Mt. Gox Highlights the Need for Regulation and Controls for Bitcoin
By Marc Fogarty, CPA, CFE
With the collapse of the largest Bitcoin exchange, Mt. Gox, there is a mix of opinions as to how to handle the oversight of Bitcoin’s digital currency. A business that is unregulated and lacks internal controls has the potential for fraud and financial loss to those who use it. With a bank closure, a person can go to the FDIC; but with an unregulated investment like Bitcoin there is no one to complain to or get recompense from should it fail.
Bitcoin supporters have long touted the financial safety and affordability of the automated technology that controls the payment system. But, after the breakdown of Mt. Gox, some supporters have acknowledged that the Bitcoin system may benefit from human auditors and regulators who can perform oversight to help prevent a similar crisis in the future. Coinbase, who enables buying, using and accepting Bitcoin, announced they plan to hire independent auditors, and they recently published a “security audit” to show users how Bitcoin is stored.
However, regulation may go against the grain of Bitcoin supporters who mistrust traditional financial institutions and their national-based currency. Many countries have experienced a financial crisis since 2007 and Bitcoin’s appeal is that the transactions are not tied to any country’s currency, people do not require banks to exchange and there are no transaction fees.
It will be interesting to see how this story continues to evolve and whether Bitcoin exchanges will eventually embrace regulation and internal controls to ensure consumer protection. With such security in place, it could potentially help build the Bitcoin customer base.