Mt. Gox files for bankruptcy in Tokyo, erasing 850,000 bitcoin

FEB 28 2014 · 12:00

Video: Mt. Gox exchange blames hackers for huge bitcoin losses, files for bankruptcy - economy Date: 2014-02-28 · Type: failure · Hub: tokyo · Tags: custody, exchange-failure, tokyo, bitcoin, civil-rehabilitation, mark-karpeles, 2014 The operational capital of Bitcoin's first market cycle produced its first cataclysm Jed McCaleb's card-trading site had become the world's dominant Bitcoin exchange under Mark Karpelès — by 2013 handling roughly 70% of global trades — before a slow hemorrhage of theft, probably beginning as early as 2011, depleted its reserves. The proximate cover story was a transaction-malleability bug; the real story was custody practiced with a recklessness that no regulated depository would have survived a single audit cycle. When Ryan Selkis leaked the internal "crisis strategy" draft on February 24 2014, users and creditors learned the scale of the disaster simultaneously with regulators. Karpelès filed for civil rehabilitation in Tokyo District Court four days later. The Tokyo proceedings dragged for a decade. Karpelès was convicted in 2019 of falsifying financial records — acquitted of the graver embezzlement charge, which had always been harder to prove against a man whose incompetence was itself nearly sufficient explanation. Creditor distributions, first in yen, eventually in Bitcoin and Bitcoin Cash, did not begin in earnest until July 2024. By that point the recovered coins had appreciated enough that creditors received recoveries that would have seemed impossible in 2014. The boldest thing about the Mt. Gox failure wasn't the scale of the loss — it was the jurisdiction. Tokyo, not San Francisco or London, was where Bitcoin's first catastrophic custody failure occurred, a reminder that the network's center of gravity in its earliest years lay in Japan. Every subsequent exchange-custody debate — Bitfinex 2016, QuadrigaCX 2019, FTX 2022 — is footnoted back to Karpelès and the Tokyo District Court. Facts • Mt. Gox originally a Magic: The Gathering card-trading site; converted to Bitcoin exchange July 2010 • Sold by Jed McCaleb to Mark Karpelès, March 2011 • ~850,000 BTC missing at time of filing (~$450M then; valued at $50–60B+ at later cycle peaks) • ~200,000 BTC later found in an old wallet • Civil rehabilitation filed: February 28 2014, Tokyo District Court • Karpelès conviction: 2019, falsifying financial records; suspended sentence; acquitted of embezzlement • Creditor BTC/BCH distributions began July 2024 — over ten years after the collapse Primary Documents • Mt. Gox bankruptcy announcement (Feb 28 2014) — https://www.mtgox.com/img/pdf/20140228_announce_eng.pdf • Wired: The Inside Story of Mt. Gox (March 2014) — https://www.wired.com/2014/03/bitcoin-exchange/