MtGox’s Implosion Could Damage Bitcoin

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Prominent Bitcoin exchange MtGox is offline, with rumors circulating of imminent bankruptcy and massive theft.

A group of Bitcoin companies (including Circle and Coinbase) issued a statement outlining MtGox’s troubles, hinting at security and “trust” issues but foregoing details. “This tragic violation of the trust of users of Mt.Gox was the result of one company’s actions and does not reflect the resilience or value of bitcoin and the digital currency industry,” it read. “There are hundreds of trustworthy and responsible companies involved in bitcoin.”

A spokesperson for that group told Re/code that MtGox will file for bankruptcy, but the publication was unable to independently verify that claim. In the interim, the price of Bitcoin has plunged by several hundred dollars, wiping out—at least on paper—the fortunes of many who’d invested substantial sums in the crypto-currency.

Meanwhile, someone connected to MtGox may have cobbled together a “Crisis Strategy” document that’s currently making the rounds online. Whether the document is authentic is difficult to verify right now, although it does point a finger at the root of the exchange’s current theft: rampant theft.

“At this point 744,408 BTC are missing due to malleability-related theft which went unnoticed for several years,” reads a key section of that document. “The reality is that MtGox can go bankrupt at any moment, and certainly deserves to as a company.”

The document proposes several steps to mitigate the chaos, starting with an effort to “immediately reduce liabilities as much as possible with partners,” followed by shutting down the exchange for a month in order to re-brand and restructure. Next step: pushing a “new branding,” along with a reset of all SNS channels—but only after MtGox places a competent team and redesign in place. “Announce a new CEO, talented developers, and trusted business people to establish a new business model,” it concludes. “Build a low-cost, profitable business again that gives customers a reason to stay (low fees, stability, etc) while we work off our debts to stakeholders.”

The key to fixing MtGox involves a fresh injection of Bitcoin, which the exchange (in theory) can use to finally clear its books—but that doesn’t resolve the core issues of “massive robbery and poor bitcoin accounting” that supposedly rotted its foundation.

Again, that document may prove inauthentic. Wired suggested that, if true, the theft of 744,408 Bitcoin is the equivalent of $350 million. Whatever the real story, two things are for certain: MtGox is in existential trouble—and if it implodes, it could deal Bitcoin’s reputation some serious harm.

 

Image: Lightboxx/Shutterstock.com

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