Moctar BouraimaMt Gox is known as the first automated bitcoin exchange platform. Founded by Mark Karpelès in early 2011, it enjoyed phenomenal success before collapsing following a series of scandals.
Several bitcoin transactions were carried out by various investors from the early days of bitcoin, in the years 2011-2012. However, this success has not remained constant for Mt Gox. After a few years, the platform recorded numerous losses of funds deposited by users, leading the platform to close its doors.
Mark Karpelès was then sentenced to prison by the Japanese authorities. After being named “the baron of Bitcoin”, he has become a character relieved by many investors who have lost their bitcoins.
Today, Mt Gox is an integral part of the history of cryptocurrencies in that it showed the limits of exchange platforms. A few years later, when the FTX platform closed the site, this echoed that of MtGox, further increasing distrust towards exchange platforms.
Here are the details of the incredible fall of Mt Gox and its founder. We will also mention how there could be reimbursement for victims…
Mt Gox's debut on the Bitcoin exchange market
The MT Gox platform experienced its first success when its creator, Jed McCaleb, sold it to French developer Mark Karpelès. Initially, it was simply a platform that sold virtual cards: Magic: The Gathering Online.
The latter then took possession of the platform in accordance with the agreements concluded. From that year on, Mt. Gox operations operated normally.
Many bitcoin users turned to this platform to carry out their transactions because at that time, there were very few “reliable” sites and Mt Gox is one of the very first exchange platforms simple to use. The site also benefited from the growing popularity of Bitcoin. The price of bitcoin rose from $1 to $30 in June 2011. This allowed many investors to generate enough income and invest more cash.
However, during the same month, Mt. Gox suffered a hack which resulted in the loss of 17 bitcoins. Another error deemed “technical” also led to the permanent destruction of 2 bitcoins a few months later.
Given these situations, Mt. Gox experienced a decline before returning to operations at the end of the year. Mark Karpelès was able to relaunch the Japanese platform, because many people continued to use it, despite everything.
The growth of Mt Gox and the success of Mark Karpelès in 2012
Beginning in 2012, Mt Gox experienced a period of remarkable development and growth. It then represented a significant portion of the bitcoin market and had 122 registered users as of January 516.
In August, the number of users increased to 192. Mark Karpelès was thus able to better manage his platform and was not confronted with other unpleasant situations. Mt. Gox remained stable and the daily trading volume continued to increase. In early 2014, Mt Gox became the largest bitcoin exchange in the world.
Thanks to his notoriety, the founder of the Japanese platform has made a place for himself among the notorious personalities of thebitcoin ecosystem. During his glory days, he was one of the members of the Bitcoin Foundation. The latter is intended for the promotion and development of bitcoin on a global level. However, this success only lasted a few months as major problems began to arise in March 2013.
The beginnings of complications for Mt Gox and Mark Karpelès
The collapse of Mt. Gox began in March 2013. Unexpected events followed one another to the point of sending the exchange into a significant decline. The problems were mainly technical and regulatory, with Mt Gox starting to exhibit security failures. This is how Mark Karpelès experienced huge losses which ruined his crypto platform.
The licensing requirement for exchange platforms in the USA
In March, the US government implemented regulations for bitcoin exchanges. According to FinCEN and the SEC, all platforms specializing in bitcoin trading must obtain a license before operating in the United States.
At the time, Mt. Gox was unlicensed and operating without completing administrative and regulatory formalities. This is why on May 14, 2013, the US Department of Homeland Security seized $2,1 million from one of the Japanese platform's accounts. He also suspended Liberty Reserve, one of the ancient payment methods on Mt. Gox.
Conflicts between CoinLab and Mt Gox
The company CoinLab was one of Mt Gox's biggest partners. On May 2, she sued Mt Gox for violating the exclusivity contract. Mark Karpelès' platform claims in return a loss of more than 5 million dollars. This situation gave rise to a conflict of interest which ultimately led to the end of their partnership.
Mt Gox's problems with the bank affiliated with the site
In addition to conflicts with CoinLab, Mt Gox continued to face several banking twists and turns. In particular, he experienced problems with his bank Mizuho, based in Japan. In fact, the financial institution was not able to correctly manage all the transactions that were made on Mark Karpelès' platform.
