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Mt. Gox: The Complete Guide to the Biggest Bitcoin Scandal Ever

Bitcoin is a decentralized digital currency that has attracted millions of users and investors worldwide. However, it also has a dark side: hacking, theft, fraud, and mismanagement have plagued many of its platforms and services. One of the most notorious examples is Mt. Gox, once the largest bitcoin exchange in the world, which collapsed in 2014 after losing hundreds of millions of dollars worth of bitcoins. This article will explore what Mt. Gox was, how it rose and fell, and what its future holds.

What is Mt. Gox?

Mt. Gox was a bitcoin exchange based in Shibuya, Tokyo, Japan. Launched in 2010, it was handling over 70% of all bitcoin (BTC) transactions worldwide by early 2014, when it abruptly ceased operations amid revelations of its involvement in the loss/theft of hundreds of thousands of bitcoins, then worth hundreds of millions in US dollars.

Early History of Mt. Gox

Mt. Gox was originally created by American programmer Jed McCaleb in 2006 as a website for users of the Magic: The Gathering Online card game service, to let them trade cards like stocks. The name Mt. Gox stands for “Magic: The Gathering Online eXchange” . McCaleb lost interest in the project and sold the domain name to French developer and bitcoin enthusiast Mark Karpelès in March 2011. Karpelès relaunched the site as a bitcoin exchange and price quoting service in July 2010.

What Happened to Mt. Gox?

Mt. Gox faced several security breaches, user database leaks, and invalid transactions throughout its history. The most notable incidents are:

  • In June 2011, a hacker allegedly used credentials from a Mt. Gox auditor’s compromised computer to transfer a large number of bitcoins to himself. He then sold them on the exchange, causing the nominal price of a bitcoin to drop to one cent.
  • In May 2013, Mt. Gox suspended withdrawals in US dollars, citing rising banking costs and regulatory issues.
  • In February 2014, Mt. Gox suspended all trading, closed its website and exchange service, and filed for bankruptcy protection from creditors. It claimed that it had lost 850,000 bitcoins, worth around $450 million at the time, due to hacking or theft.
  • In April 2014, Mt. Gox began liquidation proceedings.
  • In August 2015, a former Mt. Gox employee revealed that he had found evidence of fraud and embezzlement by Karpelès and other staff members.
  • In December 2017, Karpelès was arrested by Japanese authorities and charged with data manipulation and embezzlement.
  • In March 2019, Karpelès was found guilty of falsifying data but not guilty of embezzlement. He was sentenced to two years and six months in prison, suspended for four years.

The Future of Mt. Gox

Despite the collapse of Mt. Gox, some hope remains for its creditors and former users. In June 2018, a Japanese court ruled that Mt. Gox could exit bankruptcy and enter civil rehabilitation, a legal process that allows creditors to vote on a plan to recover their assets. In December 2020, the rehabilitation trustee announced that he had obtained permission from the court to distribute some of the recovered bitcoins to creditors who had filed claims. However, the exact timing and method of distribution are still uncertain and depend on various factors such as legal disputes, market conditions, and technical issues.

What was Mt. Gox and what happened to it?

Mt. Gox was a bitcoin exchange in Japan that handled most of the global bitcoin transactions until 2014, when it went bankrupt after losing hundreds of millions of dollars worth of bitcoins to hacking or theft . Its former CEO Mark Karpelès was convicted of falsifying data but not embezzlement.

How many bitcoins did Mt. Gox lose?

Mt. Gox claimed that it had lost 850,000 bitcoins, worth around $450 million at the time, due to hacking or theft. However, new evidence suggested that most of the bitcoins were stolen over time, starting from 2011. In 2014, Mt. Gox found 200,000 bitcoins in an old wallet, reducing the number of missing bitcoins to 650,000.

What happened to the Mt. Gox bitcoins?

The fate of the Mt. Gox bitcoins is still uncertain and depends on legal and technical issues. In 2018, a court allowed Mt. Gox to exit bankruptcy and enter civil rehabilitation, a process that lets creditors recover their assets. In 2020, the trustee announced that he had permission to distribute some of the recovered bitcoins to creditors who had filed claims. However, the timing and method of distribution are still unclear and may take a long time to complete.

Bottom Line

Mt. Gox was a bitcoin exchange that handled over 70% of all bitcoin transactions at its peak but went bankrupt in 2014 after losing most of its bitcoins to hacking or theft. Its former CEO Mark Karpelès was convicted of falsifying data but not embezzlement. Its creditors are still waiting for a chance to recover some of their assets through civil rehabilitation proceedings. Mt. Gox is a cautionary tale of the risks and challenges of dealing with bitcoin and other cryptocurrencies.

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