As Bitcoin started to gain popularity, it quickly picked up a bad reputation due to its focus on privacy and decentralized nature.
Regarding privacy, the difficulty to tie digital identities to the real world user posed issues in some situations.
On top of that, because Bitcoin is decentralized, there is no central entity or court to fix any mistakes within the blockchain.
If someone found your private key and stole your funds, no one else can give your stolen funds back to you.
Early Bitcoin was thus often the target of scandals, hacks, and illegal activity.
In the early stages of Bitcoin, there existed no exchange for trading between bitcoins and regular currencies.
In 2010, Jed McCaleb, turned his domain mtgox.com into a Bitcoin exchange website.
What was originally the Magic: The Gathering Online Exchange, where players of the online game Magic the Gathering Online traded cards like stocks, quickly became one of the largest bitcoin exchanges during the early stages of Bitcoin.
Keep in mind an issue with this exchange: it’s a central point of failure, and its popularity drew a lot of negative attention.
On June 19, 2011, it was discovered that a hacker was using a Mt. Gox auditor’s computer to siphon an abundance of bitcoins to themselves.
Mt. Gox was subsequently shut down for seven days to investigate the situation.
It received several lawsuits, some of which are still being disputed.
Despite this breach of security, people kept on using Mt. Gox.
For a while, it seemed like all was well.
By 2014, Mt. Gox was handling up to 70% of all Bitcoin transactions — way too much for what the infrastructure could handle.
In February 2014, Mt. Gox announced that it had lost 744,408 of its customers bitcoins in an ongoing theft that had gone unnoticed for years.
By the end of the month, Mt. Gox filed for bankruptcy.
[Bitcoin Drug Scandal] Meanwhile, in the depths of the dark web, Bitcoin was also used to purchase drugs.
In February 2011, the website Silk Road opened, quickly earning the reputation of the anonymous “eBay of Drugs.” It was led by a man named Ross Ulbricht.
Silk Road leveraged Tor, an anonymous networking protocol, and handled transactions using Bitcoin.
This combination made it difficult for users’ online identities to be linked back to their real life identities.
Because of this, drugs and the black market became the primary use case that came to mind when anyone mentioned Bitcoin.
Even to this day, Bitcoin is tainted with this association.
In October 2013, the FBI shut down Silk Road.
Ross Ulbricht was sentenced to life in jail, and the FBI seized upwards of 26,000 bitcoins, worth $3.6 million at the time.