin exchanges themselves should be actively discussing how to put this necessary leadership in place.
Am I advocating “regulating” Bitcoin? Absolutely not! This is not about controlling the amount of bitcoins held by a 3rd party, or putting in a governing body to tax or remove bitcoins from anyone. What does need to happen is well below the threshold of the establishment’s level of regulation, as a communal form of self-regulation carried out by the community’s users. Promote the strongest members of the Bitcoin exchange community, and make those who are not meeting community, not regulatory, standards outcasts. Create a level of competition for ethical and secure economic behavior for Bitcoin exchanges to uphold. “The Wild West” needs to end this year. We need to grow up, as a community, and stop running Bitcoin’s reputation into the ground. We need to be better than this. And Bitcoin’s technology deserves better stewardship. And the exchanges themselves should work together to bolster their weak reputation as an industry. They should be embarrassed as a whole.
My advice to people new to Bitcoin is “Do not use a Bitcoin exchange until they submit to an internal review or regulation in the Bitcoin community.” You are better off with LocalBitCoins.com or FreeBitcoins.com to get started. Start small, learn how to use them, and don’t go big until the community addresses these serious trust issues. We have some of the world’s greatest technology, and we’re blowing it, out of greed and overall mismanagement. We’re handling Bitcoin’s development as poorly as governments are handling their fiat currencies. We haven’t learned anything from their mistakes.
Bitcoin needs a Daddy to manage it’s growth and largest operating systems. That the Prime Minister of England was the first to step up in Bitcoin’s defense is a shame. It’s on us, not him.
How would you improve exchanges and Bitcoin exchange oversight? Share above and comment below.
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