The digital currency community has had another, albeit smaller, controversy over an exchange suddenly losing money, freezing accounts, and promising to pay its clients back over time. Digital exchange CryptoRush announced yesterday that it had lost 1.5 million BlackCoins (a digital currency similar to Bitcoin, though much less established) worth approximately $70,000 due to a bug that allowed users to withdraw more than they had in their accounts. By the time the bug was fixed, CryptoRush didn’t have enough reserves to cover the legitimate deposit accounts left behind.

Bitcoins Mt. Gox Digital Currency

Digital currencies under the microscope

For those within the crypto community, there are still a lot of open questions (whether CryptoRush or BlackCoin devs are to blame for the bug is a big one) that don’t much matter to mainstream investors, but the fact that this story has made it onto larger financial websites (Rob Wile at Business Insider covered it, as just one example) shows the growing scrutiny that digital currency is now getting, and doesn’t really seem prepared for.

This isn’t the first time that CryptoRush has had problems. They had similar problems with TeslaCoin, BattleCoin, and ZeitCoin (which is why many blame the exchange’s wallet implementation, and a few have even accused it of stealing from clients), but no one outside the crypto community heard about those incidents. Now that Mt. Gox has very publicly failed, there is greater awareness of the smaller failings in a still-developing technology.

Digital currencies have a long way to go for mainstream acceptance

The promise of digital currency is that it allows for unregulated, semi-anonymous transactions, but cases like this show the value of regulation for your average investor. For deposit accounts to be frozen at a traditional bank is basically unthinkable (that’s what the FDIC is for), and creditors have a recourse if a bank or company that owes them money goes under. But when a digital currency exchange loses your money, there’s nothing to be done but hope they have the ability and intention to make you whole.

Realistically, CryptoRush is a bit player in the crypto currency world, and price of Bitcoins hasn’t even registered the incident, but how should people who don’t keep up with such things know the difference, or whether a few million BlackCoins is a huge sum or a minor loss? The deregulation that many Bitcoin advocates are so fond of also means that when traditional investors on the outside looking in see a minor exchange lose deposits, it calls the credibility of the whole idea into question.