TOKYO -- The suspension of a Bitcoin trading platform operated by Tokyo-based Mt. Gox has provoked outrage among panic-stricken customers, highlighting the weakness of a virtual currency that is not regulated by any government or central bank.
Mt. Gox halted all transactions early Wednesday, citing the need to protect its site and users, leaving customers unable to access more than 30 billion yen ($290 million) in assets. The debacle sent the value of the virtual currency plunging.
Bitcoin appeared on the scene five years ago. Its money supply has been determined by a program, unlike traditional currencies whose circulation volume is managed by governments and central banks. For a small fee, the digital currency can be sent anywhere in the world without going through banks. The market value of bitcoins in circulation reached about 1 trillion yen at one point.
The virtual currency is not backed by money, as is the case with prepaid e-money systems such as Suica. Advanced cryptography is used to prevent fraud, and its limited supply provides asset value. In this sense, it is closer to gold than a currency.
Bitcoins can be traded with actual currencies such as the dollar and the yen on such exchanges as Mt. Gox, which is among the most well-known. Many users based in the U.S. and Europe own the more than 1 million accounts at Mt. Gox. Experts in Japan speculate that hackers illegally gained access to the exchange's trading system and stole bitcoins held in accounts.
Mt. Gox Chief Executive Mark Karpeles said in a statement Wednesday that he is still in Japan and is working to resolve the problem. However, it remains unclear how the situation will play out.
That same day, Chief Cabinet Secretary Yoshihide Suga said the Japanese government will step in if necessary. Authorities will investigate if illegal activities are suspected, including unauthorized access of computer systems. But so far, authorities apparently have little to go on because Mt. Gox has not provided an explanation.
Bitcoin slips into the cracks between various laws. Some contend that it should be considered a currency or financial instrument, which would put it under the purview of the Financial Instruments and Exchange Law. But a lawyer notes that the law has a clearly defined regulatory scope, and that does not include Bitcoin.
At present, given the value of bitcoins in circulation is dwarfed by actual currencies, the impact of the digital tender on the economy is negligible. Some argue that the problem should be allowed to run its course since Bitcoin was designed as a free virtual currency unfettered by governments and central banks.