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Currency exchange files for bankruptcy
:):)
Come on, they stole half a billion $ from people
Mt Gox: The brief reign of bitcoin's top exchange
The collapse of Mt. Gox might appear sudden, but bitcoin insiders say its downfall began nearly a year ago as the virtual currency exchange tangled with regulators, split from former business partners and grappled with cyber attacks.
Mt. Gox's fall lays bare the difficulties the bitcoin community faces as it tries to square its freewheeling, libertarian ideals with the rigorous regulation required in financial services and customers' needs for reliable service.
Once the world's biggest bitcoin exchange, Mt. Gox on Friday filed for bankruptcy protection, saying it may have lost nearly half a billion dollars worth of the virtual coins due to hacking into its faulty computer system. How it managed to lose so much so quickly is still unclear.
U.S. federal prosecutors have subpoenaed Tokyo-based Mt. Gox - and other bitcoin businesses - to seek information on a recent spate of disruptive cyber attacks that overwhelmed some exchanges and forced them to suspend withdrawals. Mt. Gox never recovered, whereas rivals such as Slovenia-based Bitstamp have since resumed operations.
"The first wave of entrepreneurs were evangelists for the technology, but low on quality," said Nick Shalek, an investor at Ribbit Capital, which has backed bitcoin companies including digital-wallet Coinbase. Now, he said, a more serious group of entrepreneurs is trying to build more serious infrastructure around bitcoin.
Bitcoin is a digital currency that, unlike conventional money, is bought and sold on a peer-to-peer network independent of central control. Its value has soared in the last year, and the total worth of bit coins minted is now about $7 billion.
Mt. Gox's decline, ironically, started just as bitcoin was hitting a new level of notoriety in the broader public. Proponents include prominent Silicon Valley venture capitalists who talked up a virtual currency system free of government intervention or control.
THE FACE OF BITCOIN
Founded in 2009 by American software hacker Jed McCaleb, Mt. Gox was originally a site for people to trade cards for a game called "Magic: The Gathering." (Mt. Gox is short for "Magic: The Gathering Online Exchange")
McCaleb turned the site into a bitcoin exchange and sold the fledgling business in 2011 to Mark Karpeles. Under the Frenchman, Mt. Gox became the face of bitcoin - where investors regularly checked the price of the digital currency and where the largest volume of trades occurred.
As regulators started to take notice of the bitcoin market, Karpeles became a vocal champion. He described Mt. Gox as "the main exchange" and argued for bitcoin's legitimacy while trying to distance it from criminals using the digital currency for money laundering or drug-related activities.
Karpeles said Mt. Gox had no interest in helping criminals launder funds, and pushed back against claims that bitcoin transactions were completely anonymous, noting that while the system was designed for privacy, it was easy to track bitcoin across the network.
If authorities found a way to shut down Mt. Gox, "the likely result will be more exchanges popping up all over, with methods much harder to track, and who will be much less likely to agree to help with any investigation," Karpeles said in a 2011 email to a reporter for the Compliance Complete service of Thomson Reuters Accelus.
"We want (authorities) to understand that the problem is not bitcoin itself, but what some people do with those," he said in the message, one of numerous emailed exchanges over the years.
In 2011, bitcoin was barely trading at $1, but volumes were picking up at Mt. Gox, which routinely saw more than 20,000 transactions daily, more than double those in late 2010.
Karpeles said Mt. Gox had servers in the United States but little in the way of money. It used Iowa-based online payment processor Dwolla Inc to make U.S. customer transactions easier.
RISE IN POPULARITY
Bitcoin's popularity increased incrementally, similar to its price. On April 1, 2013, it topped $100 for the first time, and trading volumes were increasing.
Around this time, a regulatory push intensified. The U.S. Treasury Department's Financial Crimes Enforcement Network (FinCEN) declared bitcoin exchanges to be money transmitters, requiring them to register, enact formal anti-money laundering programs, and report suspicious activity.
Shortly after that, a bitcoin exchange known as bitfloor was shuttered after its U.S. bank account was closed because it had not properly registered with regulators.
Concerns that regulatory action would cause customer funds to be trapped resulted in a sharp plunge in bitcoin, falling from $230 on April 10 to a low of $68.49 on April 17 - a period of time that turned out to be the peak in terms of dollar-denominated trading on Mt. Gox, according to Bitcoincharts.
As volumes jumped that month - on two separate days, there were more than 500,000 dollar-denominated transactions on Mt. Gox - the exchange said it was overwhelmed by the volumes, and it was working to upgrade its systems.
Karpeles said in an April 13 email that bitfloor's closure was a fate that would not befall Mt. Gox. "We apply very strict AML (anti-money laundering) procedures to avoid exactly this kind of issue. We have very good relationships with our banking partners and making sure everything is run as good as possible."
