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Endless story: whether the Bitcoin price will bring down payment to investors MT. Gox?
Already at the end of October, the administrator for bankruptcy proceedings of Nobuaki Kobayashi will begin to consider applications for compensation for losses of creditors of the Bitcoin-Birzhi MT. Gox. By February 14 of the next year, he must provide the court with a plan for rehabilitation and reimbursement of funds.
It is expected that it is after this date that users will begin to receive long -awaited compensations, in the framework of which MT. Gox presumably distributed between investors about 160,000 bitcoins. This is a fairly impressive amount (about $ 1 billion at the current rate), and as the former investor of the exchange and the head of the Wizsec research group Kim Nilsson have already warned, the flow of payments within the framework of the civil rehabilitation program can completely bring down the market.
Nevertheless, the appearance of such a large number of bitcoins, even if investors do not rush massively selling them, but will do it in parts, can indeed be tremendous pressure on the market and lead to a decrease in the price of the first cryptocurrency.
Thus, mt. GOX, the once largest and most influential bitcoin tour in the world continues to play an important role in today’s agenda of the entire industry. In this regard, Forklog proposes to recall the chronology of its creation and collapse, as well as try to draw some conclusions from this story, where criminal stories, conspiracy theory, as well as banal negligence and adventurism of the main character of Mark Karpelsa were cunningly intertwined.
How it all began
MTGOX site.COM was registered back in 2007, and its original owner was a notorious American developer and entrepreneur Jed McCaleb, who later became the creator of Ripple and Stellar projects. It is noteworthy that the site was originally created with the aim of launching a trading platform for the fantasy games Magic: The Gathering, and that is why this name was chosen-MT. Gox meant Magic The Gathering Online Exchange.
In 2010, McCaleb was infected with Bitcoin’s “virus”, and already in July of that year the site was transformed into an exchange, whose users could put orders for the purchase and sale of cryptocurrencies, make deposits and withdraw funds. By the beginning of 2011 MT. Gox became truly popular: the daily turnover of the exchange was calculated tens of thousands of dollars, which at that time, given the low price of Bitcoin, was a very impressive indicator.
The project occupied McCaleb almost all the time, and the exchange itself has already become the object of attention of hackers, and in March 2011 it sold the website of Tibanne. The owner of this company was a French entrepreneur and developer Mark Karpels, who had previously chose Japan with his place of residence. The deal turned out to be very profitable for him – according to its conditions, Karpels actually received 88% of the share in the company, paying Mackeletes 50% of the exchange income in the first six months after the purchase.
Probably the story of exceptional negligence, which accompanied MT. Gox The whole history of the existence of the exchange, began even then. In addition to the conditions of the transaction itself unusually favorable for him, Karpels, for example, completely ignored the fact that at that time 80,000 BTC was allegedly not enough on the company’s balance sheets at that time. Some parts of the MT acquisition agreement sounded very curious. Gox, under which his signature was.
“The seller cannot say with certainty if MTGOX is responsible.COM with any applicable regulatory requirements at the federal level or at the state level or legislation of any country … The buyer agrees to provide the seller with protection from any judicial persecution against the buyer or seller regarding MTGOX.COM or anything else acquired under the terms of this agreement “.
The first serious problems
A few months after Carpels became the owner of MT. Gox, the exchange began to experience the first troubles. On June 13, 2011, the exchange announced a hacking, as a result of which 25,000 BTC was stolen from 478 accounts (about $ 400,000 at the rate at that time). Four days later, on June 17, the exchange database of users was laid out on Pastebin, but the company did not respond to this incident in any way.
On June 18, Karpels announced new identified cases of hacking accounts, and June 19 at 17:15:36 UTC on MT. Gox began a genuine drama – one of the users put down orders for the sale of several hundred thousand bitcoins. This inevitably led to the collapse of the exchange rate on the exchange: within half an hour it fell from $ 17 to $ 0.01. The largest recorded sales transaction 261383.7630 BTC $ 0.01 was made at 17:51:16 UTC – to understand the scale of the incident, it can be noted that this amount was about 4% of the 6.5 million bitcoins in circulation at that time.
