It's worse than that - a single exchange, Mt. Gox, has 98% of the bitcoin trading volume. The exchange operator(s) have access to all information about orders placed - and also have bitcoin holdings themselves. The potential for manipulation here is unlimited. I do not mean to accuse them of anything - there is no information. But this is not a healthy situation, given, as others have said, absolutely no legal protection.
EDIT: I want to strengthen the statement that I'm not accusing the operator of manipulation. He's well-respected by bitcoin forum participants, and he is probably an upstanding guy. But in the world of finance, it is customary to have more than just that to guarantee the soundness of a central exchange.
Add to this the fact that Mt. Gox is taking deposits totaling in the millions of dollars without having any license to operate as a financial institution, and that it apparently hold around 10% of all existing bitcoins (someone traced a 470,000 bitcoin movement to a Mt. Gox account), and I have a strong feeling that this will soon end in tears.
There are some new exchanges that will probably take a share of the market. One of the more promising ones is tradehill.com. They offer a nicely polished interface, offer dwolla payments/withdrawls and have a "viral" component by giving a 10% rebate on fees for people singing up using a referral link. In addition, they charge less than mtgox.
p.s. I was told that posting a direct link is frowned upon and I understand that. But since not using a ref id will lead to a 10% penalty on fees, I feel bad not leaving one: TH-R11089
And does /that/ one have a license to take deposits? And is it backed by anything more than 4 stars next to someone's nic on the forum?
Bitcoins are a serious investment for some people now. They've put their savings into this. This is not just funny money. It's a lot of fun to play with, and I will keep doing that myself, but the people who are not just playing anymore have an immense potential to get hurt by these exchange swings.
By the way, I am nobody here on HN, but I do know that this is not the forum to post your affiliate links. My friendly advice would be to get rid of that.
If you're putting your savings into that it's your own risk. People know that right now Bitcoin should be regarded as completely volatile financial instrument. If you want to gamble: fine, but don't cry if it doesn't work out the way expected.
You are right in that Tradehill isn't necessarily 'better' or 'more secure' than mtgox. I just wanted to say that there are more exchanges coming up and that the situation will at least ease up in that direction.
As for the 'investment':
Honestly, the people that invested their savings into Bitcoins should be fully aware of the risk they're getting themselves into. As with everything that might give return your investments manyfold, there is a proportionally high risk.
I don't think it's a good idea to make large investments into Bitcoin unless somebody doesn't need the money and thinks the personal joy he gets out of gambling is worth it. I know I have a lot of fun with small amounts :)
As for the link, I'll remove the directly clickable one. But since signing up without a referal will lead to 10% higher fees, I'd at least leave the code for people that are interested. I was kind of uncertain but didn't find anything when skimming the FAQ or guidelines. I hope that is ok. (If not, somebody please respond and I'll kick that one too)
My point is that for something meant to be totally decentralized, bitcoin has become nearly completely centralized instead - virtually every transaction (even that buy-newegg one) has to pass through Mt. Gox, since suppliers have to be paid in dollars, and Mt. Gox is the only place with sufficient volume. I think that's an interesting and non-obvious outcome, and I wish that people would try to do a serious economic analysis of bitcoin, instead of giving us the standard opinions of "it's garbage" or "it's going to take over the world, you'll be poor and I'll be rich".
Even if there are 2 exchanges, or 5, or 10, that doesn't change the basic fact. After all, there are hundreds of central banks, but we don't refer to regular currency as peer-to-peer. My further point, as an aside, is that the shaky nature of the bitcoin exchanges makes this a dangerous investment for anyone who is treating this as more than an experiment. Failure of even one exchange out of several is still very damaging to an economy.
Mt. Gox might be the most popular one, but unless you're going to buy/sell an extremly high amount of Bitcoins, other exchanges are viable too.
Currently I like Bitmarket.eu most: This site acts as an escrow just for the Bitcoin side of the trade - the "real" money is directly transfered between buyer and seller (via bank transfer or Paypal). That's somewhat more distributed than other sites that act as "full gateways" between buyers and sellers.
Numbers are of the essence. That site has less than 1% of the volume of Mt. Gox, and Mt. Gox is considered too thinly traded for business transactions.
I don't see how the existence of that site, and trading over IRC channels, changes the fact that the bitcoin economy has become centered on Mt. Gox, and in the future, maybe, on several other exchanges. I never said that Mt. Gox is ALL there was.
BTW, I see the reasons that a proper exchange is more popular - there are 3 or 4 transactions an hour on bitmarket.eu, the escrow provisions are weak (as you said, it's for the bitcoin side only), the Paypal fees will be high on the small amounts traded, and trading higher amounts will get negative attention from Paypal - they will not let people trade virtual currency over their systems (and they consider bitcoin to be in that category).
Yeah, they take deposits. People have a dollar account and a bitcoin account on Mt. Gox. They may fund the dollar account with bank transfers, and they may fund the bitcoin account with bitcoin transfers. I don't know how long people tend to keep dollars on deposit there, but the total amounts are substantial. Apparently there is more than 470,000 bitcoins on deposit at Mt. Gox. That's $8 million at current prices. I am guessing that the amount of dollars is somewhere in the range of that - they've been doing $1.5 million in transactions a day, and most people probably take a few days to trade and then transfer the money out.
Of course, we can't be /sure/ of what they've got on deposit - it's not like they employ auditors, or publish reports, or submit to regulations regarding deposits. All that old economy stuff is for losers, y'know.
I know. My point is not so much about the possibility of front running, but about exchanges, and especially Mt. Gox, as the point of failure for bitcoin.
Let's face it, 99% of the excitement about bitcoin lately is not along the lines of "hey, this is a great use of peer-to-peer principles and a fascinating economic experiment with a decentralized currency". No, it is along the lines of "hey, this thing is making tons of money for people! fortunes out of next to nothing!". Take one look at the bitcoin forums.
A failure of a major exchange (and right now, there is exactly one major exchange) would damage the project severely. What's more, the focus on trading at exchanges is making the whole project look a lot less decentralized - yeah, the bitcoins themselves are peer-to-peer, but exchanges are sure not, and if what people really want to do is trade at exchanges, then that's what matters.
I absolutely agree, the bitcoins themselves can't be taken away and neither can person-to-person trade in them.
But you do agree that Mt. Gox sitting there with several million euros frozen in its accounts (for whatever reason) and with its bitcoin accounts inaccessible (even just for a while) will be pretty damaging to the project? And even more damaging to the people who, unlike, say, me, are NOT just playing or experimenting with this concept anymore? The pure person-to-person volume is tiny; if it could easily be scaled, then exchanges would not have arisen.
EDIT: I want to strengthen the statement that I'm not accusing the operator of manipulation. He's well-respected by bitcoin forum participants, and he is probably an upstanding guy. But in the world of finance, it is customary to have more than just that to guarantee the soundness of a central exchange.
Add to this the fact that Mt. Gox is taking deposits totaling in the millions of dollars without having any license to operate as a financial institution, and that it apparently hold around 10% of all existing bitcoins (someone traced a 470,000 bitcoin movement to a Mt. Gox account), and I have a strong feeling that this will soon end in tears.