Mt. Gox: a quick rise and even faster fall of Bitcoin exchnage

Mar 01 2014, 13:17 IST
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Mt. Gox: a quick rise and even faster fall of Bitcoin exchnage Mt. Gox: a quick rise and even faster fall of Bitcoin exchnage
SummaryThe collapse of Mt. Gox might appear sudden, but bitcoin insiders say its downfall began nearly a year ago.

The collapse of Mt. Gox might appear sudden, but bitcoin insiders say its downfall began nearly a year ago as the virtual currency exchange tangled with regulators, split from former business partners and grappled with cyber attacks.

Mt. Gox's fall lays bare the difficulties the bitcoin community faces as it tries to square its freewheeling, libertarian ideals with the rigorous regulation required in financial services and customers' needs for reliable service.

To be sure, Mt. Gox may return. Its Tokyo-based chief executive, Mark Karpeles, has said he is working hard to solve the problems that forced the exchange to halt trading this week after suspending withdrawals on Feb. 7.

But its road back, if there is one, will be difficult.

U.S. federal prosecutors have subpoenaed Mt. Gox - and other bitcoin businesses - to seek information on a spate of disruptive cyber attacks. And Mt. Gox, once the largest bitcoin exchange, has now been surpassed by others, such as Slovenia-based Bitstamp.

"The first wave of entrepreneurs were evangelists for the technology, but low on quality," said Nick Shalek, an investor at Ribbit Capital, which has backed bitcoin companies including digital-wallet Coinbase. Now, he said, a more serious group of entrepreneurs is trying to build more serious infrastructure around bitcoin.

Bitcoin is a digital currency that, unlike conventional money, is bought and sold on a peer-to-peer network independent of central control. Its value has soared in the last year, and the total worth of bitcoins minted is now about $7 billion.

Mt. Gox's decline, ironically, started just as bitcoin was hitting a new level of notoriety in the broader public. Proponents include prominent Silicon Valley venture capitalists who talked up a virtual currency system free of government intervention or control.

THE FACE OF BITCOIN

Founded in 2009 by American software hacker Jed McCaleb, Mt. Gox was originally a site for people to trade cards for a game called "Magic: The Gathering." (Mt. Gox is short for "Magic: The Gathering Online Exchange")

McCaleb turned the site into a bitcoin exchange and sold the fledgling business in 2011 to Karpeles. Under the Frenchman, Mt. Gox became the face of bitcoin - where investors regularly checked the price of the digital currency and where the largest volume of trades occurred.

As regulators started to take notice of the bitcoin market, Karpeles became a vocal champion. He described Mt. Gox as "the main exchange" and argued for bitcoin's legitimacy while trying to distance it from criminals

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