We are still bearish on bitcoins. Mt. Gox, the premiere bitcoin exchange that recently suspended all activity after the theft of some 750,000 coins from its users’ wallets, declared bankruptcy late last week. This morning, one of the world’s most successful and famous investors declared that he is not impressed by the virtual currency, which has lost half its value in the last two months.
Bitcoin is “not a currency” because it doesn’t meet the criteria of a currency, including being a store of value, said Berkshire Hathaway Chairman and CEO Warren Buffett. In an interview on CNBC Monday, the American business magnate said that he would not be surprised if bitcoin is not around in 10 or 20 years because it is used as a speculative bet. The price of bitcoin is inevitably based on the value of the dollar he said, which means that it is not a currency in and of itself.
Mt. Gox is not the only bitcoin website to suffer losses from theft lately. Reading about the company’s CEO, who sounds like a thousand dotcom CEOs that have come and gone, we have to wonder how many other bitcoin exchanges and sites are disasters waiting to happen.
Last year, a Tokyo-based software developer sat down in Gox’s first-floor meeting room to talk about working for the company. “I thought it was going to be really awesome,” says the developer, who also spoke on condition of anonymity. Soon, however, there were some serious red flags.
Mt. Gox, he says, didn’t use any type of version control software — a standard tool in any professional software development environment. This meant that any coder could accidentally overwrite a colleague’s code if they happened to be working on the same file. According to this developer, the world’s largest bitcoin exchange had only recently introduced a test environment, meaning that, previously, untested software changes were pushed out to the exchanges customers — not the kind of thing you’d see on a professionally run financial services website. And, he says, there was only one person who could approve changes to the site’s source code: Mark Karpeles. That meant that some bug fixes — even security fixes — could languish for weeks, waiting for Karpeles to get to the code. “The source code was a complete mess,” says one insider.
By the fall of 2013, Mt. Gox’s business was also a mess. Federal agents had seized $5 million from the company’s U.S. bank account, because the company had not registered with the government as a money transmitter, and Mt. Gox was being sued for $75 million by a former business partner called CoinLab. U.S. customers complained of months-long delays withdrawing dollars from the exchange, and Mt. Gox had tumbled from the world’s number one bitcoin exchange to position number three.
Bitcoin enthusiasts are desperately looking for good news to sustain a rally, and seemed to have gotten some this weekend when Britain decided not to apply their Value Added Tax to bitcoins, but as we pointed out recently, bitcoin has always been a plaything for billionaires anyway. Put simply, bitcoins will not recover their value until governments start arresting bitcoin thieves and impose some standards on the exchanges. But that is the sort of help that bitcoins were never supposed to need on their way to paying for our techno-libertarian paradise. We think Mr. Buffett is making a good call here, because we do not think the bitcoin world is willing to swallow the medicine that would cure their value problem.