Bitcoin's oldest exchange hit by insolvency claims by rivals
Wednesday 26 February 2014
Mt Gox, the oldest Bitcoin exchange, appears close to collapse after a series of insolvency allegations. The news has rocked the online cryptocurrency community, drawing comparisons with the bankruptcy of the US investment bank Bear Stearns in 2008.
Mt Gox's website was taken offline yesterday after a joint statement by six other major exchanges denouncing the company. Before that the exchange's Twitter feed was deleted and its chief executive, Mark Karpeles, quit the Bitcoin Foundation's board.
"This tragic violation of the trust of users… was the result of one company's actions and does not reflect the resilience or value of Bitcoin and the digital currency industry," read the joint statement, which was later edited to remove any reference to insolvency. "As with any new industry, there are certain bad actors that need to be weeded out, and that is what we are seeing today."
Mt Gox has since issued a statement on its website saying: "In the event of recent news reports and the potential repercussions on Mt Gox's operations and the market, a decision was taken to close all transactions for the time being in order to protect the site and our users. We will be closely monitoring the situation and will react accordingly."
The first sign of trouble emerged this month when the exchange suspended all Bitcoin payouts after discovering a flaw in the way the site handled currency exchanges.
This vulnerability, known as "transaction malleability", has affected several sites and is thought to have enabled thieves to steal more than 4,000 bitcoins (then worth £1.6m) from Silk Road 2, a website that offered services similar to the notorious drug marketplace Silk Road.
The cryptocurrency community has been shaken by the news with many Mt Gox customers fearing that their assets have been lost for good. A widely circulated document that is supposedly a leaked internal memo reports that the company has lost 744,000 BTC (£230m, or 6 per cent of all coins in existence) through theft that has gone "unnoticed for several years".
The same document proposes a four-step plan to save the exchange, including taking down the website temporarily, rebranding the site, and appointing a new CEO. Since the document was leaked online, Bitcoin owners have discovered a new web address for the site, suggesting that a re-launch is planned.
But rehabilitation seems unlikely, with many members of the Bitcoin community expressing a grim satisfaction in the demise of a site they see as demeaning the currency.
Speaking to The Independent about the exchange's difficulties Emily Spaven, the managing editor of the Bitcoin news site CoinDesk, described the events as "another nail in the coffin for Mt Gox". She added that she did not think "Bitcoin as a whole" would be affected.
"The news about Mt Gox has already caused the price of Bitcoin to drop, but we've seen Bitcoin recover from bigger price decreases in the past," Mrs Spaven said. "Bitcoin has proved its resilience time and time again and I believe it won't be long before we see the price rebound once more."
"It's just a shame people with such inexperience are behind Mt Gox. If managed correctly, the company could have taken Bitcoin awareness and acceptance to the next level, but as it stands, they've done the ecosystem a massive disservice."
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