Top Bitcoin exchange MtGox goes offline

Tuesday 25 February 2014 23.34
Wild volatility has long been a part of bitcoin, which does not have the backing of a central bank
Wild volatility has long been a part of bitcoin, which does not have the backing of a central bank

Mt. Gox, once the world's biggest bitcoin exchange, abruptly stopped trading today and its chief executive said the business was at "a turning point".

The news sparked concerns about the future of the unregulated virtual currency.

Several other digital currency exchanges and prominent early-stage investors in bitcoin responded with forceful statements in an attempt to reassure investors of both bitcoin's viability and their own security protocols.

The website of Mt. Gox suddenly went dark todat with no explanation, and the company's Tokyo office was empty.

The only activity was outside, where a handful of protesters said they had lost money investing in the virtual currency.

Hours later, Mt. Gox CEO Mark Karpeles said in an email: "We should have an official announcement ready soon-ish. We are currently at a turning point for the business. I can't tell much more for now as this also involves other parties."

He did not elaborate on the details or give his location.

Bitcoin has gained increasing acceptance as a method of payment and has attracted a number of large venture capital investors.

At a current price of about $517, the total bitcoins in circulation are worth approximately $6.4bn.

Investors deposit their bitcoins in digital wallets at specific exchanges, so the Mt. Gox shutdown is similar to a bank closing its doors - people cannot retrieve their funds.

A document circulating on the internet purporting to be a crisis plan for Mt. Gox said more than 744,000 bitcoins were "missing due to malleability-related theft", and noted Mt. Gox had $174 million in liabilities against $32.75 million in assets.

It was not possible to verify the document or the exchange's financial situation.

If accurate, that would mean approximately 6% of the 12.4 million bitcoins minted would be considered missing.

A statement on Bitcoin's website said, "In the event of recent news reports and the potential repercussions on MtGox's operations and the market, a decision was taken to close all transactions for the time being in order to protect the site and our users.

"We will be closely monitoring the situation and willreact accordingly."

The digital currency has caught the eye of regulators concerned with consumer protections and bitcoin's use in money laundering.

Benjamin M. Lawsky, Superintendent of Financial Services for the State of New York, said in a statement, that while all of the facts surrounding Mt. Gox are "not yet clear, these developments underscore that smart, tailored regulation could play an important role in protecting consumers and the security of the money that they entrust to virtual currency firms."

Mr Lawsky said last month that he planned to issue rules for businesses handling virtual currencies.

Mt. Gox halted withdrawals earlier this month after it said it detected "unusual activity on its bitcoin wallets and performed investigations during the past weeks".

The move pushed bitcoin prices down to their lowest level in nearly two months.

Even with the halt on 7 February, Mt. Gox still handled more transactions than any other in the past month.

Over the past 30 days, Mt. Gox has handled more than one million bitcoin transactions denominated in dollars, or about 34% of activity, according to Bitcoincharts, which provides data and charts for the bitcoin network.

Critics of the exchange, from rivals to burned investors, said the digital marketplace operator had long been lax over its security.

Investors in bitcoin, who have endured a volatile ride in the value of the unregulated cyber-tender, said they still had faith in the currency despite the problems at Mt. Gox.

"Mt. Gox is one of several exchanges, and their exit, while unfortunate, opens a door of opportunity," The Bitcoin Foundation, the digital currency's trade group, said in a statement.

"This incident demonstrates the need for responsible individuals and members of the bitcoin community to lead in providing reliable services."             

United Kingdom-based Bitstamp, the second-largest bitcoin exchange by volume, said on its website that it had done an audit of its systems and that it was not subject to the same kind of "malleability" that "was apparently exploited at Mt. Gox."

Similarly, BTC-E, another exchange, assured investors that it has "no vulnerabilities during client transactions".

Bitcoin has been a roller-coaster of late, rising and falling dramatically, sometimes on an intraday basis, and its price varies greatly depending on the exchange.

The program that runs the currency has been the target of hackers disrupting transactions recently.

The Mt. Gox bitcoin, which traded at $828.99 before 7 February, when the exchange halted withdrawals, since plunged 83.7% to $135.

At Bitstamp, the price hit a low of $400 today, down 40% since 7 February. It had recovered lately to $517.

Bitstamp has had more than 800,000 US dollar transactions in the past 30 days, according to Bitcoincharts.

In the past two days, Bitstamp has handled more volume than Mt. Gox.

Mt. Gox was a founding member and one of the three elected industry representatives on the board of the Bitcoin Foundation.

A bitcoin exchange since 2010, Mt. Gox is a relatively old player, having grown quickly when there were few alternatives.