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February 28. 2014 8:04PM

Mt.Gox seeks bankruptcy after $463 million Bitcoin loss

TOKYO — Mt.Gox, once the world’s largest Bitcoin exchange, filed for bankruptcy in Japan, and said that 850,000 Bitcoins belonging to its customers and the firm were missing.

“The company believes there is a high possibility that the Bitcoins were stolen,” Mt.Gox said in a statement. “It is considering filing a criminal complaint.”

The filing follows three weeks of speculation about the fate of the Tokyo-based exchange, which suspended withdrawals on Feb. 7. The turmoil left investors and entrepreneurs asking how the insolvency could happen, and how the fledgling Bitcoin industry can bounce back.

“Mt.Gox is the only exchange that wasn’t backed by venture funds or institutional investors,” Micky Malka, the founder of Palo Alto, Calif.-based Ribbit Capital and a Bitcoin investor, said in an interview.

“It will take time for the rest of the Bitcoin ecosystem to prove that this is a bad apple and not a problem of the entire ecosystem.”

Mt.Gox, which had revenue of 135 million yen ($1.33 million) in this year, applied Friday in Tokyo District Court for bankruptcy protection with debt exceeding assets by 2.7 billion yen, the exchange said in a statement.

Mt.Gox lost 750,000 Bitcoins belonging to its customers and 100,000 of its own, it said.

“We are in a situation close to what you would call Chapter 11 in the U.S.,” Mt.Gox Chief Executive Officer Mark Karpeles said in an e-mail.

Karpeles said his company lost the Bitcoins because of weaknesses in its computer systems’ security measures, according to remarks broadcast on NHK today. The firm had 6.5 billion yen in debt.

Andreas Antonopoulos, the chief security officer for Blockchain.info, a company that hosts online digital wallets for Bitcoin storage, said Mt.Gox probably mismanaged its offline Bitcoins.

Standard security procedures involve putting the bulk of a company’s Bitcoins on a computer or hard drive that is not connected to the Internet, an arrangement known as “cold storage.”

To draw on them, a company would have to remove data from the computer without bringing it online — using a flash drive, for example — and combine it with the online, or “hot” wallets.

“Cold storage is a combination of technology and operational process,” Antonopoulos said in an e-mail. “They got some part of that wrong.”

Bitcoin was introduced in 2008 by a programmer or group of programmers under the name Satoshi Nakamoto and has since gained traction with merchants around the world. The digital currency has no central issuing authority, and uses a public ledger to verify transactions.



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