Bitcoin, released to the world in 2009 by a person or people called Satoshi Nakamoto, is not backed by a central bank or a government and is seen as an alternative payment system. In February 2013, Bitcoin went into the mainstream as a monetary crisis threatened to bankrupt Cyprus, seen as a safer bet. Early adopters of Bitcoin have been richly rewarded as the price has soared – in one case, a young Norwegian bought a house from an $850,000 windfall on a US$22 investment.
Failure of Mt Gox bitcoin exchange hurts virtual currency’s prospects
Collapse of Tokyo-based Mt Gox could be fatal to virtual money's quest to gain wider acceptance
The sudden disappearance of one of the largest bitcoin exchanges adds to the mystery and mistrust surrounding the virtual currency, which was beginning to gain legitimacy beyond the technology enthusiasts and adventurous investors who created it.
Prominent bitcoin supporters said the apparent collapse of the Tokyo-based Mt Gox exchange was an isolated case of mismanagement that would weed out "bad actors". But the setback raised questions about bitcoin's tenuous status and even more tenuous future. At least one supporter said the blow could be fatal to bitcoin's quest for acceptance by the public.
Watch: Buyer protests in front of a Japanese bitcoin trading company
A coalition of virtual currency companies said Mt Gox went under after secretly racking up catastrophic losses. The exchange had imposed a ban on withdrawals earlier this month.
By Tuesday, its website returned only a blank page. Yesterday, it displayed a notice to customers that said all transactions were closed "for the time being" to protect the site and customers. The collapse followed the resignation on Sunday of CEO Mark Karpeles from the board of the Bitcoin Foundation, a group seeking wider use of the digital currency.
Mt Gox's origins are rooted in fantasy instead of finance. The service originally specialised in trading colourful cards featuring mythical wizards and derives its name from a game. The initials stand for, "Magic: The Gathering Online Exchange."
San-Francisco-based wallet service Coinbase and Chinese exchange BTC China sought to shore up confidence in the currency by saying the Mt Gox situation was isolated and the result of abusing users' trust. They offered no details. "As with any new industry, there are certain bad actors that need to be weeded out, and that is what we are seeing today," the statement said.
Since its creation in 2009, bitcoin has become popular among technology enthusiasts, libertarians and risk-seeking investors because it allows people to make one-to-one transactions, buy goods and services and exchange money across borders without involving banks, credit card issuers or other third parties. Criminals like bitcoin for the same reasons.
For various technical reasons, it's hard to know just how many people worldwide own bitcoins, but the currency attracted media attention and the fascination of millions as an increasing number of large retailers such as Overstock.com began to accept it.
Speculative investors have jumped in to the bitcoin fray, too, sending the currency's value fluctuating in recent months. In December, the value of a single bitcoin hit an all-time high of US$1,200. In the aftermath of the Mt Gox collapse on Tuesday, one bitcoin stood at around US$470.
Central banks across the globe have been hesitant to recognise bitcoin as a form of money, and Tuesday's vanishing act is not helping.
Mt Gox "reminds us of the downside of decentralised, unregulated currencies", said Campbell Harvey, a professor at the Fuqua School of Business of Duke University in the US state of North Carolina who specialises in financial markets.