What happened to Mt. Gox?

Mt. Gox was a bitcoin exchange that was created by programmer Jed McCaleb and based in Tokyo, Japan. Launched in 2010, the exchange handled up to 80% of all bitcoin transaction volume at its peak before it filed for bankruptcy in 2014.Mt. Gox CEO Mark Karpeles was a tech geek who showed little interest in managing the company – even amidst an incursion that took the platform offline in 2011. He was also complacent with respect to internal procedures and was a lavish spender.In February 2014, Mt. Gox was hacked once more with 850,000 bitcoins stolen. The company filed for bankruptcy in Japan and the United States to avoid numerous lawsuits from disgruntled customers. Thanks to a soaring bitcoin price, creditors were paid back in full in 2018, but Karpeles would be charged with various offenses and receive a suspended jail sentence.The story of Mt. Gox

Mt. Gox was a bitcoin exchange that was created by programmer Jed McCaleb and based in Tokyo, Japan. The exchange was named after a site McCaleb created in 2006 to enable users to trade cards from Magic: The Gathering Online, an online fantasy game. 

Launched in 2010, Mt. Gox was one of the first bitcoin exchanges and, four years later, was processing 70-80% of all bitcoin transaction volume. In February of 2014, however, Mt. Gox suffered a fatal blow and filed for bankruptcy in Tokyo two months later.

To find out what happened to this powerhouse exchange, please read on!

Mismanagement 

Bitcoin and its associated infrastructure proved to be the first viable way to revolutionize and decentralize international finance. But its development was largely driven forward by technology enthusiasts who were either unable or unwilling to learn how to run a business.

Mt. Gox CEO Mark Karpeles is one such individual. Karpeles, an avid programmer and bitcoin advocate, purchased the site from McCaleb after the latter realized that managing the platform was beyond his capabilities. He took a rather laissez-faire approach to leadership, famously enjoying the weekend off after the platform was hacked and taken offline in 2011.

Under Karpeles’s leadership, reports also surfaced that Mt. Gox did not use any form of version control software. This meant that any coder could overwrite the work of another employee if they were working on the same file. The company was also extremely complacent in introducing a test environment, which potentially would result in untested software changes released to users. And with Karpeles the only person who could approve changes to the source code, important security fixes languished for weeks before he would get around to looking at them.

Other former employees noted that Karpeles was not afraid to spend money, with $400 staff launches and $1 million spent on a new company café that was never finished. One insider would later note that: “Aside from the café, he liked to spend time fixing servers, setting up networks and installing gadgets… probably distracting himself from dealing with the real issues that the company was up against.”

Hacking and bankruptcy

In February 2014, Mt. Gox suspended trading after noting that it was experiencing an unexpected increase in withdrawal requests. The issue, the company claimed, was not limited to Mt. Gox and affected any transaction where bitcoins were sent to a third party.

A few days later, the site was shut down completely and rumors began circulating that Mt. Gox had been hacked for as many as 850,000 bitcoins. At the time, this equated to around $500 million in hard currency.

On February 28, Mt. Gox filed for bankruptcy in the Tokyo District Court. In a statement, Karpeles announced that most of the bitcoin was unrecoverable: “We had weaknesses in our system, and our bitcoins vanished. We’ve caused trouble and inconvenience to many people, and I feel deeply sorry for what has happened.”

The company then filed for bankruptcy protection in the United States to halt multiple lawsuits from customers.

Redistribution to creditors

Around a month after filing for bankruptcy, the company discovered a digital wallet containing 200,000 BTC. While 650,000 BTC was still owed to creditors, the soaring price of bitcoin over the next four years meant that enough could be salvaged to pay them back in full by March 2018.

In the interim, Karpeles was arrested by Japanese police for fraud, embezzlement, breach of trust, and data manipulation of accounts in the Mt. Gox computer system. The Tokyo District Court eventually found that he had inflated Mt. Gox’s holdings by $33.5 million and, as a consequence, received a suspended sentence of 30 months in prison.

It was also discovered in the aftermath that the funds from the initial hack were stolen over a period of three years. No one has been arrested over the hacking and subsequent theft, but Russian crypto exchange owner Alexander Vinnik is a prime suspect.

Read Next: Coinbase Business Model, History Of Bitcoin, Ethereum: The History of Ethereum.

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