At the very least 36 bitcoin exchanges have already thrown in the towel and folded up shop. You may only be able to count the number of bitcoin exchanges that you've heard of on one hand, but the world is absolutely full of defunct bitcoin exchanges, and they’re apparently quite hard to keep profitable.
Does this mean that the industry is suffering, or that it’s getting hard to find a bitcoin exchange when you need one?
Not by a longshot! If anything, such a large number of exchanges going under means that the quality of exchange that you do use is much higher today than it would have been had these exchanges been profitable.
Marc Andresen, a prominent VC agreed in a tweet soon afterwards: “MtGox had to die for Bitcoin to thrive. Its former role from early Bitcoin days has been supplanted by better, stronger entities.”
Ask any free-market-loving libertarian about ‘market Darwinism’ and you’re likely to encounter a gleeful tale about capital moving from the hands of the incompetent into the hands of those who can create the better product. The theory goes that markets mature and get stronger through a process similar to natural selection, where bad or “unfit” services are bankrupted in one way or another, getting out of the way to make room for the good, or “fittest” services to thrive.
If these 36 exchanges are any indication, the theory is sound, and the bitcoin exchange industry is maturing quite rapidly.
In a global market where anyone, anywhere, can start up their own currency exchange, the market has been flooded with both good and bad service offerings. How many exchanges are there in total? Making a list of them is nearly impossible to do. Brave New Coin currently tracks over 111, while the official bitcoin wiki lists 162, although it’s somewhat out of date.
Not only are they hard to find for geographical and linguistic reasons, but the precise definition of an exchange is something few can agree on. A better way of estimating how well the bitcoin exchange market is doing is by looking at blockchain statistics for exchange trading traffic.
With Exchange trade volume doubling, or perhaps tripling over the last half year, it is clear that new exchanges are not just maintaining the status quo, but appear to be expanding bitcoin’s ability to grow.
For those who enjoy a stroll down memory lane, here’s a list of 36 now-defunct exchanges, and when we lost sight of each, with some historical notes where available.
The Bitcoin Market - On February 6, 2010, the very first bitcoin exchange was established by Bitcointalk user dwdollar. After getting “scammed” by Paypal in June of that year, and subsequently removing the option to accept paypal from the site, the market quickly dwindled into obscurity, and MtGox rose to overtake it. It is not known when their last day of trading was.
MtGox - The most famous exchange implosion of them all was the Tokyo-based exchange, Magic The Gathering Online eXchange. Established by Jed McCaleb on July 2010, and sold to Mark Karpelès on March 6, 2011, the exchange was built for trading playing cards. At it’s peak Gox handled approximately 70% of all bitcoin transactions. It's’ death spiral began in February 2014, when the company suspended trading, closed its website, and filed for bankruptcy protection while 850,000 bitcoins evaporated from customers, valued at more than US$450 million at the time. CEO Mark Karpelès has been arrested by the Japanese police a couple of times for his part in this, and remains in jail to this day. The majority of the missing funds remain unaccounted for.
Tradehill - Founded June 8, 2011, Tradehill was the #2 exchange after to MtGox for almost a year. On February 13, 2012, the exchange announced it was shutting down, citing regulatory problems, the loss of US$100,000, and a dispute with a payment processor as contributing factors.
Bitcoin-Central - This Paris-based exchange launched on December 29, 2010. It was the first to operate within European regulations, and to guarantee the fiat deposits of its users. The exchange struggled for several years before shutting down due to a lack of interest.
Bitcoinica - Launched on September 8, 2011, the site suffered a significant financial loss on March 1st, 2012, when a web host had an internal security breach that gave the attacker access to the wallet in which Bitcoinica stored funds. More than 43,000 bitcoins were stolen by the attacker. The operator provided a statement that reserves were sufficient to cover the loss, but on On May 11, 2012 Bitcoinica suffered another security incident in which its hot wallet was emptied again, leading to its’ immediate shutdown.
