First, most people equate Mt Gox to ‘Mount Gox’. Unfortunately, this is wrong Mt Gox is an acronym emanating from Magic: the Gathering Online eXchange (Mt Gox).
Magic was a card game which its creator, Jed McCaleb wanted to help trade cards on the internet.
Jed later became too familiar with the idea of trading cards online and decided to convert the Mtgox.com domain to be a bitcoin exchange in mid-2010. In less than a year, McCaleb sold the exchange to Mark Karpeles, a French national. Jed moved to create the ripple platform.
The collapse of Mt Gox: Where it all started
It is after the ownership transfer that the new owner noted that Mt Gox lost 80,000 BTC through a hack in the past. By then, the bitcoin was worth roughly 60,000 U.S dollars. As the price of bitcoin went on appreciating, the value of the lost bitcoins started worrying Mt Gox investors.
Again, in mid-2011, the exchange found itself in the hands of hackers who took away with 2000 BTC after manipulating the price of BTC to just a single cent.
After seeing what was happening, Karpeles transferred the remaining bitcoins that were held in the exchange’s wallet to a cold storage.
But this was not the end of the hacking woes on the exchange. Since the Mt Gox’s deposit address had been compromised before the coins were moved to a cold wallet, hackers were able to slowly siphon BTC coins for approximately two years.
As Karpeles continued to make Mt Gox hack proof, investors continued to believe on the platform and the number of active accounts grew to more than one million. At this point, Mt. Gox handled roughly 90% of all bitcoin trading in the world.
Remember, at this point, the hackers were still siphoning bitcoins from the exchange. Even though Karpeles seemed to know there was a problem in 2013, it was until 2014 that Karpeles went public saying that the exchange has a hole of 850,000 BTC on its records which by that time accounted for approximately 7% of all BTC in circulation globally.
The collapse of Mt Gox: Where did the siphoned BTC go?
An investigation in the whole process pointed to Alexander Vinnik after the trail led to his cryptocurrency exchange, BTC-E. However, even with the U.S Department of Justice’s investigation implicating Alexander on the same, some investors claimed there were some missing pieces in the report.
This has led to the exchange filing for bankruptcy protection in the United States and Japan after which it was declared insolvent.
200K BTC coins were later found safely stored in digital wallets that Mt Gox used before upgrading to new-format wallets. The coins were held in trust and Nobuaki Kobayashi, an Attorney-at-law, appointed a trustee under the supervision of the Tokyo District Court.
In April, under the supervision of Kobayashi, bitcoins worth approximately 140 million were transferred from Mt Gox’s four wallets.
The collapse of Mt Gox: The court battle
After the dust had barely settled, investors moved to court with the aim of reversing the status of Mt. Gox from bankruptcy to civil rehabilitation.
“The petition was heard, and at 5:00 p.m. on June 22, 2018, the Tokyo District Court issued an order of the commencement of civil rehabilitation proceedings for MTGOX. As a result, the previously ongoing bankruptcy proceedings were stayed,” reported cryptolinenews.
Such a status opened the possibilities of the investors to be compensated in bitcoin. However, some of the former investors still went ahead with criminal charges against Karpeles, the former CEO of Mt Gox at the time of the bankruptcy.
In early August 2018, a section of Mt Gox creditors was preparing to move to court to claim that they are paid purely in bitcoin.
The lawyers representing the creditors noted that if the court rules in their favor, they would prefer the BTC to be sent to cryptocurrency exchanges that the creditors already have or can be able to open an account with.
If the rehabilitation process sails as anticipated, creditors will start receiving payments roughly by June next year.
The collapse of Mt Gox: Conclusion
The collapse of Mt Gox has presented a very sophisticated case in the hacking of cryptocurrency exchanges. It has remained to be a rare case where hackers, for example, instead of just stealing cryptocurrencies from an exchange, alter the system to indicate a lower value of each coin.
By doing this, presumably, they seek to trick the system that they legally acquired the bitcoins.
Another classical scenario that has been revealed by the collapse of Mt Gox is the slow siphoning of bitcoin in small amounts in a way that is hard to detect.
Additionally, Mt Gox enters in Japan’s history as the only defunct business to ever acquire the rehabilitation status.