Soon the news of what had happened began to spread, and within the next half hour on MT. Gox and other exchanges observed a huge volatility: the course “jumped” from $ 1 to $ 20. By that time, Karpelz finally “woke up” and began to investigate what happened. As a result, he came to the conclusion that the hacker compromised the old administrative account of McCaleb, and stopped the work of the exchange.
On the same day, a full list of MT users was posted on one of the Internet forums. Gox, their email addresses and hashs passwords. In total, the list contained data from 61,016 accounts with balances for more than $ 8.75 million. At the same time, many of the passwords were simple unprotected MD5-shashi, which could be hacked by ordinary brubors.
Events on MT. GOX also reflected on other exchanges – some of them for precautions also stopped work. At 21:00 UTC MT. GOX officially confirmed the hacking of the exchange, and also promised that all fraudulent transactions would be “unscrewed” back and the funds will be credited to the accounts of the injured users. After some time, the message followed that the scale of the damage was not so great – about 2000 BTC (about $ 30,000 at that time) were stolen in total).
June 21 MT. GOX began to accept applications from users to restore accounts, processing them manually. For this, a whole arsenal of measures was used, including the provision of old and new passwords and the verification of the mailing address. In some cases, the exchange asked to indicate the last balance known to the user on the exchange and provide copies of documents confirming identity.
June 23, wanting to demonstrate to users that MT. GOX still controls bitcoins, Mark Karpelsa carried out a transaction in the amount of 424242.42424242 BTC, transferring these funds from a cold storage to the address of the exchange. And already on June 26, a week after hacking, MT. Gox resumed the work. Fraudulent transactions were really unscrewed back at the expense of the company’s own funds. Heshi passwords were protected using the SHA-512, additional security was supposed to provide another level of user verification levels. Bitcoin was stabilized in the area of $ 16.50, no one tried to sell or withdraw large amounts anymore. It seemed that everything would be fine now.
Only an external shine
After mt. Gox coped with the first serious challenge, the work of the exchange for some time stabilized. Moreover, by 2013 it actually became the largest player in the market, processing more than 70% of all bitcoin transaction. Mark Karpels himself became an equally important figure – the Frenchman distributed numerous interviews to the leading media, and also became part of the founders of Bitcoin Foundation. The office of MT has also expanded. Gox in the fashionable Tokyo quarter Shibuya.
Nevertheless, despite external success and well -being, the company experienced serious problems of a technological and legal nature. So, shortly after bankruptcy MT. Gox her former employees in an interview with Wired said the exchange did not use any control systems based on software. In fact, this meant that one employee could accidentally change the code written by another employee, but there was simply no reliable change in the return mechanism to the working version.
It also turned out that Carpels was the only one who could approve the changes in the source code of the site, which is why the elimination of bugs and security problems could take several days, and sometimes weeks. The test environment for quality control was introduced only in the spring of 2013, almost two years after Karpelz acquired the exchange.
Moreover, MT. GOX had neither a financial accounting system, nor mechanisms for aligning offline balances to manage reserves, online balances for liquidity and balance sheets necessary for the daily work of the exchange. The reporting also complicated the paranoid desire of Carpels to store most of the bitcoins in the cold storage. As the head of MT believed. Gox, after the 2011 incident, this was supposed to be a reliable measure against hackers.
I have not escaped MT. Gox and lawsuits. In May 2013, the American company Coinlab put a lawsuit against it at $ 75 million, accusing the exchange of violation of the terms of the contract under which Coinlab was supposed to serve North American customers MT. Gox.
It is even more surprising that in the context of tightening financial control after the 2008 crisis and the events of September 11, 2011, for some reason, Karpelz was not completely concerned about the receipt of any licenses from the American authorities. And this despite the fact that a significant part of the exchange users were from the United States.
As a result, in the same May 2013, the US Department of National Security (DHS) issued an arrest warrant on the MT account. GOX, registered on the Dwolla processing service. The latter had no other way out how to obey, and in the period from May to July 2013, DHS agents seized a total of $ 5 million belonging to MT. Gox. Only on June 29, the exchange received a license from the operator of cash from the financial crime network (Fincen).
