The Slow and Painful Death of the Mt. Gox Bitcoin Exchange

Illustration: Randi Klett

I've always considered the death scene in Cyrano de Bergerac to be a bit too drawn out and overly wrought. But when watching it, you at least know that Cyrano is in fact going to die, that the show will end and catharsis will be yours.

Today, I'm watching what I think may be the last gasping breaths of Mt. Gox, Bitcoin's most fabled online exchange. And yet, neither I nor anyone else seems to know whether it is actually going to die.

Last night, the Mt. Gox rumor mill caught fire and exploded. Kindling for the blaze was supplied at around midnight when a mysterious and unverified document surfaced on Ryan Galt's blog, "The Two-Bit Idiot." The document, which allegedly originated from within Mt. Gox (a claim which Galt has not been able to prove) details the finances of the Mt. Gox Bitcoin exchange and outlines a strategy for its gradual re-entry into the market. It claims that, over a period of several years, theft and incompetence drained the company of more than 744 000 bitcoins. The theft was blamed primarily on a flaw in the Bitcoin software, called transaction malleability, which Mt. Gox highlighted earlier this month but which the core developers of the Bitcoin protocol have understood for many years. If the numbers in the document are correct, the amount of lost coins adds up to a staggering six percent of the total bitcoins in circulation.

And now, everyone who has money tied up in the Mt. Gox exchange has nothing to do but wait and see whether the rumors are true. Mt. Gox itself is remaining defiantly taciturn. The company has deleted the entire history of tweets from its official Twitter account and just this morning, after initially disabling its website, Mt. Gox has put it back up with a short message that, in essence, says absolutely nothing.

Dear MtGox Customers,

In the event of recent news reports and the potential repercussions on MtGox's operations and the market, a decision was taken to close all transactions for the time being in order to protect the site and our users. We will be closely monitoring the situation and will react accordingly.

Best regards,
MtGox Team

Other Bitcoin companies seem to know more about what is going on behind the curtain at Mt. Gox, but as yet, none have gone on record to definitely accuse Mt. Gox of being insolvent. Today, Coinbase, a bitcoin wallet provider located in San Francisco, published a joint statement signed by the CEOs of five influential Bitcoin companies (including Mt. Gox's main competitors, Kraken, BitStamp, and BTC China).

They write, "as with any new industry, there are certain bad actors that need to be weeded out, and that is what we are seeing today. Mtgox [sic] has confirmed its issues in private discussions with other members of the bitcoin community."

However, the statement neglected to elaborate on what those issues were. Instead, it looked to the future. "We strongly believe in transparent, thoughtful, and comprehensive consumer protection measures. We pledge to lead the way."

The comments were clearly calibrated to shore up confidence in a community of rattled investors. These most recent disruptions arrived just as the value of Bitcoin was floating high at around US $800. Today, it has crashed down around $500.

Since the document in question was published, Bitcoiners have rallied on both sides, either calling it a fake or embracing it as the evidence they've been needing. After a day spent parrying threatening emails and a deluge of backlash in the comment section of his blog, Galt, who also writes about Bitcoin for CoinDesk, is standing by his decision to publish the document. Galt claims to have sold all of his own bitcoins shortly after acquiring the leaked document.

At this point, it doesn't even matter whether it is a fake. At the very least, it is a reflection of what everyone fears. And today, those fears are ruling the market.

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