The charts don’t lie, and the data plainly show that Bitcoin remains on a slow but steady price decline. A little over a month ago, prices were near $700 — but it’s been all downhill ever since. In some ways a long, slow slide is a worse sign for Bitcoin than a great crash, as the gradual decline may signify a loss of confidence in the system itself. That fear, that the Bitcoin infrastructure itself is insecure, is not entirely without merit.
First came a string of high-profile exchange hacks that bled millions out of exchanges that were insignificant in size, but the headlines tarnished all. The source of the hacks was eventually traced to a flaw in the Bitcoin exchange system. It was a small flaw that was easily fixed — but the damage to Bitcoin’s reputation was already done.
Then there was the nagging speculation that the hack of the Mt. Gox Bitcoin exchange might have been more of a loss than a hack — possibly even a theft. That impression was reinforced by the discovery of $117 million tucked away in a cold storage server. There were rumors of free-spending largess by the CEO of the now defunct exchange in the days prior to the hack. While those rumors are as yet unsubstantiated, the mere fact that the truth behind the disappearance was so difficult to pin down was another blow to user confidence in Bitcoin transactions.
Added to the growing pains of the technology itself were regulators lining up to voice their skepticism about all things Bitcoin, a list that now includes Attorney General Eric Holder. The IRS is labeling Bitcoin as property, a decision that’s currently being appealed.
In yet another minor but frustrating security concern, comes news of the Heartbleed SSL vulnerability. Heartbleed exploits a flaw in OpenSSL, a critical component in the Bitcoin system. While it’s not clear whether any hacks have been directly attributed to Heartbleed, the news caused at least one major exchange to clamp down on Bitcoin withdraws until it’s fixed. While the Heartbleed vulnerability is certain to be patched quickly, it’s just another razor cut to user confidence in Bitcoin.
It’s not any one piece of news that’s particularly bad for Bitcoin, it’s the impression left by the cumulative weight of many annoying little problems. Couple all that with the independent and sometimes aloof nature of the Bitcoin community, and you get a formula for a loss of confidence and declining prices.
As I’ve said before, I remain skeptical of any pronouncements of Bitcoin’s imminent demise. The Bitcoin universe has some very compelling engineering ideas incorporated into its DNA, and there is real value in the frictionless exchange inherent in the system design. The security problems will get resolved, and the community will totter along, weighing the pros and cons of making compromises with “the man” on a number of key issues, including regulation.
For now much of the tech world, and many potential investors, are taking a wait and see approach. Bitcoin is the pioneer in the field soaking up all the arrows, and there’s an unfortunate human tendency to pile on those suffering misfortune.
For the meantime I’d remind my readers that we went through all these mental gyrations and more during the early days of the Internet. We got through those, and I believe Bitcoin will get through this current period of skepticism and instability.