Overview

Mt. Gox was a bitcoin exchange based in Shibuya, Tokyo, Japan. Launched in 2010, it was handling over 70% of all bitcoin transactions worldwide by early 2014, when it abruptly ceased operations amid revelations of its involvement in the loss/theft of hundreds of thousands of bitcoin, then worth hundreds of millions in US dollars.

In February 2014, Mt. Gox suspended trading, closed its website and exchange service, and filed for bankruptcy protection from creditors. In April 2014, the company began liquidation proceedings. Although 200,000 bitcoins have since been "found", the reasons for the disappearance—theft, fraud, mismanagement, or a combination of these—were initially unclear. New evidence presented in April 2015 by Tokyo security company WizSec led them to conclude that "most or all of the missing bitcoins were stolen straight out of the Mt. Gox hot cryptocurrency wallet over time, beginning in late 2011."

The collapse of Mt. Gox and the subsequent arrest and conviction of former CEO Mark Karpelès led Japan to create the first formal regulations for cryptocurrency exchanges and virtual currencies.

2006–2010: Early history

In late 2006, programmer Jed McCaleb thought of building a website for users of the Magic: The Gathering Online tradable card game service, to let them trade "Magic: The Gathering Online" cards like stocks. In January 2007, he purchased the domain name mtgox.com, short for "Magic: The Gathering Online eXchange". Initially in beta release, sometime around late 2007, the service went live for approximately three months before McCaleb moved on to other projects, having decided it was not worth his time. In 2009, he reused the domain name to advertise his card game The Far Wilds.

In July 2010, McCaleb read about bitcoin on Slashdot, and decided that the bitcoin community needed an exchange for trading bitcoin and regular currencies. On 18 July, Mt. Gox launched its exchange and price quoting service deploying it on the spare mtgox.com domain name.

2011: Security issues

In March 2011, McCaleb sold the site to French developer Mark Karpelès, who was living in Japan, stating that "to really make mtgox what it has the potential to be would require more time than I have right now. So I've decided to pass the torch to someone better able to take the site to the next level."

In mid-June 2011, some users of Mt. Gox reported that Bitcoins had been stolen from their accounts. A few days later, Mt. Gox's user database leaked online, including hashed passwords. The theft of Bitcoins from Mt. Gox accounts continued, reportedly, throughout that day. On 19 June, a stream of fraudulent trades caused the nominal price of a bitcoin to fraudulently drop to one cent on the Mt. Gox exchange, after a hacker allegedly used credentials from a Mt. Gox auditor's compromised computer to transfer a large number of bitcoins illegally to himself.

He used the exchange's software to sell them all nominally, creating a massive "ask" order at any price. Within minutes the price corrected to its correct user-traded value. Accounts with the equivalent of more than $8,750,000 were affected. To prove that Mt. Gox still had control of the coins, the move of 424,242 bitcoins from "cold storage" to a Mt. Gox address was announced beforehand, and executed in Block 132749.

In October 2011, about two dozen transactions appeared in the block chain (Block 150951) that sent a total of BTC 2,609 to invalid addresses. As no private key could ever be assigned to them, these bitcoins were effectively lost. While the standard client would check for such an error and reject the transactions, nodes on the network would not, exposing a weakness in the protocol.

2012-2013: Growth

On 22 February 2013, following the introduction of new anti-money laundering requirements by e-commerce/online payment system company Dwolla, some Dwolla accounts became temporarily restricted. As a result, transactions from Mt. Gox to those accounts were cancelled by Dwolla. The funds never made it back to Mt. Gox accounts. The Mt. Gox help desk issued the following comment: "Please be advised that you are actually not allowed to cancel any withdrawals received from Mt. Gox as we have never had this case before and we are working with Dwolla to locate your returned funds."

The funds were finally returned on 3 May, nearly three months later, with a note: "Please be advised never to cancel any Dwolla withdrawals from us again".

In March 2013, the bitcoin transaction log or "blockchain" temporarily forked into two independent logs, with differing rules on how transactions could be accepted. The Mt. Gox bitcoin exchange briefly halted bitcoin deposits. Bitcoin prices briefly dipped by 23%, to $37, as the event occurred, before recovering to their previous level (approximately $48) in the following hours.

By April 2013 and into 2014 the site had grown to the point where it was handling over 70% of the world's bitcoin trades, as the largest bitcoin intermediary and the world's leading bitcoin exchange. With prices increasing rapidly, Mt. Gox suspended trading from 11 to 12 April for a "market cooldown". The value of a single bitcoin fell to a low of $55.59 after the resumption of trading, before stabilizing above $100. Around mid-May 2013, Mt. Gox traded 150,000 bitcoins per day, per Bitcoin Charts.

February 2014: Trading suspended

Customer complaints about long delays were mounting as of February 2014, with more than 3,300 posts in a thread about the topic on the Bitcoin Talk online forum.

On 7 February 2014, Mt. Gox halted all bitcoin withdrawals. The company said it was pausing withdrawal requests "to obtain a clear technical view of the currency processes". The company issued a press release on 10 February 2014, stating that the issue was due to transaction malleability: "A bug in the bitcoin software makes it possible for someone to use the bitcoin network to alter transaction details to make it seem like a sending of bitcoins to a bitcoin wallet did not occur when in fact it did occur.

Since the transaction appears as if it has not proceeded correctly, the bitcoins may be resent. Mt Gox is working with the bitcoin core development team and others to mitigate this issue."

On 17 February 2014, with all Mt. Gox withdrawals still halted and competing exchanges back in full operation, the company published another press release indicating the steps it claimed it was taking to address security issues. In an email interview with the Wall Street Journal, CEO Mark Karpelès refused to comment on increasing concerns among customers about the financial status of the exchange, did not give a definite date on which withdrawals would be resumed, and wrote that the exchange would impose "new daily and monthly limits" on withdrawals if and when they were resumed.