If you are in the cryptocurrency markets or are interested in learning more about Bitcoin, by now you should have run into a few articles mentioning Mt. Gox. If so, you are probably sitting there wondering, what the heck is it and why are people talking about it when talking about the cryptocurrency markets?
Side note: If you haven’t read one of my recent articles on whether you should invest in cryptocurrencies, be sure to check it out here!
Here is a condensed version of some of the information available on the web on Mt Gox. Most of the information found here is gathered from a variety of sources including Wikipedia along with my own relevant commentary.
Mt. Gox was a Bitcoin exchange based in Shibuya, Tokyo, Japan.
The Mt. Gox platform was launched in July of 2010 and by 2013 and 2014, it was handling over 70% of all bitcoin transactions worldwide. It was the world’s largest Bitcoin intermediary and the leading Bitcoin exchange. A Bitcoin intermediary is a platform that allows Bitcoin users to buy and sell Bitcoin. In this platform, they place orders to purchase ‘x’ number of Bitcoins or to sell ‘y’ number of Bitcoins if they want to receive fiat currency instead.
So, what is Mt. Gox really about?
Well.. Mt. Gox was founded between 2006-2010 by Jed McCaleb. During this time, it had nothing to do with Bitcoin. Mt. Gox is short for “Magic: The Gathering Online eXchange”. It was originally created for users of Magic: The Gathering Online fantasy-based card game. The site was meant for these users to be able to trade their fantasy cards online like stocks. This original use of the domain name mtgox.com was never really successful. In 2010 after McCaleb learned of Bitcoin, he realized that the Bitcoin community needed a platform to trade and that this was a better opportunity than the card game. This is when the Bitcoin version of Mt. Gox was launched.
From the beginning, Mt. Gox had security issues. In 2011, a hacker breached the platform causing thousands of Bitcoins to be lost. In 2013, the company was effectively frozen from the U.S. banking system because of regulatory problems. This meant that Bitcoin owners/ investors were unable to access any of their funds on the exchange. For some, this caused a week delay when they tried to access their funds while for others, this caused delays of up to months in order to withdraw cash from the account.
In February of 2014, Mt. Gox halted ALL Bitcoin withdrawals.
The company said it was pausing withdrawal requests to better understand the currency process. They then made a press release stating that “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. Mt Gox is working with the Bitcoin core development team and others to mitigate this issue.”
On February 17, Mt. Gox still halted trading however, competing exchanges were back in operation and unaffected by the issues Mt. Gox was facing. On February 24, 2014 Mt. Gox suspended all trading and within hours, its website went offline. Allegedly, a leaked internal crisis management document claimed that the company was no longer solvent after losing 744,408 Bitcoins in a theft that went undetected for years.
Mt. Gox was such a big player in the Bitcoin market
Between February and March, during the period of Mt. Gox’s issues, Bitcoin prices declined by 36%. On February 28, 2014, Mt. Gox filed for bankruptcy because it had liabilities of about $65 million. Mt. Gox claimed that it had lost about 750,000 of its customer’s Bitcoins and around 100,000 of its own Bitcoins. This totaled to roughly 7% of ALL Bitcoins and was worth about $473 million around the time of the filing.
Mt. Gox then released a statement saying “The company believes there is a high possibility that the bitcoins were stolen”. They blamed hackers and began a search for the missing Bitcoins. Near the end of March 2014, Mt. Gox reported that they found about 200,000 Bitcoins in an old digital wallet that was used prior to 2011 which were worth about $116 Million. This brought the total amount of Bitcoins lost down to about 650,000.
In 2015, new evidence suggested that most of the Bitcoins were stolen straight out of the Mt. Gox hot wallet over time, beginning in late 2011. By May of 2016, creditors of Mt. Gox had claimed that they lost roughly $2.4 trillion when Mt. Gox went under. The Japanese Trustee overseeing the bankruptcy said that only $91 million in assets was available to these creditors.
To date, it seems that many creditors are still waiting for their portion of assets that have been recovered.
If you happen to have a Kraken account, you will see a section called “MtGox Claim.” This is because the CEO of Kraken was appointed by the bankruptcy trustee to assist in processing claims by the 127,000 creditors of Mt. Gox. So, if you happen to be one of the creditors of Mt. Gox and don’t know what to do to get some of your money back, hop over to Kraken and see if they can help you out.
Lastly, Mt. Gox is a perfect example as to why Bitcoin and the overall cryptocurrency market is very risky. Unlike investing in the U.S. dollar or the Japanese Yen, you not only are at risk in terms of the value of the currency but also, you are at risk in terms of the exchange itself. Most cryptocurrency exchanges do not guarantee that if they go under, you would be made whole. In fact, if they go bankrupt like Mt. Gox did, you could theoretically lose everything you had in that account. This is not the case when you put your money in a stock trading platform or bank.
With that being said, make sure you understand the risks associated with the cryptocurrency markets before you decide to invest in it. Be a Millennial Bull and do your research! Also, sign up to our email list to get up to date general investment and cryptocurrency articles delivered to you.