On April 18, Karpeles clarified that Dwolla was the company's only transaction provider. "We do not use any U.S. bank," he said via email.
Mt. Gox did not immediately register with FinCEN - a misstep that would in part lead to its demise.
In May 2013, the U.S. Department of Homeland Security froze an account that Dwolla held at Veridian Credit Union in the name of Mutum Sigillum LLC, a Mt. Gox subsidiary incorporated in Delaware.
A related court document said another account at Wells Fargo had been seized earlier that month. The Department of Homeland Security justified the seizures by accusing Mt. Gox of failing to register with Treasury as demanded by FinCEN. (It eventually registered in June.)
Karpeles has declined to comment on the seizures, but this complicated the ability of Mt. Gox to allow U.S. customers to liquidate existing investments. Dwolla eventually ended its relationship with Mt. Gox, in a blow to the exchange.
"Most professional users moved away from Mt. Gox months ago, leaving April 2013 or thereabouts. By June 2013, the final nail was in the coffin for U.S. users," said one of bitcoin's core developers, who requested anonymity.
This in turn caused bitcoin's prices on Mt. Gox to surge.
"What happened then is because you couldn't withdraw dollars, there became a major premium for bitcoin on Mt. Gox," said Jacob Dienelt, a maker of bitcoin paper wallets in New York.
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Fortress Loses Millions On Bitcoin Investment
Readers will recall that back in October, when the only way for Bitcoin seemed up, none other than the head of sophisticated hedge fund/private equity megafund Fortress Group, Michael Novogratz, recommended buying Bitcoin: "I have a nice little Bitcoin position,” Novogratz said. "Enough that I’m smiling that it doubled... Put a little money in Bitcoin...Come back in a few years and it’s going to be worth a lot."
Or, you can come back in a few months and now that the momentum euphoria is over and done with, watch it be worth far less.
According to the FT, Fortress "is sitting on losses of $8m on an experimental investment in Bitcoin. The company’s annual report revealed that it bought $20m of the virtual currency in the final months of last year, making it the first mainstream investment company to list Bitcoin among the assets on its balance sheet."
The value of its position was already underwater by the end of December, however, and the price of Bitcoin has continued to slip this year amid scares over the underlying technology and the bankruptcy of what was once the largest virtual currency exchange.
By buying the currency for its own account, Fortress not only places a small bet on its future value but also learns more about the practicality of using Bitcoin as a financial instrument in the future and about the potential for business built around virtual currency.
The company deemed Bitcoin too speculative, however, to put in any of the funds it manages on behalf of other investors.
Good. Because as of year end, Fortress valued its stash of Bitcoin at $16.3 million at the end of December. Since then Bitcoin has fallen by a further one-quarter so far this year, cutting the value of the stake to $12.1m at mid-Friday prices. The bankruptcy of the formerly biggest Bitcoin exchange will do that.
As for Fortress, don't cry for the asset manager: "The experimental stake in Bitcoin represents a fraction of Fortress’s $2.6bn balance sheet. The company manages $61.8bn in assets and posted a 121 per cent rise in net income to $484m for 2013."
Oh well: on to the next gigamomentum (to borrow a popular prefix) investment which sophisticated investors buy into and just because the dumber money always chases on their coattails, makes them believe what incredible investors they are. So for anyone following in Fortress' footsteps: go for it, just don't come back to check on your money "in a few years." It will have long since been "disappeared." Come to think of it, just like those millions of Mt. Gox bitcoins...
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"experimental investment in Bitcoin" - they could have invested that money in me not in a a ponzi and they would have even earn some
the competition to Bitcoin will be destroyed: Namecoin Forum - View topic - SAD NEWS Mikhail Sindeyev (thecoder) has Died Suddenly
Bitcoin needs to grow up if it wants to survive Mt. Gox collapse
Bitcoin's future was called into question this week due to the collapse of Mt. Gox, which filed for bankruptcy in Japan on Friday. Once one of the largest exchanges for the virtual currency, Mt. Gox was the victim of either a security flaw or an inside job -- or a combination of both.
Whatever the cause, nearly $500 million worth of bitcoins have disappeared into the virtual ether, leaving clients of Mt. Gox with little or no recourse to recoup their losses. That's because bitcoin, by design, is beyond any government control or regulatory oversight.
"Bitcoin is a payment innovation that’s taking place outside the banking industry," Federal Reserve chair Janet Yellen said Thursday during her Senate testimony. "So the Fed doesn’t have authority to supervise or regulate Bitcoin in any way.”
Other regulators, both in the U.S. and abroad, have drawn similar conclusions; in the past, such statements have caused temporary fluctuations in bitcoin prices but generally cheered its libertarian advocates.
