What Was Mt. Gox? Definition, History, Collapse, and Future

What Was Mt. Gox?

Mt. Gox was a Tokyo-based cryptocurrency exchange that operated between 2010 and 2014. It was responsible for more than 70% of Bitcoin transactions at its peak. Although it is most commonly known as Mt. Gox, the exchange is sometimes referred to as MtGox or Mt Gox. The exchange declared bankruptcy in 2014, but it continued to be the subject of lawsuits and speculation for years.

Early History of Mt. Gox

Jed McCaleb created the website that became the Mt. Gox exchange. It was initially a way for enthusiasts of the card game "Magic: The Gathering" to trade cards online.

The name Mt. Gox was created as an acronym for "Magic: The Gathering Online Exchange." The site was transferred to Mark Karpeles in 2011 in exchange for six months worth of revenue. Karpeles became the largest shareholder and CEO.

Mt. Gox was considered the world’s largest Bitcoin exchange at its peak. It handled 70% to 80% of the trading volume. Handling so many transactions gave Mt. Gox an outsized role in determining Bitcoin's market activity. For example, in 2013 it suspended trading for several days to cool down the market.

What Happened to Mt. Gox?

Its prominence in the cryptocurrency scene made it a target for hackers, and Mt. Gox experienced security problems several times during the years it operated. In 2011, hackers used stolen credentials to transfer Bitcoins. That same year, deficiencies in network protocols resulted in several thousand Bitcoins being “lost.”

In the months leading up to February 2014, customers expressed increasing frustration with problems withdrawing funds. Technical bugs prevented the company from having a firm grasp on transaction details, including uncertainty relating to whether Bitcoins had been transferred to customers’ digital wallets.

The exchange suffered a fatal blow in February 2014. In early February 2014, the exchange suspended withdrawals after claiming to have found suspicious activity in its digital wallets. The company discovered that it had "lost" hundreds of thousands of Bitcoins. Reports on the number of coins lost ranged from 650,000 to 850,000.

While it was later able to locate 200,000 Bitcoins, the missing cryptocurrency profoundly destabilized the market. The value of the Bitcoins was estimated to be in the hundreds of millions, which pushed Mt. Gox into insolvency. It filed for bankruptcy in the Tokyo District Court and was ordered to liquidate in April 2014.

The estate that Mt. Gox’s assets were placed in owned more than 200,000 Bitcoin and Bitcoin Cash. In October 2019, Mt. Gox trustee Nobuaki Kobayashi extended the deadline for submitting claims to March 31, 2020.

There had been speculation that Russian hackers were behind the heist; there was also hope that some of the stolen Bitcoins could be recovered. CoinLab, a leading creditor against Mt. Gox, continued to pursue its multibillion-dollar breach of contract lawsuit against Mt. Gox.

The Future of Mt. Gox

In November 2021, Mr. Kobayashi, the trustee for Mt. Gox, published an announcement after Japanese courts and Mt. Gox creditors reached an agreement on the Mt. Gox rehabilitation plan. The rehabilitation plan establishes a registration and compensation plan based on phases for different creditors.

Approved rehabilitation creditors with creditor codes can signup on the MT. Gox Online Rehabilitation Claim Filing System. Unfortunately, new rehabilitation claims cannot be filed using this system; the Tokyo District Court referred the rehabilitation draft to a resolution in February 2021, sealing the process and preventing the initiation of any new claims.

Whether Mt. Gox has a future in cryptocurrency remains to be seen. However, what is for certain is that a chapter in the cryptocurrency history book is now concluded.

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