In the early days of Bitcoin, Mt. Gox was the biggest Bitcoin exchange in the world. At its peak, it was processing 70% of the world’s Bitcoin trades and was the go to spot for trading BTC. But then, fairly suddenly in 2014, the exchange halted withdrawals, and the Bitcoin that was the lifeblood of the trading platform had gone missing. What happened? In this guide, we’ll go over the history of Mt. Gox, the fallout, and how it changed crypto for the long term.
Mt. Gox’s History
Below we’ve outlined a brief summary of the history of the now infamous Mt.Gox Exchange. We’ll cover its inception all the way up to its collapse, and then discuss the fallout. Let’s start with its founding.
Mt. Gox officially launched as a Bitcoin trading platform in 2010 by Jed McCaleb, a name you may be familiar with as he is the CTO and co-founder of Stellar (XLM), a project which he moved to after being the founder and CTO of Ripple (XRP). He originally founded the site as a place to exchange Magic: The Gathering Online cards like stocks (short for “Magic: The Gathering Online eXchange) in 2006 but he only kept it running for a few months before shutting it down.
When he read about Bitcoin in 2010, McCaleb repurposed the domain to be a Bitcoin exchange and price quoting service. It was launched on July 18, 2010. McCaleb then sold the platform to Mark Karpelès in March 2011.
First Issues (2011)
Not too long after the platform was sold to Karpelès, it faced its first issue. On 13 June 2011, Mt. Gox reported that about 25,000 BTC (approximately US$400,000 then) had been stolen from 478 accounts.
In October 2011, about two dozen transactions appeared in the Bitcoin blockchain that sent a total of BTC 2,609 to invalid addresses. These Bitcoins were essentially lost forever as a result. Current exchange systems wouldn’t allow these transactions to be sent.
World’s Leading Bitcoin Exchange (2012-2013)
By April 2013 and into 2014 the site had grown to the point where it was handling over 70% of the world’s bitcoin trades, as the largest bitcoin intermediary and the world’s leading Bitcoin exchange. Around mid-May 2013, Mt. Gox traded 150,000 bitcoins per day, per Bitcoin Charts.
However, during this same time, Mt. Gox was facing many legal issues (not related to the upcoming collapse) due to regulatory and compliance constraints. Among other things, many US users could not withdraw funds, and overall the platform was starting to experience serious delays as the second half of 2013 began to wind down.
Sudden Collapse (2013-2014)
In early February 2014, Mt. Gox halted all bitcoin withdrawals. The company then issued a press release on 10 February 2014, stating that the issue was due to a bug in the Bitcoin software allowing Bitcoin to be sent more than once, which wasn’t the case, though they likely didn’t know what had happened (more on this later).
On February 17, 2014, Mt. Gox withdrawals were still halted. The company published another press release indicating the steps it was taking to address potential security issues. However, competing exchanges were back in full operation, indicating it wasn’t an issue with the Bitcoin software as Mt. Gox had previously stated.
On February 20, 2014, Mt. Gox issued yet another statement, this time not giving any date for the resumption of withdrawals. Bitcoin prices quoted by Mt. Gox began to drop to below 20% of the prices on other exchanges, indicating a lack of trust that the platform was solvent.
Three days later, Mt. Gox CEO Mark Karpelès resigned from the board of the Bitcoin Foundation.
The next day on February 24, Mt. Gox suspended all trading, and hours later its website went offline. A leaked alleged internal crisis management document claimed that the company was insolvent, after having lost 744,408 bitcoins in a theft which went undetected for years.
Bankruptcy and Legal Fallout (2014-Present)
By February 28, 2014, Mt. Gox officially filed for bankruptcy protection. The company stated it had lost almost 750,000 of its customers’ BTC, and around 100,000 of its own. This totaled around 7% of all bitcoins, and was around $473 million in value at the time.
Since the collapse, there have been numerous legal battles fought by Karpelès and the company as a whole. There have been some convictions, including of Karpelès, but solely for falsifying data and not for stealing or embezzling anything. Affected users and creditors have been able to apply for repayments which were to begin at the end of October 2023.
Following their collapse, Mt. Gox released a statement saying, “The company believes there is a high possibility that the bitcoins were stolen.” They weren’t fully wrong.
Where Did the Missing Bitcoin Go?
Thanks to work by WizSec, a blockchain security company, there has been a fair amount of work put into figuring out what happened to the Bitcoin that went missing. Their summary:
“Most or all of the missing bitcoins were stolen straight out of the MtGox hot wallet over time, beginning in late 2011. As a result, MtGox was technically insolvent for years (knowingly or not), and was practically depleted of bitcoins by 2013. A significant number of stolen bitcoins were deposited onto various exchanges, including MtGox itself, and probably sold for cash (which at the bitcoin prices of the day would have been substantially less than the hundreds of millions of dollars they were worth at the time of MtGox’s collapse).”
WizSec has perhaps the most comprehensive, non-mainstream coverage of the Mt.Gox case, and if you’re in any way interested in learning more, check out their site.
How Did Mt.Gox Change Crypto?
Overall, what Mt. Gox did to change crypto was multifaceted. Anti-money laundering laws were built upon and improved over the course of Mt. Gox’s time in the light. It’s likely without their dominance and potential use as a site for money laundering that some of the practices now in place would have taken longer to do so.
The issue wherein transactions were sent to wallets that didn’t exist was also solved thanks to Mt. Gox. You essentially cannot send a transaction from a crypto exchange to a wallet unless that wallet is verified to be on the blockchain. Exchanges have created ways to verify users’ addresses are real so as to avoid the issue of losing assets forever.
Somewhat ironically, Mt. Gox’s collapse did not spur any sort of proof of reserves system which we now see on every exchange after FTX collapsed. Really there are a ton of parallels between the two incidents, so it’s a bit surprising that exchange’s weren’t required to provide auditable proof of reserves before 2023.
As cryptocurrencies become more mainstream, it will be interesting to see the role exchange’s hold and whether a similar event takes place. Hopefully, exchange’s have learned their lessons thanks to Mt. Gox and more recently FTX.