By: Andy Greenberg
February 25, 2014
For years, Mt. Gox was the most important business in the Bitcoin economy. Now, as it teeters on the brink of total failure, it’s become the cryptocurrency’s greatest liability and one that may call its future into question.
Bitcoin’s value fell close to 23% from its already battered price to around $418 at its lowest point Monday night as the oldest and once-largest Bitcoin exchange went offline completely, showing a blank website and even deleting all messages from its Twitter feed. That dramatic drop in Bitcoin’s price, in fact, doesn’t even factor in the digital currency’s exchange rate on Mt. Gox itself, where Bitcoins were selling for less than $200 as users feared that they wouldn’t be able to retrieve coins they’d bought due to the company’s potential bankruptcy. And while the company went silent, rumors have swirled that its downtime is a result of a massive hack that has stolen as many as 744,000 bitcoins, fully 6% of all bitcoins in existence.
Mt. Gox chief executive Mark Karpeles didn’t respond to a request for comment, and Mt. Gox hasn’t explained the company’s decision to go offline. But the exchange, which was once responsible for the majority of all Bitcoin trades, has been fighting a public battle with an issue in Bitcoin’s protocol known as “transaction malleability” that has prevented users from withdrawing bitcoins stored by Gox. Other bitcoin exchanges and developers have noted that the issue, a known property of Bitcoin since 2011, could be avoided with coding workarounds.
Meanwhile, a supposedly leaked document from an internal Mt. Gox discussion posted online Monday by a Bitcoin-focused blogger Wired has identified as Ryan Selkis claims that Mt. Gox has been severely hacked, with a massive reserve of its bitcoins stolen. The document, whose authenticity I couldn’t verify, blames the transaction malleability issue for allowing 744,000 bitcoins to be taken from both Mt. Gox’s active accounts and its “cold storage.” The document, a presentation created by an unknown author, goes on to suggest a relaunch and rebranding of Mt. Gox as simply “Gox,” in an effort to salvage its reputation and the future of Bitcoin.
“The reality is that MtGox can go bankrupt at any moment, and certainly deserves to as a company,” reads the document. “However, with Bitcoin/crypto just recently gaining acceptance in the public eye, the likely damage in public perception to this class of technology could put it back 5~10 years, and cause governments to react swiftly and harshly. At the risk of appearing hyperbolic, this could be the end of Bitcoin, at least for most of the public.”
Despite the complete lack of evidence as to the document’s authenticity, that stark language no doubt helped trigger Monday night’s selloff.
In an attempt to shore up the widening crisis around Mt. Gox, a group of Bitcoin businesses released a statement, distancing themselves from the faltering exchange. “This tragic violation of the trust of users of Mt.Gox was the result of one company’s actions and does not reflect the resilience or value of bitcoin and the digital currency industry,” the statement reads. “There are hundreds of trustworthy and responsible companies involved in bitcoin. These companies will continue to build the future of money by making bitcoin more secure and easy to use for consumers and merchants. As with any new industry, there are certain bad actors that need to be weeded out, and that is what we are seeing today.”
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