Lost Virtual Currency and the "Key to Hope"--The Mount Gox Case Trajectory (2011-2014)

Lost Virtual Currency and the "Key to Hope"--The Mount Gox Case Trajectory (2011-2014)

The Mt. Gox incident was the world's largest virtual currency outflow at the time, which occurred in 2014 at the Tokyo-based bitcoin exchange Mt. Mt. Gox was at one time the overwhelmingly influential exchange, accounting for about 70% of global bitcoin transactions, In February 2014, it suddenly stopped withdrawing bitcoin. A few weeks later, it suspended all trading, shut down its website, and eventually filed for civil rehabilitation proceedings with the Tokyo District Court. According to the exchange's announcement, a total of 850,000 bitcoins (750,000 bitcoins in customer assets and 100,000 bitcoins held by the company) were "lost," representing an unprecedented loss of approximately $475 million or 50 billion Japanese yen at that time.

This incident did not happen overnight. Subsequent investigations have revealed traces of unauthorized Bitcoin withdrawals from Mt. A vulnerability called "Transaction Malleability" was exploited to take advantage of Bitcoin's transaction characteristics, and it is believed that a method was also used to disguise duplicate transfers by manipulating money transfer records. More seriously, accounting and asset management within Mt. Whether the crime was hacking by an outside party, fraud by an insider, or both? The truth has never been fully revealed, but it was a quiet collapse, the result of a combination of technical vulnerabilities and poor management.

On February 7, 2014, Mt. Gox announced that it was suspending withdrawals "due to technical issues," but no specific explanation was given. Then on the 24th, all transactions were suspended, and on the 28th, the company filed for civil rehabilitation proceedings. The company later announced that 200,000 bitcoins had been found in the "old wallet," and the actual loss was revised to 650,000 bitcoins. However, the trust had already collapsed, and the bitcoin price plunged from about $800 before the incident to the $400 level at one point.

After the incident, former CEO Marc Karpres was arrested in 2015 on charges including embezzlement in the course of his duties, but was acquitted of the embezzlement charges in 2019. What became clear throughout the trial was the fact that even though he was a technician, he was inexperienced as a manager, and his security system and accounting controls were grossly inadequate. It can be said that the free spread of the new currency called Bitcoin, on the contrary, allowed the system and discipline to be underdeveloped.

This incident was both a test and a lesson for the new economic sphere of virtual currencies. The incident prompted the Japanese government to revise the Funds Settlement Law, requiring registration of virtual currency exchange operators and segregation of customer assets. At the same time, users themselves were made aware of the risks of relying on centralized management and the importance of self-asset custody (e.g., cold wallets).

Ironically, the post-incident surge in bitcoin prices prompted a change from bankruptcy to civil rehabilitation proceedings, and since 2023, court-led repayments to victims have been initiated in sequence, with repayments exceeding the losses assessed at the time. It took nearly a decade for hope to return to the "lost virtual currency. The Mount Gox case is a modern-day allegory that symbolizes both the potential and the peril of virtual currencies.