The Scandal of Mt Gox: Is Your Bitcoin Safe?
Back in 2014, one of the largest and most popular online exchanges filed for bankruptcy after the unthinkable happened - hundreds of thousands of Bitcoin went missing from wallets across the platform.
What was Mt Gox? How did such a failure happen? Can it happen again in the future? Read on to find out everything you need to know.
What Was Mt. Gox?
Mt. Gox was an online cryptocurrency exchange that opened in 2010. Its name came from a shortened version of ‘Magic: The Gathering Online Exchange’, and at the time of its trading peak, the company was the largest in the world and responsible for more than 70% of Bitcoin transactions.
This Tokyo-based exchange was also often referred to as MtGox or Mt Gox and had a very successful start in the online exchange scene.
The site was transferred to Mark Karpeles in 2011 in exchange for six months’ worth of revenue and afterward, Karpeles became the largest shareholder and CEO.
However, despite its success and consumer confidence, the exchange declared bankruptcy in early 2014 although they have continued to fight lawsuits based on its scandal for years after with lawsuits still being brought forward today, on occasion.
What Was the Scandal of Mt. Gox?
Given its prominence in the market, the company was a prime target for hackers. Especially since Bitcoin had only been around for a few years and there were security kinks that perhaps weren’t as airtight as today.
The first issue that hit Mt. Gox was back in 2011. Hackers were able to transfer Bitcoin using stolen information and later in the same year, a few thousand Bitcoin was “lost” due to poor network protocols.
However, the final nail in the coffin happened in February 2014. In the months before February, many users were complaining about not being able to withdraw their funds. There were technical bugs that were plighting the company and Mt. Gox was unable to have a grasp on transaction details or even know if Bitcoin was being successfully transferred between, into, or out of customers’ wallets.
This issue was said to be the result of a bug in the Bitcoin software that allowed users to alter transaction IDs, sometimes referred to as “transaction malleability”, although it has since been agreed that this wasn’t a problem.
Finally, in February, everything came to a head when the exchange platform suspended all withdrawals. They announced they had come across suspicious activity in several digital wallets and would be suspending withdrawals until they had investigated what was happening.
It was then that Mt. Gox discovered that hundreds of thousands of Bitcoin were missing from a multitude of wallets across the platform. The exact number lost has never been confirmed although estimates range from 650,000 to 850,000 coins or roughly $356,850,000-$466,650,000 in value, at the February 2014 price.
Bankruptcy and the Following Years
Although the exchange was able to locate and recover around 200,000 coins, they were still missing hundreds of millions of dollars worth and seriously destabilized the market.
Since the amount missing was so great, Mt. Gox couldn’t cover the losses and was forced to file for bankruptcy more or less immediately. Tokyo District Court accepted the request for insolvency and ordered the exchange to liquidate in April 2014.
There has been frequent speculation that the hackers behind the heist were Russian, although no concrete evidence has ever been uncovered. The lack of information and the complete untraceable nature of the hackers has almost meant that no further coins were ever recovered.
Investors who used Mt. Gox and had their Bitcoin stolen were able to submit claims against the company. In October 2019, Mt. Gox trustee Nobuaki Kobayashi extended the deadline for submitting claims to March 31, 2020.
The Future of Mt. Gox
In November 2021, it was announced by trustee Nobuaki Kobayashi that Mt. Gox creditors reached an agreement on the Mt. Gox rehabilitation plan. This information was told to the Japanese courts who were dealing with the financial aspect of the company since it filed for bankruptcy.
The rehabilitation plan establishes a registration and compensation plan based on phases for different creditors.
According to Investopedia, “Approved rehabilitation creditors with creditor codes can signup on the MT. Gox Online Rehabilitation Claim Filing System. Unfortunately, new rehabilitation claims cannot be filed using this system; the Tokyo District Court referred the rehabilitation draft to a resolution in February 2021, sealing the process and preventing the initiation of any new claims.”
What Happened to the Mt. Gox Stolen Coins?
Your guess is as good as mine. Mt. Gox said they could recover 200,000 coins using their own supply but the remaining amount was never located or returned. The hackers most likely used the coins to buy everything they ever wanted.
How Many Bitcoins Did Mt. Gox Lose In Total?
The company never gave an exact figure as to how many were lost in total. There are only estimates that it was in the range of 650,000 to 850,000. This included coins that the exchange lost as well as customers.
Is Mt. Gox Still Active?
No. The company filed for bankruptcy more or less immediately at the end of February 2014 and has never reopened since.
Can It Happen Again?
While another exchange can have the same fate as Mt. Gox, it’s very unlikely. Due to changes in security and better protocols, online exchanges are more secure than ever before. Right now, there are great odds that your Bitcoin is safe.
However, understandably not all investors want to take even the smallest risk and prefer to keep their Bitcoin in offline wallets for even more protection.
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