Bitstake - Nigeria-based BitStake recently announced, on October 14, that its platform would shut down, after operating for only 10 months. Without stating a closure date, the company advised customers to withdraw coins by October 30, referring them to another exchange in Nigeria, NairaEx.
Crypto-Trade - Not to be confused with the still-breathing CryptoTrade exchange, this trading platform, owned by Esecurity SA, was unveiled in March 2013. The platform sold bitcoin-based shares for BTC or LTC, and claimed to issue dividends. However, after claiming to have suffered losses, and unable to pay its expenditures, the company closed its doors in January 2015, never to be seen again.
Intersango - Intersango was a no-fee exchange offering multiple trading markets for bitcoins and multiple currencies, operated by Bitcoin Consultancy. This exchange was launched on July 6, 2011, but a little over a year later, on December 19, 2012, it closed its BTC/GBP market, citing its inability to re-establish a UK banking relationship.
FXBTC - A small Chinese exchange, and a registered company of Shanghai Yao Chi Network Technology Co., established on November 26, 2013. After making losses, the company announced its closure, but promised to stay open until May 10 the next year. Frustratingly, the site closed a day earlier, denying angry customers of their money and no more customer service.
Bitcoin Brasil - Announced on March 31st, 2011, this was the first market for the exchange of Bitcoins and Brazilian Real. It is unclear exactly when they closed down.
BitMarket.eu - Announced April 5th, 2012, this multi-exchange order matching market service did well at first, but was prone to operator dishonesty like so many others. After increasingly degraded service, on December 21, 2012, the operator shared that the customer's funds had been used for speculation, and that nearly 20,000 BTC of its customer's funds were lost.
Bitfloor - Announced in February 2012, Bitfloor was the first FinCEN-registered Bitcoin currency exchange and trading platform, headquartered in the state of New York. On September 3, 2012, it was hacked for 24,000 BTC, valued at approximately US$250,000 when the theft took place. Compromised servers resulted in access to encrypted backup files of wallet keys. Operations resumed until April 17, 2013, but when the partner bank closed Bitfloor’s account they were forced to shut down for good.
Bitomat - The first polish exchange went online on April 4, 2011. On July 26, 2011, Bitomat reported 17,000 client Bitcoins were missing, after it lost access to its wallet.dat file. It was acquired by Mt. Gox shortly soon after, on August 11, 2011.
Vault of Satoshi - A Canada-based Bitcoin exchange, VoS officially launched in October 2013 trumpeting it’s provably auditable paper-trail, which was revolutionary at the time. The exchange closed its doors on February 5 2015. The founders claimed to have moved on to work on a booming new business venture.
Kapiton - A Swedish exchange trading platform site, launched for a limited client base on April 18, 2012. However, it started experiencing problems with payments in November 2013, prompting Reddit users to call it “a scam.”
WeExchange - Also known as Weex, is a bitcoin currency exchange and trading platform launched in Dec 2012. Although the website is still up, the last volume on this exchange was on November 26, 2013.
UpBit - Launched In September 2013, this Russian crypto/fiat exchange was reportedly shut down, according to Bitcoin Talk users.
CoinEX - A Russian exchange Launched in July 2013. Lasting almost a year, in March 2014 the company claimed its wallet got hacked and all of their bitcoins were stolen. By Dec 2015 the site went missing, and the service was pronounced another scam by Bitcointalk users.
Cryptorush - CryptoRush was a multi-currency exchange launched in February 2014, around the same time as BlackCoin. In March, the company announced that their BlackCoin was stolen by some users, caused by a bug in the BlackCoin daemon. Only a month later, a Reddit user, claiming to be a former employee of the company, wrote a divulging post on how much of a scam this exchange was, detailing a string of eye-opening information.
McxNOW - Launched in September 2013, McxNOW was a digital currency exchange. The company claimed that all balances earn interest of 25% of all profits. Naturally, the site went missing, claiming a “maintenance period” beginning November 15, 2014.
