In the early days of cryptocurrency, it was seen as a game-changing innovation that would change the financial landscape forever.
Bitcoin, the first and best known cryptocurrency, was created as a decentralized currency that would be safe from fraud and hacking. However, over the years the security of cryptocurrencies has come into question, with several high-profile hacks and scandals leaving investors in turmoil.
The most infamous of these is the MtGox hack.
MtGox, which stands for Magic the Gathering Online eXchange, was originally created as an online Magic the Gathering card trading platform. However, it quickly expanded to include Bitcoin trading.
In 2014, MtGox suddenly collapsed and its users were reeling. It was soon revealed that the exchange had been hacked, with around 850,000 Bitcoin (worth around $450 million at the time) stolen from its wallets.
Well, the question arises here, how did this hack happen, what were the flaws in the system and what happened to bitcoin?
So let’s dive into one of the most tragic events in the history of digital currencies, namely “The MtGox Exchange Hack”.
Let’s start unfolding the story!!
The rise of MtGox
In 2010, Jed McCaleb, a programmer and early Bitcoin enthusiast, created MtGox, short for “Magic: The Gathering Online Exchange”. The exchange was originally designed to facilitate the trading of cards for the popular fantasy game, but McCaleb soon realized Bitcoin had greater potential.
In March 2011, he sold the exchange to Mark Karpeles, a French software engineer, who shifted his focus to include Bitcoin trading. Under Karpeles’ leadership, MtGox quickly became the dominant player in the Bitcoin market, handling over 80% of all Bitcoin transactions at its peak.
The exchange was based in Tokyo, Japan, and its success was attributed to its low trading fees and user-friendly interface. MtGox also played a key role in Bitcoin’s early growth, helping popularize the currency and attracting new investors.
By 2013, MtGox was processing over $100 million in Bitcoin transactions every month, and its user base had grown to over a million.
But within just a few months, the exchange began dealing with a destructive hack that would change the course of its history and the entire cryptocurrency industry, resulting in the theft of 850,000 bitcoins and the business bankruptcy.
How did it happen?
It was the year 2011, the MtGox hack began, with the first signs of suspicious activity reported by customers.
However, it wasn’t until February 2014 when MtGox suddenly suspended all trading, claiming it had discovered a bug that allowed hackers to manipulate the price of Bitcoin on its platform.
As of June 13, 2011, the true extent of the hack has been revealed and so far hackers have been able to steal 850,000 bitcoins, worth over $450 million at the time, from the exchange.
The impact of the hack was significant, later MtGox filed for bankruptcy and was forced to shut down, leaving its users without access to their funds. At the time of the hack, MtGox only had 200,000 bitcoins in its possession, and the rest was lost to the hack.
This led to a shortage of bitcoins on the exchange and a subsequent drop in the price of BTC from $850 to $450 was seen in just a few days and caused many investors to lose confidence in the industry.
In response to this incident, many users protested on the streets and raised doubts about the security of the MTGox exchange.
MtGOX, where is our money?
MtGox, are you Solvent?
MtGox, don’t blame Bitcoin for your bad code?
Until today, the full details of the hack are still unclear, but it is believed that the hackers were able to access MtGox’s “hot wallet” (an internet-connected wallet) and steal the bitcoins.
Some experts have also suggested that the hack may have been an inside job, as the hacker was able to easily navigate the system and avoid detection.
After the hack, authorities launched an investigation into the incident, but the exact details of the hack and the identities of the hackers remain unknown.
Later, a trustee was appointed to handle the bankruptcy process, with company CEO Mark Karpeles facing criminal charges in Japan.
Multiple efforts have been made to recover the stolen funds, with some of the funds being returned to users. However, a significant amount of stolen Bitcoins are missing so far.
Mount Gox Rehabilitation Plan Timeline
Several self-regulatory bodies were also formed following the incident, such as the Japan Virtual Currency Exchange Association (JVCEA), established in April 2018 to provide a safe and secure environment for the crypto industry.
April 16, 2014, Mt. Gox filed for bankruptcy in Tokyo District Court and was later ordered into liquidation in April 2014. Additionally, court-appointed attorney Nobuaki Kobayashi is currently a trustee in bankruptcy, supervisor, and investigator.
Later, on November 24, 2017, some of MTGOX’s creditors filed a petition to initiate civil rehabilitation proceedings against MTGOX with the Tokyo District Court.
It was to explain the why they filed an involuntary motion for the initiation of civil rehabilitation proceedings concerning Mt. Gox, which is in the process of bankruptcy.
On June 22, 2018, the Tokyo District Court issued an order start of civil rehabilitation procedure for MTGOX. As a result, the current bankruptcy proceedings have been suspended. In addition, an administrative order was also issued by the Tokyo District Court, which appointed a civil rehabilitation attorney for the ongoing rehabilitation proceedings.
In 2019, the Tokyo District Court ordered that the bankrupt exchange’s remaining assets be used to pay off its creditors. Finally, due to the high number of requests for rehabilitation, the rehabilitation trustee requested a extension of submission deadlineto allow for the adoption of appropriate repayment terms and measures.
Later, on October 20, 2021, the Notice of Confirmation of the Rehabilitation Plan Order was issued and an announcement was made to the Rehabilitation Creditors regarding the procedures and the amount of these repayments.
Subsequently, the rehabilitation trustee asks all rehabilitation creditors to register their bank account information and other information on MtGox online deposit system.
However, on October 6, 2022, the Rehabilitation Trustee launched a feature allowing creditors to select a repayment method and save beneficiary information on the MTGOX online pardon application filing system
Since the deadline stated in the notice was January 10, 2023 (Japan time); any creditor who wishes to receive reimbursement must complete the selection and registration on the system before this deadline.
However, later this the deadline has been changed as of March 10, 2023 (Japan time); given various circumstances such as the progress of rehabilitation creditors with respect to screening and registration.
The process of distributing these assets to creditors, known as the civil rehabilitation process, is still ongoing, and it is unclear when the distribution of funds will be completed.
Still, a few of the key dates announced for the rehabilitation plan were July 31, 2023 (Japan time) to September 30, 2023.
However, the creditor repayment process is complex and time-consuming, as the trustee must verify each creditor’s claims and ensure that the funds are distributed fairly.
Creditors can check the status of their claims on the MtGox website, and they will be notified when the distribution process is complete.
Lessons Learned from MtGox Hack
It was all in the MtGox Exchange Hack, which rocked the cryptocurrency world and remains one of the greatest hacks in history. The lessons learned from the hack are numerous and have played an important role in shaping the security and regulation of cryptocurrency exchanges.
Since then, the cryptocurrency industry has grown and matured, with the development of robust security measures and the implementation of stricter regulations and oversight.
After this historic event, many crypto companies now have insurance policies to protect client assets. The hack served as a reminder of the need for better security measures in the crypto industry and the importance of being careful when choosing an exchange to trade on.
While this is a quick wake-up call for the industry and highlights the importance of security in the cryptocurrency space, every exchange should implement security measures. robust security to protect their users’ funds.
The MtGox hack was a watershed moment for the cryptocurrency industry. He exposed the vulnerabilities of centralized exchanges and highlighted the need for better security measures. It also shattered the trust of Bitcoin investors, who believed their digital assets were secure.
The fallout from the MtGox hack is still being felt today. The exchange declared bankruptcy in 2014 and its users have been fighting for compensation ever since. The incident also had a profound impact on the cryptocurrency industry as a whole, prompting tighter exchange oversight and regulation and highlighting the need for better security protocols.