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The Story of Mt. Gox

In 2014, Tokyo-based BTC exchange Mt. Gox filed for bankruptcy claiming hackers had stolen the equivalent of $460 million. The news shook the crypto world. From a distance, the world’s leading BTC exchange had appeared a glowing example of the future. But according to insiders, it was a combination of mismanagement and neglect.

But what was Mt Gox and what explains its monumental collapse?

What was Mt. Gox?

Mt. Gox was a Tokyo-based crypto exchange that operated between 2010 and 2014. At its peak, the exchange was considered the largest BTC exchange in the world and was responsible for 70% of all Bitcoin transactions.

In 2014, the exchange declared bankruptcy. However, it has since remained the subject of speculation. There are ongoing lawsuits involving Mt. Gox, as well as attempts to identify those responsible for the hack.

The website that would become the Mt. Gox exchange was created by Jed McCaleb, who later co-founded Ripple. Originally, the website enabled online trading of the card game “Magic: The Gathering.” McCaleb sold the site to Mark Karpeles, a programmer and Bitcoin enthusiast.

So, what caused the collapse of the world’s biggest BTC exchange?

Mt Gox’s collapse

The exchange’s popularity made it a target for hackers and Mt. Gox was subject to a range of security issues throughout its time in operation. In June 2011, it was hacked for the first time. During this attack, hackers took the equivalent of $8.75 million.

In February 2014, the exchange claimed to have identified suspicious activity and suspended withdrawals. The news of the exchange’s suspension caused the price of BTC to plunge by 20%!

Mt. Gox discovered more than 850,000 bitcoins (6% of the total bitcoins in circulation at that time) were lost. It later recovered 200,000 bitcoins but the remaining 650,000 missing bitcoins (with an estimated value of more than $450 million) pushed the company into insolvency.

Mt. Gox filed for bankruptcy in the Tokyo District Court, claiming a debt of $63.6 million and was ordered to liquidate in April 2014.

We had weaknesses in our system, and our bitcoins vanished. We’ve caused trouble and inconvenience to many people, and I feel deeply sorry for what has happened,” said Mt Gox’s chief executive Mark Karpeles at a Tokyo press conference.

The future of Mt Gox

Since the 2014 collapse, the impacted investors have been involved in a legal battle to recover their funds. And BTC’s dramatic price increase in the years after Mt Gox’s collapse raised the stakes further.

In November 2021, it was announced that Mt. Gox creditors would receive over $8.9 billion in repayments related to the 2014 collapse. It’s likely that those affected will receive compensation in Q1 or Q2 of 2022.

According to Mt. Gox trustee, Nobuaki Kobayashi, the settlement plan filed by Tokyo District Court is now “final and binding.”

A crazy story, right? Will 2022 bring closure to the victims of Mt Gox’s collapse?

Disclaimer: NOT FINANCIAL NOR INVESTMENT ADVICE. Only you are responsible for any capital-related decisions you make and only you are accountable for the results.

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