Mt. Gox handles 70% of global Bitcoin trade from Tokyo, then loses 850,000 BTC and defines what custody failure means

APR 10 2013 · 12:00

Video: The Legacy of Mt. Gox: Why Bitcoin’s Greatest Hack Still Matters Type: bitcoin · Hub: tokyo · Tags: mt-gox, karpeles, tokyo, exchange, custody, bankruptcy, hack, transaction-malleability Tokyo, not San Francisco, was the operational capital of Bitcoin's first market cycle — and Tokyo is where its first cataclysm occurred. Mt. Gox began as a Magic: The Gathering card-trading site registered by Jed McCaleb in 2007, converted to Bitcoin exchange in July 2010, and sold to Mark Karpelès in March 2011. In three years it grew from a hobby project to the venue for roughly 70% of all global Bitcoin trades. The Tokyo operation — a small team in Shibuya, running software that had been adapted from card-exchange infrastructure — was the price-discovery mechanism for a nascent global asset. Its dysfunction was invisible until it wasn't. The theft likely began in 2011, exploiting a wallet management vulnerability that Karpelès either did not detect or chose not to disclose. The public-facing crisis began February 7 2014 when withdrawals halted, citing a Bitcoin "transaction malleability" bug as justification. A leaked internal document — the "crisis strategy" draft by Ryan Selkis, widely shared before Karpelès could control the narrative — gave users and press the scale of the disaster roughly simultaneously. Trading suspended February 24; bankruptcy filed February 28, Tokyo District Court. Roughly 850,000 BTC were missing, approximately 7% of all Bitcoin then in existence. The decade-long legal aftermath is itself a document. Karpelès was convicted in 2019 of falsifying records and acquitted of embezzlement — a verdict that satisfied almost no one. Civil rehabilitation proceedings stretched past any reasonable expectation; the first major creditor distributions, in BTC and BCH, began in July 2024, ten years after the filing. The distributable coins had, by then, appreciated so dramatically that some creditors received more in dollar terms than they had lost — an irony that the bankruptcy process was not designed to produce and could not fully accommodate. Facts • Founded by Jed McCaleb as card-trading site 2007; converted to Bitcoin exchange July 2010 • Sold to Mark Karpelès, March 2011 • At peak (2013): ~70% of global Bitcoin trading volume processed through Mt. Gox • Withdrawals halted: February 7 2014; trading suspended February 24; bankruptcy filed February 28 2014 • ~850,000 BTC missing at filing (~$450M at the time); ~200,000 BTC later found in an old wallet • Karpelès verdict (March 2019): convicted of falsifying records, suspended sentence; acquitted of embezzlement • Creditor BTC/BCH distributions began July 2024 — ten years after bankruptcy filing Primary Documents • Mt. Gox bankruptcy announcement (February 28 2014) — https://www.mtgox.com/img/pdf/20140228_announce_eng.pdf