Mt. Gox was once the busiest Bitcoin exchange in the business. But the site, which began as a trading service for Magic: The Gathering cards, has had a rough month. On February 7, it halted all Bitcoin withdrawls. A problem with "transaction malleability" was blamed, and things went downhill from there. In the following weeks, Mt. Gox moved offices, deleted Twitter posts, and took its entire website offline. (Thanks Wikipedia!) A leaked Crisis Strategy Draft suggested that the exchange had lost nearly 750,000 Bitcoins. The document named "massive robbery and poor Bitcoin accounting" as additional problems, and it suggested that Mt. Gox would shut down and rebrand itself.
Today, the other shoe dropped. Mt. Gox filed for bankruptcy protection in Japan, its home country. According to the Wall Street Journal, the exchange confirmed that it has lost a massive number of Bitcoins: 750,000 of its customers' currency and around 100,000 of its own. One Bitcoin is currently valued at around $575, putting Mt. Gox's losses at nearly $500 million.
Bitcoin exchanges aren't regulated, so unlike with larger banks, deposits aren't insured. U.S. Federal Reserve chief Janet Yellen pointed out earlier this week that her agency doesn't have the authority to police Bitcoin. The cryptocurrency "is a payment innovation that is taking place entirely outside the banking industry," she said, adding that "it's not so easy to regulate Bitcoin because there is no central issuer or network operator."
Mt. Gox's customers will probably have to stand in line for a piece of what little the exchange has left. In its bankruptcy announcement, Mt. Gox said it has just $38 million in assets and owes $64 million to creditors—a figure that doesn't appear to include the hundreds of thousands of lost customer Bitcoins. There was no mention of the rebranding plan discussed in the crisis document.
The Bitcoin community is distancing itself from Mt. Gox, and the exchange's failure probably won't spell the end of the cryptocurrency. However, it may inspire governments to pay more attention to Bitcoin and its ilk. Mt. Gox's troubles should also serve as a warning to miners and others interested in digital currencies. If you want to get involved with the burgeoning scene, you should be very careful about where your virtual coins are held.
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