A new year, the same old storylines. It now appears that bitcoin and altcoin exchange Cryptsy has ceased operations after admitting to a major hack. The assailants managed to take over 13,000 bitcoins and 300,000 litecoins. To make matters worse, Cryptsy admitted to running a fractional reserve after they discovered the hack, essentially operating a business that could be rendered insolvent on any given day. To add a final insult to the injury Cryptsy dealt to users, the blog post by “Big Vern” chose to blame a report published by CoinFire as the root of their current troubles, attempting to divert blame from Cryptsy’s unethical and incompetent business practices.
If you’ve been around bitcoin for a while now this sequence of events won’t be even slightly surprising. The lack of auditability, third party regulation, and corporate structure found in bitcoin businesses should be an extreme red flag to anyone devoting serious money to digital currencies. Cryptsy was known specifically for providing altcoin markets, often enabling trading on coins that were illiquid or difficult to trade elsewhere. What is specifically disappointing about Cryptsy is that the bitcoin ecosystem isn’t making any progress: not in mainstream adoption, and definitely not in the caliber of businesses that provide services to bitcoin believers. The rise and fall of bitcoin related businesses is nothing new. In a general sense, the number of businesses, which are actually start-ups, that fail in any new market or industry is going to be relatively high. What has been particularly galling about bitcoin related failures, though, is the high ratio of exit scams, and the similarly high rate of incompetent business leadership.
Exit scams are obviously bad. It’s also bad when the company in question doesn’t have an attorney of record and the CEO known only by nickname makes off to China when questions start being asked. The only event missing from the Cryptsy saga that is typical of bitcoin businesses is Roger Ver-ifying that there is nothing wrong with Cryptsy. What serious corporation, what large-cap respectable company, would act in such a way? What group of shareholders or what board would tolerate such immature and immoral business leadership? Business leaders need to provide business acumen, responsible leadership, and a moral rudder, and unfortunately for bitcoin believers, you can’t seem to decentralize quality executives.
Bitcoin believers deserve better from the firms that seek to serve them, and monetize their usage. The Wild West feel of bitcoin as an unregulated and un-guaranteed asset should not transfer in a way that means stable business practices and corporate responsibility go out the window. While libertarian and crypto-anarchist believers may desire less influence from government, it is hard to deny that the bitcoin space has suffered from the lack of a governing influence to punish wrong-doing. It is hardly in anyone’s rational self-interest to propagate a system that makes exit scams easy, but pragmatism is often in short supply in such a radically charged community. Will future bitcoin entrepreneurs be upstanding business owners and operators? Hopefully. Maybe.