The collapse of a major digital currency trading exchange sent the bitcoin into freefall this week - but it doesn't worry the increasing number of Kiwis who prefer electronic money to cold hard cash.

You can find him in muddy paddocks; you can find him in the milking shed. You can find him trawling through cyberspace, trading virtual currency with anonymous speculators whose fortunes are made or lost at the touch of a computer key.

Carl Bergerson is a dairy farmer and a bitcoin trader. And he's made more money in single days of crypto-currency speculation than he makes in a week on the farm.

Perhaps he's smart. Perhaps he is just lucky. This week, the Mt Gox website (a Tokyo-based leading bitcoin exchange) went "dark": the site was taken down and all trading was stopped. Traders on online forums are talking about how much money Mt Gox has lost them. Speculators who had invested thousands sit outside the Mt Gox offices waiting for news about their money.

Mt Gox claimed to have a million customers, and many are thought to have lost money in the website's crash (rumoured to have been caused by a hack or security breach). Although the price of bitcoins has taken a hit, the many other exchanges have been quick to reassure traders it's business as usual.


It's not as if traditional cash is immune to fluctuations, crashes and fraud. Just this week, a man appeared in Christchurch District Court after police recovered eight counterfeit $20 notes.

Mt Gox's woes don't surprise Bergerson, who says the exchange's meltdown has been on the cards for a while. He has never used the exchange. "Do a bit of reading, and you find Gox has been delaying and limiting fiat withdrawals for months. Why would you put your money somewhere where it takes months to get a fraction of it out again?

"As sad as I am that people have lost their money in Gox, I'm glad they are almost out of the picture."

It seems appropriate somehow that this Kiwi cowboy is staking his claim in what has been called the internet's Wild West. The 26-year-old Cambridge resident, who lives and works on the farm he grew up on, has always been "a bit of a geek".

About a year ago Bergerson, who is a frequenter of many computer technology forums, started reading threads expounding the virtues of bitcoin speculation. Apparently the "crypto-currency" was making some people a lot of money - the phenomenon was as intriguing as it was confusing.

Then followed a piece in the Herald business pages on how the market was exploding. It seemed worth a punt. And it was. "On a single day of trading I made $9000."

He has now set himself up as a buyer and seller on, a site that connects buyers and sellers of bitcoins using local currency, and provides escrow services to protect users. "It's a volatile market, but as long as you are careful to minimise your losses, you can make money."

Many people became aware of bitcoins only after the FBI raided and closed black market online store Silk Road last year. The site used the anonymous nature of the coins to facilitate its trade in all things illegal, drugs included. Others cottoned on to the currency this week when news broke of the Mt Gox exchange crash. But bitcoins have been floating around cyberspace since 2009.


Created by a pseudonymous developer known as Satoshi Nakamoto, the "crypto-currency" (so named for the cryptography used in its creation) was created as a peer-to-peer electronic exchange that allowed direct transfer without third parties such as banks taking their cut.

The bitcoin is the biggest of a raft of these new digital currencies. Traded from computer to computer, website to website without any governmental control or regulations, the only oversight is provided by a permanent, public ledger called a "blockchain" that anonymously records all valid transactions.

Enthusiasts known as "miners" turn over their computing power to scrutinising and verifying every transaction, and are generously rewarded with 25 bitcoins for each block of transactions they verify.

Bitcoins have been through periods of boom and bust: the value of a single bitcoin soared to US$1250 ($1490) in November, before crashing to US$584 in December.

Megacoin enthusiast Matt Meek was a relatively early investor in bitcoins. He became aware of crypto-currencies when he was bedridden with an injury last year. "I started researching bitcoins at that time, and was amazed at the money being made," he says.

He says he has made $100,000 from an initial $2000 investment in bitcoins and megacoins, which he agrees seems too good to be true. "But the market is very volatile," he says. "I wouldn't advise people put a lot of money into it."


Meek's success has prompted his dad, Chris Meek, who runs an art gallery in Raglan, to start accepting bitcoins as payment. Nearby Hidden Valley Luxury Retreat also accepts them. So does Finn Verduyn-Cassels of Pioneer Rafting in Wanaka.

Verduyn-Cassels has been accepting bitcoins since December. He feels the transparency of the ledger system, and the move away from traditional banking systems, has much promise.

"Crypto-currencies decentralise economic power and transfer it back to the people. I see them as a revolution in currency, of an order and magnitude never seen before."

The promise of easy money, and the decentralised nature of crypto-currency, may appeal to some. But the volatility of the market, plus the lack of any regulation, means investing in the likes of bitcoins is always going to be a risky venture. Any murmurs in the market can lead to prices tumbling, and there's no recourse for people taken in by unscrupulous traders.

The word "currency" is in itself misleading. The volatility of crypto-currencies violates the traditional "store of value" criteria for money. For something to be used as a currency it must represent the same amount of goods and services: crypto-currencies buy widely different amounts of goods and services over short periods. They are also not backed by any government or bank.

Sam Tuck is the senior FX strategist in the research division of ANZ bank. He says crypto-currencies don't meet bank criteria as an investment due to their extreme volatility. "We would deem them as a highly speculative instrument in which large percentages of capital invested could easily be lost."


He does admit this form of currency may have some use in the future. "We do not suggest that over the long term there may not be viable concepts and technologies inherent in crypto-currencies broadly, we just do not suggest any are currently investments in the sense banks view investments."

For computer forensic expert Daniel Ayers, speculation on the crypto-currency market is too risky. "My advice to people is to stay clear of all of them. These currencies are highly volatile, and don't behave like regular currencies."

Even some of its most ardent supporters urge caution. Bergerson is still keen to explore the potential of the bitcoin market. But he has words of advice.

"We all lose sometimes," he explains. "The real trick is to learn how to minimise these losses. I don't know anyone who's lost significant amounts of money or ruined their lives."

He certainly doesn't see Mt Gox's collapse as the end of bitcoin. "We've got to remember we are the pioneers here. Like early gold miners, we will suffer through the collapse of inferior and experimental infrastructure, but this is necessary to come out stronger on the other side."