Why The Mt. Gox Disaster Will Mean The End Of Anonymity For Bitcoin Users

BitcoinREUTERS/Andy ClarkSigns on window advertise a bitcoin ATM machine that has been installed in a Waves Coffee House in Vancouver, British Columbia.

The alleged theft of hundreds of millions of dollars from Mt. Gox, a major Bitcoin exchange, is a problem arising with Mt. Gox, not the Bitcoin currency itself, according to Michael Jackson, a former COO of Skype who currently serves as an investor at Mangrove Capital Partners.

“The death of Mt. Gox has been caused by poor implementation, rather than fundamental issues to the [Bitcoin] protocol,” Jackson said. “The fundamentals of virtual currency are unaffected. It further demonstrates my view that Bitcoin … is likely to be enhanced, or further developed to add end-user protections, at the expense of anonymity.”

Because Bitcoin is a platform that can be built upon, like a smartphone running apps, Jackson is hypothesizing that developers could one day institute protections for your Bitcoin transactions that make use of your identity in order to ensure that money travels to (and stays with) its rightful owner.

Linking one’s real identity to a Bitcoin wallet runs directly counter to the way Bitcoin fundamentalists would have you believe Bitcoin should operate — this is an anonymous decentralized currency, after all. But future applications that make use of Bitcoin as well as one’s true identity largely wouldn’t be susceptible to a Mt. Gox-style meltdown.

“Mt. Gox isn’t the first exchange to fail. It is, however, the most public [and] we are still at the beginning of the concept,” Jackson said. “These formative moments affect every industry and technology, and will also lead to more robust treatment by industry groups and others.”

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