Bitcoin exchange Mt. Gox files for bankruptcy with debts of $63.6M

[Firefox]

Bitcoin exchange Mt. Gox files for bankruptcy with debts of $63.6M

Mt. Gox has filed for bankruptcy, its lawyer told Japanese media at the Tokyo District Court

Embattled Bitcoin exchange Mt. Gox is filing for bankruptcy protection with liabilities of ¥6.5 billion (US$63.6 million), according to Japanese media reports.

A lawyer for the exchange, which had suspended bitcoin withdrawals weeks ago, made the announcement at a press conference at the Tokyo District Court.

The lawyer said roughly ¥2.8 billion in cash was unaccounted for.

"I am deeply sorry," CEO Mark Karpeles told reporters in Japanese, offering a ritual bow of apology. "There were weaknesses in the system."

Mt. Gox said that 750,000 bitcoins belonging to customers, and 100,000 of its own, had been lost, according to media reports. That represents about $474 million at the current bitcoin price of around $558.

Its website went offline this week as U.S. and Japanese authorities began looking into the situation surrounding the Tokyo-based exchange.

"I'm angry and sad," said Aaron G, a Mt. Gox investor who did not want his last name used. With hundreds of bitcoin stuck in Mt. Gox, Aaron and another bitcoin investor, Kolin Burges, held a small protest outside the office of Mt. Gox owner Tibanne in Tokyo.

"A lot of people were hoping for a miracle, though I'd seen enough evidence to not hold out much hope," Aaron said in an email.

"I just want to see justice done now. This is not just a civil matter. They knew they had lost these coins and continued to operate the exchange and accept deposits. You can't sell something you don't have and not be committing fraud."

"I am extremely disappointed with the company but not surprised," Burges said in an email. "I am thoroughly disgusted by the company and the way they have ruined so many people's lives, as well as disgusted by their conduct through this whole situation. I will be doing anything I can to ensure that anyone at the company who was to blame for this faces justice for any crimes they might have committed."

"I will also do anything I can to investigate what was really going on there, but hopefully the courts and police of Japan will do a thorough job here," said Burges, who flew from London to protest at the office of Mt. Gox in Tokyo.

The bankruptcy filing follows online allegations that Mt. Gox had multiple coding vulnerabilities that may have allowed hackers to steal bitcoin. It had suspended bitcoin withdrawals to outside addresses due to what it claimed was a technical issue known as transaction malleability.

It alleged that the bug, which had been known about in the bitcoin community for years, could have allowed for fraudulent abuse of bitcoin transaction records.

Repeated inquiries to the exchange went unanswered. On Thursday, a woman at a virtual office in a Tokyo office tower that was listed as the exchange's last address said that Mt. Gox was no longer there.

"The one thing certain is that it has little to do with the worldwide cyberattack on the Bitcoin network in early February that used transaction malleability," Bitcoin observer Kenji Saito, an assistant professor at the Graduate School of Media and Governance in Keio University, said in an email.

"The issue is too small to shut down one of the largest bitcoin exchanges in the world," Saito added. "Rather, it must be that Mt. Gox has committed something unfaithful to its customers, even before February 2014."

Japanese police and government ministries began gathering information about Mt. Gox following its closure this week.

"I am getting to feel that this whole case might have been well planned so that prosecutions of any kind are made difficult," Saito said.

Mt. Gox received a subpoena this month from federal prosecutors in New York asking it to preserve certain documents, The Wall Street Journal reported this week, citing an anonymous source familiar with the matter. A spokeswoman at the U.S. Attorney's Office for the Southern District of New York declined to comment.

The fall of Mt. Gox is one of the biggest blows to bitcoin, a digital currency often billed by proponents as being free from government regulation and costing nothing to send and receive.

It follows the theft last November of more than $1 million in bitcoin from Bitcoin Internet Payment Services, a Denmark-based exchange that promoted itself as Europe's biggest, as well as a heist involving about $1.4 million from online wallet service Inputs.io, and the disappearance of a Chinese bitcoin exchange with more than $4 million in it.

Bitcoin was trading hands at $556 following the bankruptcy announcement, down slightly from the day's high of $579, according to CoinDesk.com.

[Malware_Gone]

'bout right. That's a lot of money though really.

[GT500]

Forbes has an interesting article about this.

As someone who knows people who mine BitCoins, I can tell you with certainty that BitCoin is here to stay. The system may not be perfect, but the inherent instability of fiat currencies like the U.S. Dollar is making people turn to alternatives. Digital currencies, while no different than our government-endorsed fiat currencies in the fact that there is no actual value backing them, are enticing because they do not share some of the shortcomings of our more common forms of currency. For instance, only a certain number of BitCoins can be produced, and the closer it gets to that number of total BitCoins the harder it is to make them. This gives the BitCoin better protection from losing its value than your average fiat currency because instead of a government constantly printing/creating more money to supplement their tax income, you have a self-regulating currency that is inherently designed to reduce its rate of inflation over time. Of course, BitCoin value can be adversely effected by other things, and the value does still go up and down. The important thing to keep in mind is that the value does go up, as opposed to the fiat currencies that we use on a daily basis which always decrease in value.

The problem here is that neither currency is really that great. People are running away from what they are afraid of, whether that be fiat currencies issued by governments, or digital currencies that exist entirely in the cloud. These currencies are not as stable as things like gold and silver (granted their market value fluctuates as well, but they have real-world value, and will retain buying power long after the government that minted the coins is gone).

[CWB]

"For instance, only a certain number of BitCoins can be produced"

i am fairly ignorant of the ins and outs of the bitcoin scenario ... how can this be ?

[GT500]

"For instance, only a certain number of BitCoins can be produced"

i am fairly ignorant of the ins and outs of the bitcoin scenario ... how can this be ?

BitCoin isn't a tangible thing. It is controlled by software, and the restrictions were designed into the system when it was created. Basically, each time a new BitCoin is created, the system makes it more difficult to make a new one (to the point where every year it takes twice as long to make one). Once the number of BitCoins reaches 21 million, the system doesn't allow creation of new BitCoins (^source). I would believe that system is peer-to-peer, which is why regulation is so difficult.

[Firefox]

...instead of a government constantly printing/creating more money to supplement their tax income, ...

I could be wrong here, but I thought the government could not print any more money, unless they destroy the same amount of money....

[AdvancedSetup]

Not saying it will never happen but don't think most Governments want currency that controls their economy that they have ZERO say so on. At least with the Euro there is input and discussion from all those involved.

Maybe someday when Skynet comes to power 

[GT500]

I could be wrong here, but I thought the government could not print any more money, unless they destroy the same amount of money....

There may be restrictions on the actual amount of paper money, but law allows banks (including the Federal Reserve Bank) to create money when they issue a loan. Basically, they just add a number to an account, and there's no real cash that goes with that number. Now there are laws that restrict how much they can create like this (based on how much real money the bank has), and the regulations get really complicated when it comes to how much can be created based on money that the bank received as a loan payment.

I would believe that none of these restrictions apply to the Federal Reserve, and it issues multi-million dollar loans to businesses, banks, and government whenever it wants. This is what they call "Quantitative Easement".