Mt. Gox is a bitcoin exchange platform based in Shibuya, Tokyo, Japan. It was launched in July 2010. From 2013 to 2014, it handled more than 70% of all bitcoin (BTC) transactions worldwide, as the largest bitcoin intermediary and the leading bitcoin exchange in the world. In February 2014, Mt. Gox stopped trading, closed websites and exchange services, and filed bankruptcy protection against creditors. In April 2014, the company was declared bankrupt.
Mt. Gox announces that about 850,000 bitcoins owned by customers and companies have been lost and possibly a total of more than $ 450 million stolen at the time. Although 200,000 bitcoins have been “discovered”, the reasons for this loss, theft, fraud, mismanagement, or combination – are initially unclear. New evidence presented in April 2015 by Tokyo security company WizSec concludes that “most or all of the lost bitcoins have been stolen directly from Mt.Gox’s hot wallet, beginning in late 2011.
The Fall of the MT Gox Exchange
Launched in 2010 by US programmer Jed McCaleb (who later discovered Ripple), Mt Gox has grown to become the world’s most popular bitcoin exchange after being bought by French and bitcoin enthusiast Mark Karpelés in March 2011 after McCaleb sold the site to them. saying “to really make Mt. Gox potentially take more time than I have right now, so I’ve decided to give it to someone better who can take it to the next level. Miraculously, the name Mt Gox is made up of the name” Magic: The Gathering Online Exchange “.
Mt. Gox’s exchange was hacked in June 2011, due to a computer compromised by the auditors of the company. On that day, the hackers used their exchange access to convert the original value of bitcoin to one cent and then transferred to their own account the approximate 2,000 bitcoins from the account of the customer on the exchange. The perpetrator then sold at market prices all the stolen bitcoins.
In addition, Mt. Gox customers bought about 650 bitcoins from the exchange at a low price, none of which was returned. Mt. Gox has taken a number of security measures as a result of this incident, including restricting large amounts of its bitcoin taken offline and stored in “cold storage.” While this hacking took place in June 2011, by 2013 Mt. Gox has established itself as the world’s largest bitcoin exchange, partly as a result of rising interest in bitcoin as coin prices rise (jumping from $13 in January 2013 to over $1,200).
Impact Of Hacking Incidents.
Even Mt.Gox has grown rapidly to become the world’s largest bitcoin exchange in 2013, it is behind the scenes. Since the fall, several Mt.Gox employees have shared how Mt. Gox has been operating, with pictures painted of disorganized and accidental organizations, with poor security procedures, serious issues related to the website’s source code and some serious issues arising in connection with business operations.
Former business partner Mt. Gox called Coinlab in May 2013 suing the company for $75 million, alleging contract breach. Both companies have signed an agreement that Coinlab will take over Mt. Gox customers in the U.S. but, according to Coinlab’s claim, the deal did not materialize because Mt. Gox contravened the contract’s provisions.
Moreover, the U.S. Homeland Security Department is investigating allegations that a U.S.-based Mt. Gox company is not licensed and therefore acts as an unregulated money transmitter. As a result of this investigation, the U.S. government seized more than $5 million from the bank accounts of the company.
Mt. Gox has declared a temporary suspension of US dollar production as a result of the U.S. investigation. Although this suspension is listed for only one month, most consumers have up to 3 months lag in withdrawing cash from their accounts and several withdrawals from the US dollar have been resolved. All of these delays resulted in Mt. Gox lost its place as the world’s largest bitcoin exchange by the end of 2013, falling to third place. However, it turns out the issue is very big and serious. Mt. Gox has bigger problems than it knows. It has been a victim of hacking for over two years.
Mt. Gox revealed on its website in March 2014 that it had discovered 200,000 bitcoins in old-format digital wallets used by the exchange prior to June 2011. Those bitcoins remain on creditors ‘ side while the company is under the security of bankruptcy. In August 2015, Mark Karpelés was arrested in Japan and charged with fraud and embezzlement, although none of these allegations are significant.He was imprisoned until July 2016, when he was released on bail. He pleaded not guilty to the charges and his trial is still in progress. Mt. Gox is still under protection from bankruptcy, and the case is still under investigation. Furthermore, the CoinLab litigation remains outstanding and distribution to creditors can not take place until the lawsuit has been settled.
Where did the coin go?
As a result of the Mt. Gox hack, 650,000 bitcoins remain unaccounted for. There have been developed a number of online hypotheses as to where the missing coins are. Others speculated that Mt. Gox never had the amount of coins it claimed, and that Karpelés had manipulated the numbers to make it look like Mt. Gox had more bitcoin than it actually held.
In respect of how the hacker was able to access the bitcoins that Mt. Gox held in cold storage, the theories range from suggestions that the storage may have been compromised by an individual with on-site access to suggestions that the cold storage coins were gradually deposited into the Mt. Gox exchange system when a hot wallet ran low, and that a lack of accountability among staff simply meant that there was no awareness that the wallets were being drained by hackers.
In July 2017, a Russian national named Alexander Vinnik was arrested by US authorities in Greece and charged with playing a key role in the laundering of bitcoins stolen from Mt. Gox. In additional Vinnick was charged by Greek authorities for laundering of approximately $4 billion in bitcoin.
Vinnick is alleged to be associated with BTC-e, a well-established bitcoin exchange, which was raided by the FBI as part of the investigation. The BTC-e site has been shut down and the domain has been seized by the FBI, the first time the US government has seized a foreign exchange on foreign soil. Investigations by Wizsec, a group of bitcoin security specialists, had identified Vinnik as the owner of the wallets into which the stolen bitcoins had been transferred, many of which were sold on BTC-e.
With the trial of Mark Karpelés ongoing in Japan and the indictment against Vinnik, it would appear that the separate strands of the investigation into the Mt. Gox hack are finally coming together. Whether any of this will result in the recovery of all or any of the stolen bitcoins remains to be seen, but it does appear that we will have at least some clarity into the Mt. Gox hack in the near future.
What users should learn from these hacks ?
The most of the cryptocurrencies were stolen from low-security, hot wallets – wallets that are constantly maintaining an internet connection. Also, most of the high-profile attacks happened due to security vulnerabilities of the service providers. Furthermore, six out of eight hacks were exchanges, meaning that these services remain highly targeted by hackers. Unfortunately, most of the victims of these attacks never got their funds back. That’s why users have to be extra careful where to store the funds.
Cryptocurrencies and blockchain technology gives users the financial freedom that they have desired for a very long time. However, this liberty comes with great responsibility. Unlike the fiat world, there are no third parties – such as banks or credit card companies – which will issue user a chargeback when they get hacked. And if the user send a crypto transaction to the wrong address, no one will refund or return that to them. Therefore, everyone has to take responsibility for their funds and should consider security as the very first priority.
So, how to be secure in the crypto world? :
- Don’t use hot wallets (such as exchange wallets) in the long term, only for a short time while exchanging funds or trading. After finished with that, withdraw the funds to a safe wallet.
- Use a wallet that offers cold storage and has great security. If user have the budget – though they are not that expensive – consider buying a hardware wallet.
- Do due diligence on every service that have been using or want to use. Before using a service or a product, check for reviews on forums – such as Reddit or Bitcointalk – and social media.
If users are not sure about something, ask questions on forums or social media.
- And last, but not least, use common sense. If something seems too good to be true (e.g., send 0.1 BTC to this address to get back 10 BTC instantly), it probably is.
Soon we will explain more about the biggest hack incident in the cryptocurrency history. Stay tuned for more updates.
Photo Credit : Reuters, hdqwalls.com
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