MintPal - In July 2014, the company reported that it had been hacked, losing a large amount of VeriCoin. In October 2014, the company operating Mintpal, Moolah, said that Mintpal is shutting down. Many users on Bitcoin Talk posted that Mintpal CEO was a scam, reporting missing funds left on MintPal. In February 2015, the sites owner, Ryan Kennedy, was arrested over the theft of 3,700 Bitcoins.
SwissCEX - Seven months ago, Swisscex closed down, even though the company claims 100% solvency.
Prelude - Prelude posted on their website that it's currently up as a technology preview for people to try some low volume trades prior to the site going live. The debate still rages around whether or not Prelude, and owner Moolah, are guilty of being scammers or not.
LibertyBit - Launched in February 2013, Vancouver-based LibertyBit announced a temporary suspension of trade in June 2013, never to be heard from again.
Comkort - Estonian based exchange Comkort finished its Beta testing in March 2014. In July, the company ceased operation.
AllCrypt - In March 2015, AllCrypt.com went down, and the owner cited wordpress exploitation, losing a small amount of customer funds.
Coin-Swap - In March 2015 Coin-Swap.net announced by Twitter that it will be shutting down.
Melotic - In May 2014 a Hong Kong-based startup, Melotic, announced closing its digital asset exchange, due to lack of sufficient growth.
BitYes - Integrated with Huobi on Aug 31st.
Yacuna - Yacuna was a UK-based, regulated European Cryptocurrency exchange. Trading Bitcoin, Litecoin and Dogecoin for Euro and GBP. The company announced closure on October 13 and will be officially closed on November 15, 2015.
Excoin - In February, the company announced that it was hacked and in March, the platform announced that they are preparing for a relaunch of the new Excoin trading platform.
Bitspark - A Hong Kong-based Bitcoin exchange that announced at the end of April 2015 that it was closing its exchange to focus on its remittance services.
Coin.Mx - Announced in late 2013, according to an FBI document, Coin.mx was a Mexican bitcoin exchange caught scamming, its’ founders were charged in July 2015. The FBI charged two Florida men, Anthony R. Murgio and Yuri Lebedev, for operating an underground, unlicensed bitcoin exchange, in violation of federal anti-money laundering (AML) laws and regulations.
Harborly - Texas-based exchange Harborly launched early this year, and by August announced that it is closing down, citing that the shutdown "has not been prompted by a hack, by fraudulent activity, or by a security-related incident." The company stated that a new venture had gained traction, therefore, it is in the process of finding an acquirer.
Out of the 36 exchanges in this two were sold to larger companies, living on, if only in essence. Another two lost banking relationships, forcing closure in spite of any potential. 16 gave up the ghost due to financial difficulties, while 13 claim to have been hacked, four of those closures led to criminal convictions. In total, more than 950,000 bitcoins have been stolen from their rightful owners.
Soon after the MtGox fiasco came to a head, legendary venture capitalist Fred Wilson said, “We are witnessing the maturation of a sector and part of that will inevitably be failures, crashes, and other messes. Almost every technology that I’ve watched come into a mass adoption has gone through these sorts of growing pains.”
Apparently, it has been easy to go bankrupt, get hacked, give in to corruption, or otherwise fail to make a profitable business out of exchanging bitcoins for currency. While many of these failures have affected individuals, to varying extents, each one has added to the bitcoin ecosystem, and today's new exchanges are more secure and fortified than ever. No matter how secure these exchanges become, there is a simple lesson to be learnt.
"The lesson here is that if you don't control the keys, you don't control the bitcoin. Possession is nine-tenths of the law, and in bitcoin, possession of the keys is ten-tenths of the law. If you don't control the keys anymore, it's not your bitcoin! That lesson will be learned as many times as it needs to."
- Andreas Antonopoulos, Author of Mastering Bitcoin
Venture Capitalist Marc Andreessen was no doubt speaking for the greater bitcoin community when he tweeted that “Every important new technology has birthing pains. PC did, Web did, Bitcoin does. Our enthusiasm and commitment unchanged.”