Mt. Gox was the biggest bitcoin company in the world…until it lost everyone’s money


bitcoin

The stock market is cool and all, but it’s no bitcoin. Sure, buying stocks is interesting and will help you save for retirement. At the same time, bitcoin and other cryptocurrencies are hip, new, and growing at an absurd rate.

Bitcoin is also an incredibly risky investment. There have been several times when bitcoin shot up in value, only to decrease by a larger amount in the same day. Since bitcoin is new, there aren’t years of data behind how it functions over time, unlike the century-old stock market.

Perhaps what’s scariest about bitcoin is how easy it is to lose your coins. If you don’t have your virtual wallet on a secure platform, you’re practically begging hackers to take your coins. Though the big bitcoin exchanges do everything to keep your coins secure, there’s always someone trying to gain access to them by any means necessary.

This is what happened to Mt. Gox. Once the world’s largest bitcoin exchange, the Japan-based bitcoin site is now a cautionary tale on what to avoid in the cryptocurrency world. Perhaps what’s more terrifying is how other exchanges could suffer the same fate.

Mt. Gox started off as a Magic: The Gathering website.

Mt. Gox began as Magic: The Gathering Online Exchange, a digital marketplace that allowed players of the online card game to trade in-game cards as if they were stocks. The founder, Jed McCaleb, then pivoted the site into a bitcoin exchange after learning about the growing popularity of the cryptocurrency. McCaleb transferred ownership of the site to Mark Karpeles, a Japan-based French developer, who made the site into a well-known brand.

Mt. Gox used to handle 70% of all bitcoin transactions in the world.

Between 2013 and 2014, Mt. Gox was the bitcoin exchange cryptocurrency junkies used to get their fix. At the time, this meant handling nearly half a billion dollars’ worth of accounts. Today, this would translate to $29.33 billion worth of bitcoin.

Bitcoin traders and investors could buy, sell, and store bitcoins using the site’s services. Though users were able to spend and withdraw money through the site, the service was plagued with several hacking attacks and loss of millions in digital currency. They also faced issues with the U.S. government, their payment processor, and other site partners that made using the site increasingly difficult.

Mt. Gox eventually went belly-up…and took their users’ money with them.

As Mt. Gox’s banking and processing partners received pressure from the Japanese and U.S. governments, withdrawing from the site become next to impossible. In February of 2014, Mt. Gox halted withdrawals entirely, keeping users’ finances tied up with the service indefinitely. Users had waited for months to receive the money they were owed from bitcoin sales, and Mt. Gox did not specify when their withdrawals would go through.

In late February, Mt. Gox disappeared overnight. The company allegedly lost 744,408 bitcoins in a major security breach, along with hundreds of thousands of the company’s own bitcoin, rendering them insolvent. Though a portion of the coins were recovered over time, most are still lost to this day. Many users blame Karpeles for outright theft of the coins, though some evidence points to security breaches from outside parties. The owners of these coins can only hold out hope for their (unlikely) recovery.

Can this happen again?

Yes and no. There are numerous bitcoin exchanges that operate in the U.S. and beyond, some more reputable than others. Coinbase, for instance, has venture capitalist backing, anti-theft security measures, and a sizable paper trail to prevent them from defrauding their customers. Gemini is smaller than Coinbase, but also operates as a legitimate business with similar security protocols. Both sites offer things like insured deposits and outgoing bitcoin transfers in case they stop operating.

Smaller exchanges exist and offer similar features to these two services. Yet  these bitcoin businesses have less funding and aren’t as transparent about how they operate. They could be totally legitimate, or exist for the sole purpose of slowly siphoning your money. By putting your money with small, less reputable bitcoin exchanges, you risk losing your coins just like Mt. Gox users.

How should you invest in bitcoin?

If you want to invest in cryptocurrencies like bitcoin, stick with the big, established players in the field. Coinbase makes it easy for U.S.-based users to buy, spend, and sell bitcoin around the clock. It’s worth noting that the service is consistently plagued with server and loading issues, as its service is immensely popular. If you’re looking to invest long-term and don’t want to sell your coins on the regular, Coinbase will do just fine.

To learn more about bitcoin and how to use it, check out our beginner’s guide here.


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