But the crypto-currency's biggest draw for its supporters -- its lack of government oversight -- could now prove to be its undoing, or at least prevent it from going mainstream. Consumers who may have been curious about bitcoin before this week are now going to be very wary about making transactions or investments in the virtual currency.
If a U.S. bank fails, deposits of up to $250,000 are guaranteed by the U.S. government via the Federal Deposit Insurance Corp. If a brokerage firm like MF Global fails, clients can turn to the Securities Investor Protection Corp., which is funded by its members and aims to protect each customer account for up to $500,000.
Again, nearly $500 million of bitcoin assets were lost due to Mt. Gox's collapse and its former clients have virtually no options -- no regulator nor law enforcement agency -- to turn to in the hopes of getting their money back.
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This was a perfect way of stealing : total anonymity and the owners of bitcoin could do what they did. Stealing 500 million out of 7 billion is not just some theft. And people fell for it
Bitcoin: Currency Or Commodity?
The Bitcoin phenomenon has now reached the mainstream media where it met with a reception that ranged from sceptical to outright hostility. The recent volatility in the price of bitcoins and the issues surrounding Bitcoin-exchange Mt. Gox have led to additional negative publicity. In my view, Bitcoin as a monetary concept is potentially a work of genius, and even if Bitcoin were to fail in its present incarnation – a scenario that I cannot exclude but that I consider exceedingly unlikely – the concept itself is too powerful to be ignored or even suppressed in the long run. While scepticism toward anything so fundamentally new is maybe understandable, most of the tirades against Bitcoin as a form of money are ill-conceived, terribly confused and frequently factually wrong. Central bankers of the world, be afraid, be very afraid!
Finding perspective
Any proper analysis has to distinguish clearly between the following layers of the Bitcoin phenomenon: 1) the concept itself, that is, the idea of a hard crypto-currency (digital currency) with no issuing authority behind it, 2) the core technology behind Bitcoin, in particular its specific algorithm and the ‘mining process’ by which bitcoins get created and by which the system is maintained, and 3) the support-infrastructure that makes up the wider Bitcoin economy. This includes the various service providers, such as organised exchanges of bitcoins and fiat currency (Mt. Gox, Bitstamp, Coinbase, and many others), bitcoin ‘wallet’ providers, payment services, etc, etc.
Before we look at recent events and recent newspaper attacks on Bitcoin, we should be clear about a few things upfront: If 1) does not hold, that is, if the underlying theoretical concept of an inelastic, nation-less, apolitical, and international medium of exchange is baseless, or, as some propose, structurally inferior to established state-fiat money, then the whole thing has no future. It would then not matter how clever the algorithm is or how smart the use of cryptographic technology. If you do not believe in 1) – and evidently many economists don’t (wrongly, in my view) – then you can forget about Bitcoin and ignore it.
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This was a perfect way of stealing : total anonymity and the owners of bitcoin could do what they did. Stealing 500 million out of 7 billion is not just some theft. And people fell for it
If mt gox stole or if they got hacked for real, doesn't really matter. The problem are the people who held so much money with them, either after such a long time when it was clearly problematic with withdrawals.
Bitcoin sheds Mt. Gox albatross, rallies nearly 20 percent
Is bitcoin the new honey badger?
In spite of being hit on all sides by bad news, the embattled virtual currency rallied sharply on Monday by nearly 20 percent, as questions swirled around the demise of the world's largest bitcoin exchange.
As regulators and prosecutors encircled Mt. Gox, the bitcoin trader that folded into bankruptcy protection last week as nearly $500 million of virtual currency vanished into the ether, bitcoin extended its rally.
The crypto-currency plunged immediately after the disclosure of Mt. Gox's troubles, but began a quiet surge late last week as the world's attention shifted elsewhere. Some analysts think that the worst news may already be discounted in bitcoin's price, and that investors could be separating bitcoin and the defunct exchange.
"There's a lot of really good news coming out that's not getting attention," said Austin Alexander, deputy director of The Bitcoin Center in New York. He pointed to several positive developments, including a ruling by British authorities that bitcoin would receive the same tax treatment as other foreign currencies, as providing a boost to the virtual currency's spot price.
He speculated that investors may also be searching for safe-havens as Ukraine's confrontation with Russia reaches a boiling point, and engulfs world powers in a standoff.
"It just doesn't bode well for the world economic picture," Alexander said, adding that big venture capitalists like Marc Andreessen were still bullish on the currency.
According to a report in The Wall Street Journal, Mt. Gox is the target of an investigation by the U.S. attorney's office for the Southern District of New York. Prosecutors have subpoenaed the company, a person familiar with the matter told The Journal.
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