Source: Kashmir Hill Forbes.com
On Wednesday, Tokyo-based Bitcoin exchange Mt. Gox “reassured everyone” that its CEO Mark Karpeles was still in Japan and working to “ find a solution to our recent issues.” It turns out that solution is filing for bankruptcy. Having halted withdrawals for over a month, and complaining about a “transaction malleability” Bitcoin bug that let users steal coins, the exchange now says its Bitcoin loss is higher than the 744,000 figure cited in a “crisis plan” leaked this week. Mt. Gox says 750,000 of its customers’ Bitcoins are gone and more than 100,000 of its own. At Bitcoin’s current surprising stable $550 – $570 value, and more than 100,000 of its own coins, that’s around $475 million. Ouch.
At a news conference at the bankruptcy court in Tokyo Friday, Mark Karpelès told reporters that “technical issues had opened the way for fraudulent withdrawals,” reports the Wall Street Journal, and handed out a document that said that “the exchange was illegally accessed in early February.”
“First of all, I’m very sorry,” Mt. Gox CEO Mark Karpeles said at a press conference after filing for bankruptcy protection.
The wider Bitcoin community is still in a state of shock and disbelief that half a billion dollars worth of Bitcoin could go missing that quickly if Mt. Gox were exercising proper security measures. A crisis strategy plan allegedly created for Mt. Gox by consulting firm Mandalah says “the cold storage has been wiped out due to a leak in the hot wallet.” That doesn’t make much sense. When Bitcoin are in “cold storage,” the private keys needed to transfer their value are stored on a secure, offline device (or the codes may even be printed out). So either the storage was lukewarm not cold — meaning they were still accessible through a network in some way — or the claim is an inaccurate one.
In addition to the loss of coins, the bankruptcy filing says Mt. Gox owes creditors $63.5 million. Among its claimed $38 million assets, it says it has $5 million “held by CoinLab” and $5.5 million held by the Department of Homeland Security, reports Coindesk. Those are reminders of earlier legal problems for the company. After their plans to partner to create a U.S. Bitcoin exchange fizzled, Mt. Gox sued Coinlab for the return of that $5 million; the suit is ongoing. Meanwhile DHS seized money from Gox last year claiming it was not licensed to perform money transmission in the U.S. Rumors continue to swirl in the Bitcoin community that the crackdown was related to the prosecution of Silk Road, and that the U.S. government actually has control of Mt. Gox’s cold storage wallet.
Law enforcement in the U.S. has become interested in the case according to the Wall Street Journal, which reported that federal prosecutors in Manhattan — who have been responsible for pursuing Bitcoin-related charges against alleged Silk Road founder Ross Ulbricht and BitInstant CEO Charlie Shrem — have subpoenaed Mt. Gox and asked it to preserve certain records that could come in handy in a later criminal investigation.
As for the over 100,000 customers who had their Bitcoin holdings with Mt. Gox, this would appear to confirm the devastating news that began to leak out at the beginning of the week: that their Bitcoin savings are gone. Some of the more fervent believers in Bitcoin are still sanguine.
“I have dedicated my life to building and supporting the Bitcoin project,” writes early Bitcoin entrepreneur Erik Voorhees, who reportedly had over 550 Bitcoin (or $300,000) in Mt. Gox. ” I don’t give a damn about the money I lost at Gox. That’s not important. What is important is that Bitcoin is resilient and enduring, and will continue to grow and change the world for the better.”
For those whose heads are still reeling from the news, here’s a timeline of this month’s MtGoxalypse:
February 7, 2014
Mt. Gox halts withdrawals.
In a bankruptcy filing at the end of the month, Gox will say that the exchange was illegally accessed in early February
February 10, 2014
Mt. Gox blames a transaction malleability bug for the halt. In a press release, Mt. Gox said it “detected unusual activity on its Bitcoin wallets and performed investigations during the past weeks. This confirmed the presence of transactions which need to be examined more closely.”
Two protestors fly to Mt. Gox’s Tokyo headquarters and sit in front of its office with signs demanding their Bitcoin back.
February 23, 2014
Barry Silbert of SecondMarket emails a Fortune reporter saying he wants to accelerate the announcement of the launch of a new U.S.-based Bitcoin exchange.
February 24, 2014
On Monday afternoon, Bitcoin entrepreneur Ryan Selkis who blogs under the name The Two-Bit Idiot reports that a document circulating reveals that Mt. Gox has lost 744,408 Bitcoin. Two hours later, he posts the document, a Mt. Gox “crisis strategy plan” that he says he has authenticated with sources close to Gox.
CEOs from other Bitcoin companies hold a Skype call Monday afternoon Pacific time to release a statement reassuring the Bitcoin community, calling Mt. Gox “a bad actor that needed to be weeded out.”
February 25, 2014
Mt. Gox’s website goes dark. Trading stops.
The New York Times and Fortune report SecondMarket’s new U.S.-based Bitcoin exchange in articles that also focus more and less, respectively, on Mt. Gox’s implosion. “I wasn’t planning to make this public yet,” Silbert told me. “I decided to accelerate it to counterbalance the Gox news.”
Mt. Gox site comes back but with a simple statement: “In light of recent news reports and the potential repercussions on MtGox’s operations and the market, a decision was taken to close all transactions for the time being in order to protect the site and our users. We will be closely monitoring the situation and will react accordingly.”
February 26, 2014
Mt. Gox site adds another statement from its CEO to its website:
Dear MtGox Customers,
As there is a lot of speculation regarding MtGox and its future, I would like to use this opportunity to reassure everyone that I am still in Japan, and working very hard with the support of different parties to find a solution to our recent issues.
Furthermore I would like to kindly ask that people refrain from asking questions to our staff: they have been instructed not to give any response or information. Please visit this page for further announcements and updates.
February 27, 2014
After a West Virginia senator calls for a ban on Bitcoin in reaction partly to the Mt. Gox news, Federal Reserve Chair Janet Yellen says the “Fed doesn’t have authority to supervise or regulate bitcoin in any way.”
Gregory Greene, of Illinois, who says he had $25,000 worth of Bitcoin stored with Mt. Gox files a class-action lawsuit against the company for fraud and breach of contract.