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  • Dec 18, 2014
  • Updated: 2:12pm

Bitcoin

Bitcoin, released to the world in 2009 by a person or people called Satoshi Nakamoto, is not backed by a central bank or a government and is seen as an alternative payment system. In February 2013, Bitcoin went into the mainstream as a monetary crisis threatened to bankrupt Cyprus, seen as a safer bet. Early adopters of Bitcoin have been richly rewarded as the price has soared – in one case, a young Norwegian bought a house from an $850,000 windfall on a US$22 investment.

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Bitcoin exchange Mt Gox faces questions over US$350m theft

Mt Gox goes offline amid bankruptcy rumours after huge theft of customers' digital currency, 'which went unnoticed for several years'

PUBLISHED : Tuesday, 25 February, 2014, 11:56pm
UPDATED : Wednesday, 26 February, 2014, 11:09am

The once dominant virtual currency exchange Mt Gox, now a shadow of its former self, was keeping silent over the theft and mismanagement of US$350 million worth of bitcoins as its website went offline yesterday.

A price rout followed as major industry players looked to cut their ties with the firm. The crisis quickly spiralled out of control as bankruptcy rumours stirred after a leaked Mt Gox document said its customers' 625,000 bitcoins and its own 120,000 holding - the combined equivalent of 6 per cent of total circulation - had been stolen. The theft is the equivalent of US$350 million at current market prices.

Watch: Buyer protests in front of Mt Gox

"At this point 744,408 BTC are missing due to malleability-related theft which went unnoticed for several years," the document said. "The reality is that Mt Gox can go bankrupt at any moment, and certainly deserves to as a company."

The contents of the leaked report titled "Crisis Strategy Draft" - which have not been confirmed by the company since the website went offline - also suggested it planned to rebrand, relocate to Singapore and replace the chief executive.

Six major bitcoin companies - Coinbase, Kraken, Bitstamp, BTC China, Blockchain and Circle - released a joint statement yesterday, distancing themselves from the Japanese company.

"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 companies said, though they admitted that faith in the virtual currency had been "squandered by the failings" of Mt Gox.

The document was first reported by bitcoin entrepreneur Ryan Selkis, who claimed an "otherwise reliable source" had passed the warts-and-all document unveiling the catastrophic situation Mt Gox was in.

On Sunday, Mt Gox resigned from the board of the Bitcoin Foundation and deleted its entire Twitter feed.

At the weekend, the price of a bitcoin on the Japanese exchange plunged to as low as US$90. The once-favoured trading platform had been battling to salvage its reputation after it said it had been the victim of years-long fraud. Technical troubles on February 7 saw it "suspend indefinitely" all withdrawals.

Mt Gox said a weakness in the network allowed fraudsters to claim bitcoin twice and let hackers walk away with tens of thousands of dollars. The document estimates Mt Gox has only 2,000 coins and US$22 million left in its ownership.

The average bitcoin price tracked by Coindesk was US$469.57 yesterday, a 23 per cent loss in value in two days.

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This article is now closed to comments

SpeakFreely
How could this be a virtual currency or so called " currency" if price are up down so much? It is impossible for any consumer to use a "currency" changing so much per day. But it is a great commodity for trading online as either you can make a lot or lost everything.
francisliang
Currencies historically were backed by some sort of asset EG Gold, a while back they were de-linked and now they are technically backed by nothing besides government guarantees (Referred to as a fiat currency). The notes you carry in your wallet are simply promissory notes. The idea of Bitcoin is a decentralised electronic currency, for a long time Bitcoin was very stable hanging around $500 per BTC which is roughly where it is at today. It's a new concept filled with innovation and the unfortunate reality here is that MtGox had bad code resulting in a large theft, which was subsequently poorly managed. Other exchanges have not had the same issue. As for the instability of Bitcoin thats part of the fun of it, you can buy a fraction of one for $10 or put your life savings in it which has benefitted many individuals, furthermore there are currencies which exist today with massive inflation making them unusable, fortunately Bitcoin does not fluctuate that much.
 
 
 
 
 

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