Trouble began for Mt.Gox when the feds started noticing its financial paperwork was a mess, and it was acting as a middleman for the internet drug trade. Bitcoin prices on the exchange plunged accordingly. That was only the start of the bad news. Today, people with thousands (or even millions) of dollars or yen in real money tied up in Bitcoins can't touch it—there have been huge delays and blackout periods when customers try to remove their funds. Earlier this month, Mt.Gox stopped all withdrawals completely, and this month has seen the value of a single Bitcoin plunge from around $700 to a low of $75.
And while it's not a one-to-one comparison, it all reminds me of the time during the Second Life hype wave in 2006-2008, when a number of unregulated but popular Linden Dollar exchanges experienced a somewhat similar trajectory. This from January 2008:
Like that scene from It's a Wonderful Life except with club babes, a sentient squirrel, and the Spanish guy from Street Fighter II, there's at least one run on a bank going on in-world right now. Residents who've put Linden Dollars in one of the many in-world virtual banks must withdraw their funds by January 22 or risk losing them, since that's when the Lindens just announced they'll ban all such services. Unless, that is, a bank's proprietors can prove they're regulated by a real world government body.
In the case of Linden Dollars, Linden Lab stepped in to insist that these L$ exchanges abide by real world regulations, and consequently, the Linden Dollar value has remained stable. Without any authority to impose that rule, it's unclear if Bitcoin can continue functioning.
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