So, she threatened to close her account so as not to have problems with control by the authorities. This situation led to several cancellations of deposits and suspensions of withdrawals. As a result, users began to have a poor perception of the platform. Some withdrew and then turned to other exchanges.
The brutal fall of Mt Gox and its founder
Mt Gox was hacked in early 2014. The various complications had already weakened its performance and its founder was still discreet. Indeed, a hacker was able to access the liquidity available on the system and began to take customer funds.
Very quickly, Mt. Gox found itself without any bitcoin assets. Mark Karpelès did not prevent and anticipate the hacking. The losses were therefore enormous and users found themselves destitute of their funds. It is still today, one of the biggest losses in bitcoin recorded to date. The victims tried to claim their funds with great anger and threats, as evidenced by certain videos on the internet.
On February 23, Mark Karpelès resigned from Mt Gox and the platform was immediately taken offline.
The fall of Mt Gox and its founder was then highly publicized, which further tarnished the image of the exchange platforms. Likewise, Mark Karpeles then entered history as one of the crypto criminals the most notorious.
—>Read the article: The 7 most notorious criminals in the crypto industry
The arrest of Mark Karpelès
Given the problems that have arisen on the platform, Mark Karpeles was the subject of criticism, slander and accusations. Users suspected him of having initiated a hack himself to steal his clients' funds.
On August 1, 2015, it was arrested by Japanese justice who accuse him of embezzlement. He has pleaded not guilty to the charges but unclear areas still persist. It was only in 2016 that he was released on bail, before being sentenced in 2019 to a two and a half year suspended sentence. Till date, the exchange remains under bankruptcy protection with the matter still under investigation. Additionally, the dispute with Coin Lab remains pending and distribution to creditors cannot take place until this lawsuit is resolved.
In the same vein, in July 2017, a Russian national named Alexander Vinik was arrested by US authorities in Greece and accused of playing a central role in the laundering of bitcoins stolen from Mt Gox. Additionally, Vinnick was indicted by Greek authorities for laundering approximately $4 billion in bitcoin.
The Wizsec surveys, a group of bitcoin security specialists, had identified Vinnik as the owner of the wallets into which the stolen bitcoins were transferred, many of which were sold on the BTC-e platform.
Will the victims be reimbursed?
Among the victims, the most optimistic believe that with the trial of Mark Karpelés underway in Japan and the indictment against Vinnik, it would seem that the different parts of the investigation into the Mt Gox hack are finally coming together. It remains to be seen whether all this will lead to the recovery of bitcoins…
As a reminder, during the Mt Gox hack the hackers had not emptied the exchange. Hundreds of thousands of bitcoin coins have been stuck in the exchange since its bankruptcy. Following rumors about a release of bitcoins for clients of Mt Gox, the cryptocurrency exchange platform, has broken the silence.
Bankrupt since 2014, Mt Gox announced a certain restitution of approximately 141.000 bitcoins, which will take place according to announcements during the year 2023. Finally, in September 2023, repayment of Mt Gox will be initiated in 2024...
The Mt Gox exchange hack remains the largest hack in crypto history. Despite only losing around 740 bitcoins, these BTCs represented 000% of all bitcoins in existence at the time. Although 6 bitcoins were eventually recovered, the remaining 100 were never found. But, what happened to all the lost cryptocurrencies?
The story of MtGox is full of twists and turns and it is certainly one of the most memorable in the crypto industry.
What is Mark Karpeles doing today?
According to the interview given to BFMCrypto, Karpeles announced that he is about to launch a new company UnGox which will specialize in the investigation of centralized platforms. After the fall of FTX, this seems to be a growing sector indeed.
Even if some were disappointed by Mark Karpeles, we must nevertheless show leniency as much as possible. The history of Mt Gox is complex and there are different trials within this case. You must have all these elements in mind before you can judge the person.
Final word
The adage repeated by the crypto community in particular by Andrea Antonopoulous “Not your keys, not your coins” gained momentum following this affair. It is important to know and follow the basic rules to protect your cryptocurrencies. It is best to store your cryptocurrencies in non-custodial wallets where you are in control of your funds.
See also:
- Custodial and Non-Custodial crypto wallet: What are the differences?
- Here are 12 tips to secure your seed sentence and sleep in peace
- 7 ways to protect and secure your cryptocurrencies
- The 7 most notorious criminals in the crypto industry
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Note: This is not investment advice. Always do your own research. All investments involve risks.
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