Mt. Gox

What Was Mt. Gox?

Mt. Gox was a Tokyo-based cryptocurrency exchange that operated between 2010 and 2014. It was responsible for more than 70% of bitcoin transactions at its peak. Although it is most commonly known as Mt. Gox, the exchange is sometimes referred to as MtGox or Mt Gox. The exchange declared bankruptcy in 2014, but it continued to be the subject of lawsuits and speculation.

Understanding Mt. Gox

Jed McCaleb created the website that became the Mt. Gox exchange. It was originally a way for enthusiasts of the card game "Magic: The Gathering" to trade cards online.

The name Mt. Gox was created as an acronym for "Magic: The Gathering Online Exchange." The site was transferred to Mark Karpeles in 2011 in exchange for six months worth of revenue. Karpeles became the largest shareholder and CEO.

At its peak, Mt. Gox was considered the world’s largest bitcoin exchange. It handled 70% to 80% of the trading volume. Handling so many transactions gave Mt. Gox an outsized role in determining the fate of bitcoin. In 2013, for example, it suspended trading for several days to cool down the market.

Concerns About Mt. Gox

Its prominence also made it a target for hackers, and Mt. Gox experienced security problems several times during its years of operation. In 2011, hackers used stolen credentials to transfer bitcoins. That same year, deficiencies in network protocols resulted in several thousand bitcoins being “lost.”

In the months leading up to February 2014, customers expressed increasing frustration with problems withdrawing funds. Technical bugs prevented the company from having a firm grasp on transaction details, including uncertainty relating to whether bitcoins had been transferred to customers’ digital wallets. This issue was the result of a bug in the bitcoin software that allowed users to alter transaction IDs, sometimes referred to as “transaction malleability.”

The exchange suffered a fatal blow in February 2014. In early February 2014, the exchange suspended withdrawals after claiming to have found suspicious activity in its digital wallets. The news of the suspension resulted in the price of bitcoin plunging by 20%. The company discovered that it had "lost" more than 850,000 bitcoins, which represented over 6% of bitcoins in circulation at the time.

While it was later able to locate 200,000 bitcoins, the missing 650,000 bitcoins had a profoundly destabilizing effect on the market. The value of the bitcoins was estimated at over $450 million, with the loss pushing Mt. Gox into insolvency. It filed for bankruptcy in the Tokyo District Court and was ordered to liquidate in April 2014.

Future of Mt. Gox

Despite declaring bankruptcy nearly six years earlier, the final destiny of Mt. Gox still had not been determined as of early 2021. There were still lawsuits alleging fraud on the part of Mt. Gox, attempts to find the hackers, and proposals to bring back the exchange. The controversy over Mt. Gox continues in large part because the price of bitcoins went up dramatically, raising the stakes.

For a variety of reasons, the Mt. Gox bankruptcy has become increasingly complex. Cryptocurrencies were new and unregulated investments while Mt. Gox was in operation. The firm's customers were also spread across the globe.

The estate that Mt. Gox’s assets were placed in owned more than 200,000 of both bitcoin and bitcoin cash, valued at $3.5 billion at bitcoin’s peak in December 2017. In October 2019, Mt. Gox Trustee Nobuaki Kobayashi extended the deadline for submitting claims to March 31, 2020. Kobayashi has been slowly selling off Mt. Gox bitcoins to repay creditors.

While legal actions are a matter of public record, the future of Mt. Gox remains highly speculative. It is impossible to predict how much, if anything, Mt. Gox customers will recover.

2019 was a big year for Mt. Gox related news and rumors. There was renewed speculation that Russian hackers were behind the heist and hope that some of the stolen bitcoins could be recovered. Cryptocurrency entrepreneur Brock Pierce proposed reviving Mt. Gox and refunding customers. However, CoinLab continued to pursue a multibillion-dollar breach of contract lawsuit against Mt. Gox. Lawsuits by creditors could prevent customers from receiving refunds. As 2021 unfolds, the future of Mt. Gox still remains uncertain.