Mt. Gox Files for Bankruptcy Protection

To all the HN members who lost a lot of money in this closing, remember the community is here for you. Don't do anything too rash and if you need someone to talk to, myself and most other people would be happy to lend an ear.

When you make a deposit you are extending credit. In the case of Mt. Gox, or any other Bitcoin exchange, that credit is secured by nothing and insured by noöne.<p>Advice, going forward, for managing counterparty risk:<p>(1) Split a $100 transaction into 10 $10* transactions executed incrementally (send $10 of BTC to Mt. Gox, exchange it, transfer it out, and only then send the next $10 of BTC over). This keeps exposure at any given time at a manageable level. The downside is it increases exposure to BTC&#x2F;USD volatility.<p>(2) Split a $100 into 5 $20 transactions executed simultaneously on many exchanges. This keeps exposure to any single institution at a manageable level. The downside is it increases the number of institutions which must be dealt with.<p>(3) Draft a special arrangement with the institution for a large transaction. This should include credit and speedy withdrawal guarantees. The downside is the legal cost.<p>*edit: I am illustrating a hypothetical $100 transaction. Substitute, in place of $10, the most you are willing to lose in the event the exchange proves insolvent.

In this incident I lost a bit more than $500,000 USD that was in my MtGox account. I sold my Bitcoins a few months back, but the USD have been sitting in my account waiting to be withdrawn.<p>This was a massive fuck up by MtGox, but I really do feel sorry for Mark Karpeles. He seemed really enthusiastic about Bitcoin. Right by MtGox&#x27;s offices in Japan was a Bitcoin Cafe being built. You can [see here](<a href="http://si.wsj.net/public/resources/images/BN-BS458_mtgox0_G_20140227225518.jpg" rel="nofollow">http:&#x2F;&#x2F;si.wsj.net&#x2F;public&#x2F;resources&#x2F;images&#x2F;BN-BS458_mtgox0_G_...</a>) the sign of a Bitcoin logo waiting to be unraveled.<p>Bigger than all the victims (no pun intended) was Mark himself. He lost more Bitcoins than any of us, and it&#x27;s likely he&#x27;ll be going to jail. Not to mention the death threats he has and will be receiving.<p>--<p>One of the (features?) of Bitcoin is its inherent irreversibility. You only have one chance to get things right. Combined with Murphy&#x27;s Law, something like this was bound to happen.<p>I&#x27;ve been a Bitcoin enthusiast and have been mining since early 2011, and Bitcoin has been a huge part of my life, but I will admit my confidence in Bitcoin ever _practically_ succeeding has diminished a little.

I feel bad for Mark Karpeles but the way MtGox communicated &amp; lied to its users makes me sad. It&#x27;s those nameless individuals who believed in him, whose trust was betrayed - those are the ones that deserve the affection of the community. I&#x27;ve been following the news and I think MtGox was handling so much money that they should have focused on better security practices and audits.<p>Few examples of their lackadaisical attitude :<p>1. <a href="http://www.reddit.com/r/Bitcoin/comments/1x9gue/my_protest_at_mt" rel="nofollow">http:&#x2F;&#x2F;www.reddit.com&#x2F;r&#x2F;Bitcoin&#x2F;comments&#x2F;1x9gue&#x2F;my_protest_a...</a> :<p><i>I arrived at MtGox early, approximately 8am, and stood outside with a sign reading “MtGox, where has my money gone”. I got some curious looks, and a lot of questions from passersby about my protest. Then at approximately 9.20 am, Mark Karpeles himself came along carrying a large, and very fancy coffee in his hand that could have passed as a dessert. I immediately confronted him and told him we needed a chat. So he stopped to hear me out.<p>I told him he was playing with people’s lives, and some people stood to lose their entire savings. Like Gonzague told me the night before, he mentioned </i><i>technical issues</i><i>, and that he would look into my case. </i><p>2. <a href="http://www.reddit.com/r/Bitcoin/comments/1x9gue/my_protest_at_mtgox_offices_5_to_7th_february/cf9dgei" rel="nofollow">http:&#x2F;&#x2F;www.reddit.com&#x2F;r&#x2F;Bitcoin&#x2F;comments&#x2F;1x9gue&#x2F;my_protest_a...</a><p><i>I was told that up until a few weeks [at time of the interview] ago, there was hardly any development environment to test changes. Most changes were done straight on the production environment. Typing this made me throw up in my mouth.</i><p>3. <a href="http://i.imgur.com/xMeW43a.jpg" rel="nofollow">http:&#x2F;&#x2F;i.imgur.com&#x2F;xMeW43a.jpg</a>

