Mt. Gox

What did it do?

Mt. Gox was a bitcoin exchange based in Tokyo's Shibuya district, where users traded bitcoin against conventional currencies. Launched by programmer Jed McCaleb in July 2010, it was sold to the French developer Mark Karpelès in March 2011. By early 2014, more than 70 per cent of the world's bitcoin transactions were passing through the platform.

Why did it shut down?

From 2011 onwards the exchange was dogged by security breaches, technical glitches and delayed withdrawals. In February 2014 it halted trading, and at the end of the month announced that around 750,000 customer bitcoins and some 100,000 of its own had gone missing, roughly 7 per cent of all bitcoins in existence at the time. The bankruptcy protection filing made in Tokyo turned into liquidation in April 2014. A 2015 investigation by the security firm WizSec concluded that most of the missing bitcoins had been stolen from the exchange's hot wallet from late 2011 onwards. In March 2019 the Tokyo District Court, the court of first instance, found former CEO Mark Karpelès guilty of falsifying records but acquitted him of the other charges, including embezzlement.

The story

Mt. Gox took its name from a card game. In 2007 the programmer Jed McCaleb bought the domain mtgox.com so that players of Magic: The Gathering Online could trade their cards like shares. The project was soon shelved. In July 2010, after reading about bitcoin, McCaleb decided the new currency needed an exchange and turned the idle domain into a bitcoin trading platform.

In March 2011 McCaleb sold the site to Mark Karpelès, a French developer living in Japan. Run from Tokyo's Shibuya district, the exchange grew alongside bitcoin itself, and between 2013 and 2014 it was handling more than 70 per cent of the world's bitcoin transactions. The growth was far from smooth. In June 2011 bitcoins were stolen from user accounts and fraudulent trades briefly crashed the price on the exchange. In 2013 US authorities seized funds in the company's American accounts, and the same year Wired reported that customers were waiting weeks, even months, to withdraw their money.

In February 2014 the exchange suspended all trading and took its website offline. At the end of the month the company filed for bankruptcy protection in Tokyo and disclosed that it had lost around 750,000 bitcoins belonging to customers and around 100,000 of its own. That was roughly 7 per cent of all bitcoins at the time, worth about USD 473 million. Some 200,000 bitcoins were later found in an old wallet, but the restructuring plan failed and liquidation began in April 2014. In 2015 the Tokyo-based security firm WizSec concluded that most of the missing bitcoins had been stolen from the exchange's hot wallet over time, starting in late 2011.

The legal process dragged on too. Japanese police arrested Karpelès in August 2015 on fraud and embezzlement charges. In March 2019 the Tokyo District Court, the court of first instance, found him guilty of falsifying records to inflate the company's assets by USD 33.5 million and handed him a 30-month prison sentence suspended for four years; he was acquitted of the other charges, including embezzlement. In 2021, 99 per cent of creditors approved a rehabilitation plan.

The collapse of Mt. Gox pushed Japan to draw up its first formal regulations for crypto exchanges. The message for founders is clear: a business that holds other people's money is as much about security and internal controls as it is about the product.

Lessons for founders

• If your platform holds customer assets, put cold storage, proof of reserves and independent security audits in place before you scale.
• Do not paper over early warning signs such as delayed withdrawals with reassuring messages; pause growth until you have found the root cause.
• Never leave critical financial systems under one person's control; segregation of duties and internal controls are basic requirements, even in new fields like crypto.

Sources

1. Mt. Gox (Wikipedia)
2. Mt. Gox files for bankruptcy, blamed hackers for losses (Reuters, 2014-02-28)
3. Mt. Gox abandons rebuilding plans and files for liquidation: WSJ (The Verge, 2014-04-16)
4. https://www.wikidata.org/wiki/Q11292289
5. Wikipedia (English)

This section is compiled from public sources (Wikidata, news archives and company announcements). Figures are given as they appear in those sources; unknown fields are left blank. If you spot a mistake in an entry, you can send us a correction.

Is something in this entry wrong? Request a correction → Method