Bitcoin
Mt. Gox Bitcoin Billions Are Being Refunded — How We Got Here
Extinct Bitcoin Cryptocurrency exchange Mt. Gox has been preparing to pay back creditors, more than a decade after the company went bankrupt. In recent weeks, the company has been preparing to return billions in Bitcoin to users, and recently said it has begun making some of those payments.
While this is cause for celebration for impacted users, it has also raised concerns in cryptocurrency markets. This is because many market participants expect the refunded Bitcoin to be immediately sold by creditorsas they had been broke for over 10 years, waiting patiently as the price of Bitcoin skyrocketed during that time.
But a decade is a long time, and the throngs of crypto users who have entered the industry in recent years may not be familiar with the infamous story of Mt. Gox. How did it go bankrupt, and how will Bitcoin refunds work? Here’s what you need to know.
What was Mount Gox?
Mount Gox was the largest in the world Bitcoin Exchange at one point. Based in Tokyo, the company was estimated to be responsible for 70% of Bitcoin trading volume in 2013. Mt. Gox CEO Mark Karpeles said Reuters in a now deleted report that the exchange received $5 million to $20 million in incoming transfers every day.
Launched in 2010, the site was originally an online marketplace for trading physical Magic: The Gathering cards; with Mt. Gox being a shortened version of “Magic: The Gathering Online Exchange.” Soon, the site added the ability to exchange cash for Bitcoin, effectively putting card trading on hold for good.
Exchange employees had the option to be paid partially in Bitcoin, but Karpeles said he stressed that one should not invest “more than one can afford.”
Bitcoin was extremely new at the time. It was launched in 2009, but it wasn’t until 2010 that trading really began. Then, in 2013, the cryptocurrency started the year valued at $13, rising to US$1,100 by the end of the year. But with this rise to popularity of Bitcoin regulatory nightmares have emerged for the world’s largest exchange.
How did Mt. Gox go bankrupt?
In the summer of 2013, Mt. Gox was charged by the U.S. Department of Homeland Security with failing to register as a “money transmitting business.” As a result, $5 million in Mt. Gox funds seized. Later in the year, the exchange partner Coin lab sued Mt. Gox for allegedly failing to fulfill the terms of the agreement.
In February 2014, the exchange revealed that it had been the target of years of unnoticed hacks. Malicious actors were able to edit transaction IDs due to a Bitcoin Vulnerability so-called “transaction malleability”, which has since been addressed through Resolution 2017 SegWit Soft Fork. The vulnerability allowed criminals to manipulate the exchange without its knowledge, apparently for years, and steal customer funds all the while.
As a result, 850,000 Bitcoin were lost — almost 7% of all Bitcoin that existed at the time. It was worth it 475 million dollars at the time, but at today’s rate that would be worth more than $49 billion.
When suffering the attack, the the exchange went offlinecausing Bitcoin Price fall sharply. Investors were angry and demanded answers. Karpeles then said the exchange would “find a solution.”
Ultimately, that solution was to file for bankruptcy, citing liabilities of $64 million while having just $38 million in assets — a difference of $28 million. The company had 127,000 creditors in the bankruptcy, according to a Reuters Reportof which only 1,000 were based in Japan.
The Japanese bankruptcy filing then stated that Mt. Gox owed creditors $63.5 million. But the company wasn’t even halfway to getting that amount of money, as $5 million of its assets were held by CoinLab as part of its ongoing case at the time. Another $5.5 million was being held by the U.S. Department of Homeland Security.
“We will make every effort to ensure that crimes are punished and damages are recovered,” Mt. Gox said later. he said.
Explanation about creditor refunds
In 2023, the US Department of Justice accused two Russian citizens with “conspiring to launder approximately 647,000 Bitcoins from their Mt. Gox hack,” which happened in 2011. In the process, 140,000 Bitcoins were recovered—or more than $8 billion at today’s prices.
Now, more than a decade after the stock market crash and after a series of term extensionsMt. Gox creditors are entitled to a refund. According to a Note of June 24thcreditors will start receiving payments in Bitcoin and Bitcoin Cash.
“We have taken the time to ensure safe and reliable repayment to creditors, including technical solutions for safe repayments, compliance with financial regulations in each country, and discussion of repayment arrangements with cryptocurrency exchanges,” Mt. Gox Rehabilitation Administrator Nobuaki Kobayashi said in the statement.
Since then, Mt. Gox moved billions of dollars value of Bitcoin across wallets as it prepares to execute refunds ahead of the October 31 deadline. At the time of writing, a Arkham Intelligence identified that the Mt. Gox wallet contains over $8 billion worth of Bitcoin.
Mt. Gox began refunds on July 5, according to a note of the rehabilitation trustees, while noting that the process will take time to confirm all details of eligible creditors. “We ask eligible rehabilitation creditors to please wait a little while,” the note reads.
Edited by Andre Hayward