Have you ever heard someone say to NEVER leave Bitcoin on an exchange?
Well, Mt Gox played a very large role in this…
From 2010 until its implosion in 2014, Mt. Gox was the largest and most influential Bitcoin exchange.
It was the first popular and widely adopted exchange to allow Bitcoin trades and enabled early price discovery for Bitcoin.
Mt. Gox’s early influence on Bitcoin can not be understated.
However, Mt. Gox is famous for getting hacked and losing about $500 million worth of Bitcoin (at 2014 prices).
The theft totaled an estimated 850,000 Bitcoin which today would be worth about $6.4 billion.
Now that you have a background on what Mt. Gox was and it’s effect on Bitcoin, let’s jump into the events that occurred chronologically.
Mt. Gox was founded in 2007 by Jed McCaleb, the man who would later create Stellar XLM.
In fact Mt. Gox’s original purpose was to serve as an exchange for Magic: the Gathering trading cards. It’s from this game that Mt. Gox got its name.
When Bitcoin was released McCaleb quickly saw the value of this new cryptocurrency and retooled Mt. Gox to support BTC trading.
McCaleb didn’t run it for long, however, before selling Mt. Gox to Mark Karpelès in 2011. It was Mark who was running Mt. Gox when it was hacked.
In February of 2014 Mt. Gox stopped all Bitcoin withdrawals from the exchange. The initial claim was that this was due to a bug in Bitcoin’s code that was allowing for hackers to manipulate transaction details.
Unfortunately for Mt. Gox, Bitcoin was working fine and the nearly half-billion dollars’ worth of Bitcoin that they were missing was the result of a hack, not a flaw in BTC.
At the time Mt. Gox was handling 70% of all Bitcoin trading volume and their closure, and eventual acknowledgment of the hack, led to a 36% drop in Bitcoin price. The price didn’t recover for another two years. It is believed that about 850,000 Bitcoin were stolen, although the exact number will never be known for certain.
One of the most consistent narratives surrounding Bitcoin is its impending doom. Whether it’s going to be regulated out of existence, be 51% attacked by the Chinese government, lose its value because it’s a Ponzi scheme or whatever else, Bitcoin is constantly under attack.
Even in 2020 Bitcoin there are critics who continue to suggest that Bitcoin will soon go away (although every year it seems like fewer and fewer people are making this claim).
That being the case today, it’s easy to imagine what the narrative was like in early 2014 after the hack. Throughout the Bitcoin community there was a justifiable fear that the Mt. Gox hack could bring down Bitcoin.
After all, the nascent cryptocurrency required trust in order to function and if everyone had decided to stop trusting Bitcoin the project would have been dead. The fact that Mt. Gox didn’t end Bitcoin is actually really interesting as it shows how much faith traders and investors had in BTC even after a momentous hack.
From a long term perspective Mt. Gox serves as a focal point where the crypto community can say: this huge hack happened and the fact that BTC rebounded shows just how resilient it is. If Mt. Gox couldn’t take out Bitcoin many people feel that nothing can.
When half a billion dollars’ worth of anything disappears there tends to be some legal consequences. In this case, Mark Karpelès is facing a class-action lawsuit over the theft of the coins.
The allegation is that Mark had some understanding that Bitcoins were being stolen from Mt. Gox yet he failed to act on that knowledge and was thus complicit in the hack. This lawsuit comes after Mark has already been in and out of jail in Japan.
By the time everything is worked out in court it may amount to more than a decade of litigation and lawyers for Mark. To everyone in the Bitcoin community who was affected by the hack, this probably sounds like justice.
That being said, long term Mt. Gox may actually have been a net positive for Bitcoin as it showed how resilient the cryptocurrency is. The hack also exposed major security flaws which other exchanges, at least the well-managed ones, have learned from.