The Disaster That Almost Ended Bitcoin (Mt. Gox Finally Explained)

What Really Happened to Mt. Gox and the Stolen Bitcoin?
By 
Coin Cloud Team
, published on 
March 20, 2019
The Disaster That Almost Ended Bitcoin (Mt. Gox Finally Explained)

In January 2009, Bitcoin became fully operational with an ever-growing following. At the center of this vast following was Mt. Gox, at the time the most popular Bitcoin exchange site — responsible for almost 80% of all the exchange operations in the Bitcoin network.

Mt. Gox had become accustomed to frequent hacks, glitches, and shutdowns. Suddenly, the exchange disappeared, and all the Bitcoin with it. What happened to Mt. Gox and the stolen Bitcoin?

A software hacker named Jeb McCaleb founded Mt. Gox, short for “Magic: The Gathering Online Exchange,” as an online marketplace for trading game cards for the game, Magic: The Gathering.

He would later turn the website into a Bitcoin exchange, where people could exchange fiat currency for Bitcoin. As Mt. Gox started to take off, McCaleb sold the site to Mark Karpeles, who would come to build Mt. Gox into the world’s largest Bitcoin exchange. McCaleb, under the sale agreement, retained an admin-level user account.

However, Mt. Gox CEO Mark Karpeles implemented some bizarre internal practices which led to the firm's eventual downfall, and the overall market downturn. In February 2014, Mt. Gox filed for bankruptcy protection in Japan, saying it had lost Bitcoins belonging to customers and the company — an amount valued at close to half a billion dollars at the time.

Mt. Gox's $460-million disaster turned into real trouble in the summer of 2013 when Mt. Gox exchange suspended all withdrawals. It was later revealed that the admin-level account given to McCaleb was compromised, letting the attacker use individual accounts to buy large amounts of fraudulent bitcoin in an automated fashion.

Over 250,000 BTC were acquired, and this fraudulent activity by the bot (nicknamed Willy) had a significant effect on the price of bitcoin.

A total of 24,750 Mt. Gox claims were successfully approved. Mt. Gox bankruptcy was initiated in 2017, when bitcoin was valued at $2,000. Despite this, the trustee priced the Bitcoins at their 2014 value of $484, upsetting many Mt. Gox Bitcoin customers and creditors since the current bitcoin price was 18 times the 2014 price.

Many have been speculating that the Mt. Gox trustee’s irresponsible selling caused the market crash in February 2018, and the drop from Bitcoin prices' all-time high.

The reason for this conclusion is the fact that the trustee had been dealing with relatively large sums of bitcoins. These transactions add up to over $30 million in transactions executed by the Mt. Gox trustee from the Mt. Gox cold storage Bitcoin wallets, which is directly linked to the significant decline in Bitcoin prices.

This effect opens up the possibility that this could’ve been a plan to manipulate the market rather than a fraudulent scheme to acquire Bitcoin. Another speculation has been that this was a plan executed by Mt. Gox to replenish the shortage of Bitcoins, by using their exchange to acquire BTC and trading the deficit in BTC for USD shortage.

Disclaimer: The information and views supplied on the Coin Cloud blog are for educational and entertainment purposes only. We are not financial advisors, so please do your research and consult with a trusted financial specialist before investing your money.

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