The recent failure of the world’s largest Bitcoin exchange has given more ammo to its detractors. But Catholics would be smart to keep an open mind.
$500 million worth of Bitcoin, gone just like that.
The world’s largest Bitcoin exchange, Mt. Gox, announced today that it is filing for bankruptcy protection. It says it has lost track of about 750,000 of customer’s bitcoins, as well as 100,000 bitcoins of its own. In total, the losses have an estimated worth of $500 million.
Already lost? Here’s are a three quick points to get you up to speed:
– What is Bitcoin? Bitcoin is a digital currency. It only exists online and is not backed, regulated, or protected by any government. Yet, you can use it like any other currency: to facilitate exchange for products and services. (For more, I recommend the article Explain Bitcoin Like I’m Five and the video What is Bitcoin.)
– What is Mt. Gox? Mt. Gox was a Bitcoin exchange based in Tokyo, Japan. It held customer’s bitcoins (like a bank, allowing both deposits and withdrawals), and facilitated exchanges.
– Why was it called “Mt. Gox”? Mt. Gox is an acronym for “Magic: The Gathering Online eXchange.” While it most recently was an exchange for Bitcoin, it originally was an exchange for Magic: The Gathering cards. (What is Magic: The Gathering, you ask? And deeper down the geek rabbit hole you go…)
It appears that hackers compromised Mt. Gox’s system and stole the bitcoins that are now missing. It was truly a 21st century bank heist, but with no government FDIC to bail out the customers.
But that’s precisely one of the strengths of Bitcoin: liberated from government meddling, the currency is free to be completely guided by the invisible hand of the free market. Yes, lots of people have lost a lot of money due to Mt. Gox’s poor security and management, but the incident will only spur on other exchanges to win the trust of customers by bettering their security. The failure of Mt. Gox, in other words, is not a sign of some inherent weakness in Bitcoin as a currency, but is an important weeding out of poor vendors that will make the whole system stronger in the long run.
Or so say many of its defenders.
What are Catholics to make of Bitcoin? Should we jump on board with the de-centralized currency? Or is it too compromised by bad philosophy and criminal activity?
The Church is certainly not supportive of the anarchist and libertarian values held by many Bitcoin advocates: the Church defends the legitimacy of government as a natural part of human society with an important and positive role to play.
But must a currency be regulated by a government? Bl. John Paul mentions guaranteeing a stable currency as part of the government’s role in the economy in his 1991 encyclical Centesimus Annus (48). But the technology behind Bitcoin didn’t exist back then (heck, the World Wide Web hardly existed). He couldn’t have been commenting on a technology which wasn’t even in the realm of possibility in his mind. The more important principle we should take from Bl. John Paul II is the need for “steady and healthy economic growth in which people through their own work can build a better future for themselves and their families.” So the more important question is whether Bitcoin can be stable enough to function practically for the average Joe worker – a question that probably can’t be answered this early in Bitcoin’s history.
And yes, since Bitcoin can be exchanged (largely) anonymously, it has been a haven for all sorts of criminal activity. But wasn’t that true of the Internet in its early stages, too? It’s a sad reflection of the human heart (and our great need for Jesus), but many technologies we now use everyday were supported in their early stages by sinful activities. That doesn’t mean those technologies don’t have an upside.