Bitcoin exchange Mt Gox has stopped operations and according to a leaked document 744,408 Bitcoin worth $375 million are missing due to malleability-related theft which went unnoticed for several years. This comes days after the company’s CEO Mark Karpeles resignation from the Bitcoin Foundation board.
According to the same document, Mt Gox will be relaunched under a new name later this year after fixing several issues that has been facing for the past several months. It will also have a new leadership team headed by a different CEO and will try to recover the stolen Bitcoins. The latter part will be very difficult considering the way crypto-currencies work, but it’ll be an achievement if they manage that.
Update: The company has issued the following statement on the website
Dear MtGox Customers,
In light 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.
Mt Gox had halted withdrawals last month citing some bugs in Bitcoin code and was criticised by all the other companies dealing with the virtual currency as this vulnerability did not affect the operations of any other exchange. The exchange has been facing issues since November when transactions were being delayed by weeks and around the same time the company was frozen out of the US banking system because of regulatory concerns.
Bitcoin community has issued a joint statement on the issue reassuring Bitcoin owners. “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 has confirmed its issues in private discussions with other members of the bitcoin community. We are confident, however, that strong Bitcoin companies, led by highly competent teams and backed by credible investors, will continue to thrive, and to fulfill the promise that bitcoin offers as the future of payment in the Internet age,” the statement read.
Over the coming days, Coinbase, Kraken, BitStamp, Circle, and BTC China will work as a team to publicly reassure customers and the general public that all funds continue to be held in a safe and secure manner.
What this means for Bitcoin community
The issue might be isolated, but it highlights the problems with maintaining your Bitcoin wallet at an exchange. The sensible thing to do would be to separate the two and maintain an offline backup of your wallet, in case the e-wallet service you use goes offline. There are plenty of players in the market right now and most of them have a stronger technical foundation that Mt Gox. The only reason people continued to use it was because of its massive user base that wanted to buy or sell Bitcoins.
Now that the service has gone offline it gives the other players the chance to grab a few customers and establish themselves as a stronger player in the market. As a consumer, it is a good time to check out other wallet services and exchanges, to figure out which among them has the most convenient and secure set up.
The value of Bitcoin has been very volatile, mostly due to the stand taken by various countries against the currency. Its price shot up to $1,200 after a positive nod from US government last year, but sank to $554 when China raised questions and banned its use as currency, the currency regained some value within a month. It has been a down slide since then, due to issues at Mt Gox and is currently worth less than $500.
That said, the market could recover over the next two months if the other players in the ecosystem can continue operations without a major hiccup.
Time for central banks to step in? Crypto-currency by its nature cannot be regulated by central banks, but as I had written earlier it is important that central banks join the ecosystem to monitor the activities of such exchanges to ensure that such an incident does not happen ever again.
In India, RBI has done a commendable job in ensuring financial health of banks in the country and they could play a similar role with virtual currencies as well. In the past it has warned against the risks of using Bitcoin, but may be it needs to be proactive instead of distancing itself from the currency.