Nevertheless, collapse was inevitably approaching. August 5, 2013 MT. GOX announced without specifying the amount that she carried “significant losses” as a result of the fact that she credited the funds to user accounts, whose deposits were unconfirmed. By November of the same year, the withdrawal of funds often held users for several weeks, while trading volumes fell significantly on the exchange itself and it lost the status of a leader in this indicator.
The earth goes from under the legs, Carpels opens The Bitcoin Cafe
Paradoxically, but while around MT. GOX clouded clouds, Mark Karpels himself was literally obsessed with a new project-the opening of Bitcoin-cafe. Inspired by the concept of traditional French bistro, Karpels decided to open in the building where the exchange office was located, a stylish institution of glass and metal, where you could come to drink wine or beer and pay bitcoins through the cash register. At the same time, Karpels was proud of the fact that he personally “hacked” this device, setting it to receive cryptocurrency.
Located in the same building as the MT office. GOX, Carpels Bitcoin Cafe did not work, although about $ 1 million was invested in its opening
According to persons familiar with the circumstances of the enterprise, only in the repair of the premises and the design of Karpels invested about $ 1 million, and all this greatly distracted him from the immediate duties of managing the exchange.
“In addition to the cafe, he also loved to spend time engaged in the repair of servers, setting up networks and installing gadgets … probably, in this way he tried to get away from the problems that the company faced”, – In 2014, one of the people familiar with those events said.
The idea of carpels with bitcoin cafe, however, remained unrealized. But in the reasons for his behavior and response to the difficulties arising, should be sorted out, probably, to psychoanalysts. Nevertheless, a story that happened in the summer of 2011 during the first MT hacking in the summer of 2011 speaks of the behavioral characteristics of Karpelsa. Gox.
So, during these events, one of the friends of Karpeles turned to the entrepreneur from San Francisco Jesse Powell, who in the same 2011 founded Bitcoin-Biru Kraken. After they contacted him, Powell, having left all the things, flew to Tokyo. There, Powell was met by his friend Roger Ver, who had already managed to become famous as one of the main followers of Bitcoin by that time. Ironically, Roger Ver lived literally opposite the MT office. Gox, but without going to his house, Powell hurried to meet with Carpels to find out how he could help.
For the next week, Powell and Ver was working with Carpels, other exchange staff and several more bitcoin enthusiasts, responding to requests to the support service, eliminated the malfunctions on the site and provided another possible assistance. At some point, Powell, seeing that there was not enough equipment in the office, went to the Apple store and returned with computers for $ 5000. Nevertheless, despite all efforts, two days later, the site MT. Gox still did not work.
Having decided to continue the work in the weekend, Ver and Powell were, however, in the literal sense, they were amazed when they came to the office on Saturday and found out that Karpelsa … decided to take the weekend. On Monday, the head of the exchange returned to the workplace, but spent another part of the day, doing some kind of paper work.
“I told him:“ Dude, what are you doing? You can do this at any other time. Your site does not work and you need to start it “, – Powell recalled in 2014.
Powell met with Carpels in Tokyo once more in January 2014, when until the final collapse of MT. Gox remained a few weeks. As Powell later recalled, the future of the Karpelz exchange did not seem to be worried, but he was still enthusiastic about the idea of bitcoin-cafe.
“Probably, for him it was some kind of light in a very dark world, where he had to resolve issues with banks and customer complaints daily. I am sure that Mark was under stress for a very long time “, – said the head of Kraken.
Chronology of the greatest collapse in the history of bitcoin
February 7, 2014 MT. GOX, again suspecting the something wrong in the balance of users, completely stopped the conclusion in bitcoins, explaining this by the intention to get a “clear technical picture of currency processes”. Three days later, a press release was published, according to which the problem could lie in the plasticity of transactions [the problem that the activation of the Segwit-Forklog protocol and the likely double consumption of coins solved the activation of the protocol. To solve the problem MT. GOX, according to Karpels, turned to Bitcoin Core developers for help. Coindesk survey at the same time showed that 68% of MT customers. GOX is still waiting for the receipt of funds requested for withdrawal, and the average waiting time was from a month to three.
