Mt. Gox is one of the world first bitcoin exchange in the world that built up a huge customer base with at least 80% of global bitcoin trading volume. In February 2014, Mt. Gox stopped operating their bitcoin exchange due to technical issues resulting loss of more than 850,000 bitcoins from customers pockets. What happened to Mt. Gox and how did Mt. Gox emerged? Coincheck will investigate into this famous Mt. Gox incident from Tokyo where Mt. Gox started.
Mt. Gox first started by programmer Jed McCaleb as a website for users of the Magic: The Gathering to let them trade cards online. The domain name Mtgox.com is a short name for Magic: The Gathering Online eXchange. In 2010, McCaleb read about Bitcoin and realized Bitcoin community needs a place where they can trade bitcoins online. McCaleb reused the MtGox.com and launched the world first bitcoin exchange in 2010.
In March 2011, Macleb had sold MtGox to Mark Karpelès hoping Karpeles will take MtGox Bitcoin exchange to the next level. Even though Mt. Gox was based in Japan their bitcoin exchange had 80% of global bitcoin trading volume. In less than two years MtGox became the largest bitcoin exchange with over 127,000(*1) users from around the world where only 1,000 was Japanese users.
The dramatic growth impacted their everyday operation. Some users complained their registration, deposit, withdrawal, and other processes were slow. However, people continue to use their exchange even they didn’t provide great service. Mt. Gox was the only place in the world where people can actively trade bitcoins.
Before filing bankruptcy, Mt. Gox had encountered various security breaches. On August 5, 2013, Mt. Gox announced that they incurred “significant losses” due to crediting deposits which had not fully cleared and that new deposits would no longer be credited until the funds transfer was fully completed.
On 7 February 2014, all bitcoin withdrawals were stopped by Mt. Gox. The company said it halted withdrawal requests “to obtain a clear technical view of the currency processes.” The company issued a press release on 10 February 2014, stating that the issue was due to transaction malleability: “A bug in the bitcoin software makes it possible for someone to use the bitcoin network to alter transaction details to make it seem like a sending of bitcoins to a bitcoin wallet did not occur when in fact it did occur. Since the transaction appears as if it has not proceeded correctly, the bitcoins may be resent. MtGox is working with the bitcoin core development team and others to mitigate this issue.” Ultimately, Mt. Gox lost over 45 million dollar loss and 850,000 BTC.
Initially, Karpeles blamed hackers and system bugs in bitcoin system for their significant losses. However, it came out to be Karpeles was the man behind the plot. Karpelès was arrested on 1 August 2015 by Japanese police on suspicion of having accessed the exchange’s computer system to falsify data on its outstanding balance, he was never released but re-arrested and allegedly charged with embezzlement.
The Mt. Gox incident had a tremendous impact both good and bad ways to bitcoin community. The event helped improve awareness of bitcoin to the general public. However, the Japanese media reported Mt Gox. is Bitcoin which made the image of bitcoin terrible. People in Japan believed bitcoin is cryptocurrency for a fraudulent act.
In the next article, we will share how bitcoin market in Japan has changed after Mt. Gox incident.