Bitcoin's future was called into question this week due to the collapse of Mt. Gox, which filed for bankruptcy in Japan on Friday. Once one of the largest exchanges for the virtual currency, Mt. Gox was the victim of either a security flaw or an inside job -- or a combination of both.

Whatever the cause, nearly $500 million worth of bitcoins have disappeared into the virtual ether, leaving clients of Mt. Gox with little or no recourse to recoup their losses. That's because bitcoin, by design, is beyond any government control or regulatory oversight.

"Bitcoin is a payment innovation that’s taking place outside the banking industry," Federal Reserve chair Janet Yellen said Thursday during her Senate testimony. "So the Fed doesn’t have authority to supervise or regulate Bitcoin in any way.”

Other regulators, both in the U.S. and abroad, have drawn similar conclusions; in the past, such statements have caused temporary fluctuations in bitcoin prices but generally cheered its libertarian advocates.

But the crypto-currency's biggest draw for its supporters -- its lack of government oversight -- could now prove to be its undoing, or at least prevent it from going mainstream. Consumers who may have been curious about bitcoin before this week are now going to be very wary about making transactions or investments in the virtual currency. 

If a U.S. bank fails, deposits of up to $250,000 are guaranteed by the U.S. government via the Federal Deposit Insurance Corp. If a brokerage firm like MF Global fails, clients can turn to the Securities Investor Protection Corp., which is funded by its members and aims to protect each customer account for up to $500,000.

Again, nearly $500 million of bitcoin assets were lost due to Mt. Gox's collapse and its former clients have virtually no options -- no regulator nor law enforcement agency -- to turn to in the hopes of getting their money back.

At this moment, it seems clear bitcoin needs some kind of regulation to protect consumers, or it will remain at best a fringe way to conduct transactions and, at worst, a venue that continues to attract shysters and criminals. 

"At least for now, more government involvement is needed to prevent further failures of bitcoin exchanges," writes Ezra Galston, a venture capitalist with Chicago Ventures, who continues:

"Mt. Gox's largest failure was a technical one, with an alleged shortfall in bitcoins caused by improper accounting and oversight of reserves. Real-time digital signature verification can solve this problem, bypassing the need for traditional auditors. But implementation of such cutting-edge technology will need to be fully stress-tested. Meanwhile, exchanges would need to depend on either regulators or outside auditors to ensure that their digital signatures are accurate and not susceptible to manipulation."