What the Heck Is Up With Mt. Gox, Bitcoin?

By Bill McGuire

Feb 26, 2014 10:19am
AP bitcoin japan protest 2 sk 140226 16x9 608 What the Heck Is Up With Mt. Gox, Bitcoin?

Bitcoin trader Kolin Burges, right, of London and American Aaron (only his first name was given) hold protest signs as they conduct a sit-in in front of the office tower housing Mt. Gox in Tokyo, Feb. 25, 2014. Credit: Kaori Hitomi/AP Photo

Mt. Gox, the largest exchange for the virtual currency Bitcoin, collapsed this week – casting doubt on whether Bitcoin can ever be the safe, secure form of exchange its backers had envisioned.

What went wrong?
The folks at Tokyo-based Mt. Gox aren’t saying, but reports indicate they’ve lost hundreds of millions of dollars worth of Bitcoins to scammers. Mt. Gox, which served as a central place to trade and store the currency, lost 12.4 million Bitcoins valued at $380 million, Reuters reported. Hackers were apparently able to game the firm’s trading system to trick it into thinking that a transaction hadn’t gone through, then have a coin reissued. Using this method, they slowly bled millions of coins out of the exchange.

What can investors do to get their money back?
Mt. Gox isn’t saying, though officials in Japan are investigating, according to the Associated Press.  The Wall Street Journal reported that the virtual currency’s exchange had received a subpoena from federal prosecutors in New York. But the way Bitcoin works makes it difficult for Mt. Gox — or anyone else — to retrieve the stolen goods because they can be electronically transferred far from where they first landed after leaving Mt. Gox.

Was there any warning that hackers had invaded the system?
Bloomberg News reported that customers had been having trouble for months with getting their Bitcoins out of the system and all withdrawals were halted at the beginning of February. The exchange closed on Tuesday. Mt. Gox had said that it was having technical issues with the system weeks ago, though it didn’t elaborate.

What does Mt. Gox say about all this?
Not much. Mark Karpeles, CEO of Mt. Gox, in an update on the company’s  site, said he’s still working to find a solution to the exchange’s woes. “I would like to use this opportunity to reassure everyone that I am still in Japan,” he said. “Furthermore I would like to kindly ask that people refrain from asking questions to our staff: they have been instructed not to give any response or information.”

What has this done to the price of Bitcoins?
It hasn’t been pretty. The coins traded at around $560 today – down from more than $1,100 before the exchange’s troubles became fully apparent.

What are Bitcoins anyway?
We’re glad you asked. Click here for a primer from ABC News.

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