&gt;<i>The company&#x27;s lawyer also said at a news conference at the Tokyo District Court that Mt. Gox had outstanding debt of about ¥6.5 billion ($63.6 million) with assets worth ¥3.84 billion.</i><p>This implies a debt ratio of 170%. Assume: (1) no outside debt (only customer deposits) and (2) only 100% liquid assets (only currency). Even in that case, a depositor would recover no more than 59 cents to the dollar (the maximum recovery rate).<p>Fifty-nine cents is clearly rose-tinted. Assets include office leases, computers, and other things not easily liquidated at book value. And outside debt is senior to deposits. That is the bite of being unregulated (deposits are at the top of regulated banks&#x27; capital structures). After factoring in the cost of chasing bankruptcy claims in Japan I do not see depositors recovering a penny.

It&#x27;s easy to be angry at them and&#x2F;or see how stupid they were about accounting, security, etc.<p>But I guess on the other hand we do have to realize they are victims of massive theft, as far as we know this massive loss was not due to their own profiteering or internal theft, it was an organized outside force targeting them.<p>It occurs to me it is like blaming someone for getting mugged, although they were stupid enough to walk down a really bad street at a bad time of night with their cash out in their hands, it did take a criminal to make the crime happen, not the victim.

Please correct me if I&#x27;m wrong, but they still have not said how much of the (700k + 100k) BTC was stolen and how much was just &quot;lost&quot; by technical incompetence, right?<p>As another Mt. Gox loser (sent my money back a few months before the end, of course they never arrived) this is one question that pains me the most. I don&#x27;t care too much whether Karpeles goes to jail or not, but I want to know whether theft was made or just gross incompetence.

If only Bitcoin exchanges had some degree of regulation to ensure they were properly securing their users&#x27; funds, or perhaps some level of insurance to prevent their users from suffering financial losses due to the exchange&#x27;s misfortune.

Should the owner Mark Karpeles go to jail?<p>On one hand, there may be a chilling effect if Karpeles is sent to jail, because fewer companies may be willing to participate in an area where the penalty for failure is time behind bars.<p>On the other hand, it feels very inequitable and unjust that Karpeles made millions off of MtGox, lost our money and then is free to enjoy life. But that&#x27;s a vengeful mindset, and it seems counterproductive. Is it really just a bad situation with no recourse? Karpeles walks, MtGox shuts down, and everyone&#x27;s money is gone. Poof.<p>The most persuasive argument for jailtime seems to be that if he&#x27;s not penalized, then others may attempt to orchestrate similar disasters. Bitcoin has a very, very small chance at becoming the next gold standard, but it&#x27;s a chance nonetheless. Therefore whoever is willing to flaunt the law and steal &gt;5% of all bitcoins that will ever be created has a very, very small chance at becoming extremely powerful in the future, and wealthy in the short term.<p>I don&#x27;t know. There&#x27;s probably nothing to be done, and taking away years of a person&#x27;s life out of a sense of retribution probably isn&#x27;t the best answer.<p>What does everyone think?

My take: If the money was stolen this year, it was theft by a third party and they were maybe incompetent, however, this is not punishable, see politics.<p>If it was stolen last year, they made all existing (and even worse: new) costumers since the time of the theft believe that they would get their money back. This is fraud.

What I wonder, is if Mark was actually the only one internally who had access to the cold storage wallets, what would happen if he got hit by a car and died? Have other exchanges got plans for this sort of thing? Some corps don&#x27;t let their programmers fly on the same aeroplane.<p>I wouldn&#x27;t want to own that many Bitcoin and be the only one who has access also because someone could profit considerably from your death.

So are they claiming they literally lost ALL of their bitcoin? How is that even possible to have happened without them noticing... It just seems much more likely somebody got greedy on the inside.<p>I am sure they lost some. But I can&#x27;t help but wonder if that was taken as an excuse to loot the ship as it was sinking.

