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February 28, 2014

Bitcoin Exchange Mt. Gox Files for Bankruptcy Protection Amid Nine-figure Losses

While the Bitcoin crypto-currency itself is gaining ground, being taken progressively at more businesses and by extension more seriously, there are also inevitably those who wind up at the bad end of such new technology. Mt. Gox, one of the leading Bitcoin exchanges, seems to be one of those as it files for bankruptcy protection after losing a massive amount of customers' Bitcoins, the combined value of which reportedly stretches into nine-figure territory.

Mt. Gox reported that it not only lost 750,000 of its customers' Bitcoins, but also an additional 100,000 of its own, which brings Mt. Gox's total losses to around $475.5 million as of this writing based on the Preev converter. However, Mt. Gox Bitcoin had been trading substantially lower, especially given that it had halted withdrawals of the currency earlier this month.

Mt. Gox's owner, Mark Karpeles, was in Tokyo District Court after filing for bankruptcy, whereupon he spoke to reports, nothing that a series of technical issues had opened the way to withdrawals that shouldn't have happened. Karpeles noted “...some weakness in the system,” which in turn led to the disaster that “...the Bitcoins have disappeared.” Karpeles then apologized for “causing trouble.” During the press conference that followed at the Tokyo District Court press club, Mt. Gox's lawyer spelled out the issues: the company had around 6.5 billion yen (about $63.8 million U.S.) in debt, while having only 3.84 billion yen (about $37.2 million U.S.) in assets. When reporters asked for a message for his investors, Karpeles reportedly could do little more than repeat his apology.

Mt. Gox was one of the biggest Bitcoin exchanges around before the recent issues emerged, with the company handling over 80 percent of all Bitcoin trades. But when Mt. Gox halted transactions and took the website down entirely, that raised disturbing questions about what kind of protection users have when it comes to trading in Bitcoin. Some investors held several hundred thousand dollars in Bitcoin with Mt. Gox, and now have little hope of recovering said assets. Individual investors from game developers to website developers and beyond have come forth to describe the losses taken at Mt. Gox, and some businesses are beginning to express doubt in the Bitcoin system, as one business' bank reportedly asked a client to not do business in Bitcoin following the closure of Mt. Gox.

While Bitcoin has made plenty of advancements of late—VoIP Supply recently started accepting the crypto-currency, as did Overstock.com—and has plenty of supports to its credit like Fred Wilson of AVC.com, the underlying point that this is still a new and comparatively unproven technology is hard to ignore. Bitcoin is going to fluctuate, substantially, in terms of its overall value, and sadly, there are likely to be cases like this as some of the weakest performers—even Karpeles acknowledged the “weakness in the system”--are removed from the market. But that doesn't prove much comfort to those who lost money on this particular venture, but serves to remind us all about the risks inherent in investing in new technology, with huge gains possible right alongside huge losses.

Bitcoin itself is likely to survive this matter, especially given how many places are already set to work with the currency and how many more are likely to follow. But this is still a dark chapter in Bitcoin's history, and one that may ultimately prove not the last.




Edited by Cassandra Tucker




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