Mt. Gox was once the world’s largest Bitcoin exchange, at one point handling over 70% of the world’s Bitcoin exchanges. In a blink of an eye, though, all that came tumbling down. The Mt. Gox exchange was hacked, and 7% of all Bitcoin in rotation was stolen, both from users and the company itself. Though this hasn’t had a lasting impact on the price of Bitcoin, it has certainly remained in the minds of those trading it and reminds everyone there is a risk with every reward.
Mt. Gox – the origin story
Mt. Gox was originally planned as a “Magic: The Gathering” exchange (a type of collectors’ card game). This, however, was abandoned by the developer; later, when he realized he could capitalize on a lack of a main Bitcoin trading market, he used the domain name, having already purchased it. Thus, Mt. Gox was born. It would grow to become larger than imagination could conjure. Before this, however, it was sold from the original owner to a man named Mark Karpelès, who would become its final owner when it filed for bankruptcy in 2014.
At the height of its lifetime, Mt. Gox saw a stable Bitcoin value above $100, and about 150,000 Bitcoins were traded per day. Shady dealings, however, were already on their way. The Department of Homeland Security cracked down on improper licensing issues and seized more than $5 million; one of their partners sued them, claiming their deals were left unfulfilled. At some point in its lifetime, it was nearly frozen from the US banking system due to its lack of regulations, and yet still it would have lived through all that were it not for the hack.
The famous hack
The Mt. Gox hack was not initially known as a hack. At first, the company halted all withdrawals; obviously, people were concerned. This concern grew as days went on and the CEO, Karpelès, kept giving statements without saying when the funds would be returned. Competitors were starting to come back online, and soon their value outdid Mt. Gox. Finally, Karpelès resigned, and deleted social media posts, leaving customers with nothing to look at but the blank page that the Mt. Gox domain led to.
It was after all of this that the reason became apparent. A major hack that had gone undetected for years had stolen almost 750,000 Bitcoin.
There is a lot to say about Mt. Gox itself at this point, but all of it is irrelevant to the present day. Karpelès was arrested on charges mostly unrelated to the hack, though related to the company; investors got nowhere near what they should have back, and fraud, again unrelated to the hack, was uncovered.
The Mt. Gox hack effect
More importantly, though, is what effect Mt. Gox had on Bitcoin as a whole. For one, this serves as a cautionary tale to newcomers to the trade- anything can happen at any moment. Bitcoins are digital- easier to steal than a physical piece of paper or coin. It also showcases the volatility of bitcoin. When Mt. Gox was essentially killed off, plenty of sites came to replace it, Coinbase being the largest at the moment. Plenty of these companies had ties with Mt. Gox before it went under, and all separated themselves when the hack was exposed.
Admittedly, the price of Bitcoin has gone largely unaffected by Mt. Gox’s shutdown. As previously mentioned, its value during Mt. Gox’s peak was more than $100, but still nowhere near what it is today. However, people are also more cautious- there are more steps and regulations in place to ensure this sort of case doesn’t happen again.
A teaching moment
The Mt. Gox exchange also brought to light the lack of regulation on Bitcoin. Plenty of the trouble the company got in was because of its inability to be regulated- there simply were no laws regarding Bitcoin. This meant it was a difficult site to maintain, as the company had to ensure there was some way to stop money laundering and fraud, neither of which they truly succeeded in, and both of which Karpelès would at some point be arrested for.
Perhaps most importantly, people realized just how important the technology behind Bitcoin is. Karpelès was able to use his own site for embezzlement just using its basic features- depositing money from the main Mt. Gox account into his own- and hackers stealing money constantly and consistently were not found for over a year. This lack of security was simply unacceptable and would become an important factor for investors to consider when buying Bitcoin.
All in all, there will come a time when those who trade Bitcoin forget Mt. Gox. It was revolutionary, but in a way that reminded everyone that stagnation was going to lead nowhere good. Mt. Gox relied on its technology without improving or searching for current breaches, and with that came its downfall. This is not a groundbreaking discovery; indeed, this happens somewhat often to newly budding industries.
However, the Mt. Gox exchange is important to remember because of the legal questions it brought up. How do you regulate Bitcoin without it just becoming another currency? What is Bitcoin’s purpose in the world? How do you stop such an elusive currency from being used for fraud and money laundering? Mt. Gox itself never answered these questions, sadly, and it’s still something that’s struggled with in the world today.
The victims of the Mt. Gox attack never got compensation. Many people simply lost money due to the exchange going down without ever paying out customers; others were investors that got scammed by Karpelès, who was found to be inflating his assets to acquire more funding. And while nothing like this has ever been seen in the Bitcoin world, this story alone is enough to keep people on edge. The idea that their hard-earned Bitcoin could be stolen away at a moment’s notice due to a company’s lack of structure and dedication is absolutely terrifying, and rightly so.
However, the Mt. Gox hack should not be taken as such a terrifying thing. In fact, the Mt. Gox hack, and Mt. Gox in general, serves to scare companies more than it does consumers – because becoming the next Mt. Gox means terrible things for the future. No industry lives without its scares, whether it’s a smartphone blowing up in peoples’ hands or tons of Bitcoin being lost, huge incidents like this only serve to make the future better, safer, and more secure.