No one stole anything from them. Or at least not something remotely close to what is reported. How can 800k btc go missing?<p>Even people with few hundred btc split them between several different offline wallets. Can&#x27;t be stolen. Their hot wallet being hacked is a total possibility, but it would contain no more than 5% of their coins. So, they just emptied the cold storage until it was completely empty?<p>No.<p>Something else is going on and we will all know soon enough. Don&#x27;t let yourselves be manipulated like that.

I was selling a significant amount of Bitcoins in January. I wanted to use Mt Gox because of higher rate. I did not think there was a real possibility of the whole exchange going down. However, I did not pass identity verification because of some minor problem. So I sold the Bitcoins on Bitstamp and had money in the bank a day later. I was really really lucky.

Pirates buried their treasure in hidden locations rather than let someone hold on to it for them [1] :-).<p>[1] I realize this isn&#x27;t strictly true, as there were organizations the pirates did use, but they had the same challenges with them being crooked or getting captured by England or some other authority at the time.

&gt;One Japanese small-business owner that accepts bitcoin as payment said Japanese banks had expressed skepticism toward the payment method, and that the business&#x27;s lenders this week asked that the company wouldn&#x27;t use bitcoin in the wake of Mt. Gox&#x27;s stopping all transactions on Tuesday. &quot;They&#x27;re approaching bitcoin very conservatively,&quot; the owner said.<p>I don&#x27;t think that the demise of mtgox will destroy the ecosystem. However, I suspect this will be a major setback in mainstream adoption as a method of payment. Bitcoin speculation (and difficulty of shorting) may very well prop up the price for the foreseeable future, but... so what? The interesting thing about the Bitcoin saga is seeing it work its way into mainstream.<p>I&#x27;d be happy to be proven wrong, though.

what happens to the BTC in their wallets that they didn&#x27;t lose? Liquidated to pay creditors 1c in the dollar?<p>with 63 million in debt, I imagine customers aren&#x27;t first class debt holders either?

Can anyone explain to someone who didnt follow whole story from the beginning what exactly happened to Mtgox that caused them to lose all this money?

I just don&#x27;t see how they missed it. Since they used a hot-wallet system this had to be over a pretty substantial period of time. Surely if you&#x27;re running an operation with that much cash involved you&#x27;ve got some kind of rolling reconciliation between debt owed vs reserves available?<p>Who misses a 500MM hole in their assets? Or is reckless enough to hide it (trading whilst insolvent)?

Perhaps naïve question but can&#x27;t see any info on this one. So, the Bitcoin ledger is still intact. 750,000 is quite a lot of Bitcoins to be stolen. Mt.Gox may have been shitty built but they must have kept some logs, account databases, etc. What are the odds of recovering the coins&#x2F;exchange money that was lost? Technically sounds like pretty good odds? No?

<i>The company&#x27;s lawyer said at the news conference that Mt. Gox had outstanding debt of about ¥6.5 billion ($63.6 million) with assets worth ¥3.84 billion.</i><p>That can&#x27;t include the value of the bitcoins lost can it? So presumably the assets doesn&#x27;t include the value of any bitcoins that they still have which all makes this statement rather meaningless.

It seems like the bitcoin community should collectively decide to not honor transactions for the stolen bitcoins.<p>Not only will it prevent the market from completely crashing as the thief eats up remaining buy orders, but it would moderately discourage future thieves if such a mechanism were in place.

&gt; bitcoin industry<p>What the? They certainly do seem to consume a couple of factories worth of electricity

Hilarious. Can&#x27;t wait to hear from the choir of libertarian crypto-currency-zealots, who will sing the praises of the Ponzi scheme that is Bitcoin.<p>On a serious note: who benefits?

Serious question - is now a good time to buy Bitcoin?

Sorry if this is a stupid question, but did Mt. Gox have their wallets? Why didn&#x27;t these people keep their wallets with them?

So much speculation and theories. Seems like Occam&#x27;s razor wins again.

Is this the largest heist in history?

So much for cold storage

Learn your lessons and move on.<p>Money, bitcoin, value, economy. Its like a game, like chess, sometimes you loose.<p><a href="https://www.youtube.com/watch?v=GUcXI2BIUOQ&amp;feature=kp" rel="nofollow">https:&#x2F;&#x2F;www.youtube.com&#x2F;watch?v=GUcXI2BIUOQ&amp;feature=kp</a><p>Aint got no, ive got life, by nina simone.

Anyone stupid enough to invest a significant portion of their net worth in a nascent currency like BitCoin only have themselves to blame, high risk.