At the same time at the MT office. Gox began the protests of investors, the “face” of which became Colin Burges with a poster “MT. Gox, where is our money?””
Their losses in MT. Gox Colin Burges estimated at $ 300 million
February 20, referring to the need to ensure security, the exchange office moved to another place in Tokyo, and after another four days MT. Gox stopped the auction, and the exchange website stopped working.
On the same day, six other largest exchanges at that time – Coinbase, Kraken, Bitstamp, BTC China, Blockchain.Info and Circle – distributed a joint statement in which they called the actions of MT. GOX with a “tragic undermining of users’ trust” and distanced from the actions of Mark Karpelsa and his company as not reflecting the true values of the bitcoin industry.
It is noteworthy that a day earlier, Carpels left the Directors of Bitcoin Foundation without explanation. At the same time, all messages on the official twitter MT were deleted.Gox.
The denouement occurred on February 28, when Mark Karpelz called a press conference at which he announced the bankruptcy of MT. Gox. The exchange filed for protection against creditors according to the bankruptcy law, announcing that its debts to investors are about 6.5 billion yen (at that time this amount was estimated at $ 65 million). The amount of available assets MT. Gox at the same time amounted to 3.8 billion yen. It was also stated that due to “weaknesses in the system” the exchange lost 744 408 BTC, as well as about 100,000 own bitcoins belonging to customers. Together, this was about 7% of 12 million bitcoins in circulation at that time, and the total amount in dollar equivalent was estimated at $ 480 million.
“I am very sorry that it happened”, – said Mark Karpels, entrusting the guilty for the missing bitcoins on hackers.
March 11, 2014 MT. GOX has submitted to the US creditors already in the United States. By that time, collective lawsuits were already filed against the exchange in the district courts of Chicago and Illinois, in which investors accused her of fraud. Official filing for protection against creditors helped the exchange to delay the trials.
March 20 MT.GOX reported that she discovered 199 999.99 BTC in one of the old wallets used by the exchange until June 2011. According to the exchange then, she believed that these wallets were already empty, but decided to check them out again, during which she found coins, the amount of which in dollar equivalent at that time amounted to about $ 115 million.
Despite the detected bitcoins and a debt reduction of to 650,000 BTC, the appointed administrator for bankruptcy procedure Nobuaki Kobayashi considered that the process of rehabilitation of the company would be too complicated, and on April 16, 2014, the Tokyo District Court made a decision to liquidate MT. Gox.
Where is MT money. Gox?
Many investors are still convinced that Mark Carpels hid part of the funds to avoid their compensation. There are also those who insist that MT.Gox never owned the number of bitcoins, which was publicly announced, and Karpels simply painted numbers to give the exchange more weight.
Bitcoin reserve MT. Gox at the time of bankruptcy. Blue line-the expected number of bitcoins, light brown-their actual amount.
Regarding how the hackers were able to access the cold mt wallet mt. Gox, theories vary. Someone suggests that despite all the security measures, the storage could be compromised by a person who had local access to him. Others do not exclude the likelihood that the bitcoins stored there were sent to the exchange when the reserves of the hot wallet were drawing to the end. The lack of financial statements also supposedly contributed to this, which is why the exchange staff simply did not know about what was happening.
Also, the allegedly flowing internal document MT was widely discussed at one time. Gox, according to which hackers stole funds for years. The document published on February 24, 2014, Bitcoin entrepreneur Ryan Selkis, the document indicates an insolvent exchange after the loss 744 408 BTC, and also repeats the version that the reason lies in the problem of plasticity of transactions. The MT return plan is also described there. GOX to work, which involves the resignation of Mark Karpelsa and the rebranding of the platform. There are still certain doubts about the authenticity of the document, although Selkis insisted on its authenticity.
The version that the theft of funds with MT. GOX has been carried out for several years, it seems most convincing and is confirmed by a number of studies. Nevertheless, on August 1, 2015, Mark Karpels was arrested by the Japanese police. He was charged with fraud, illegal assignment of funds and manipulating a computer system with an artificial increase in account balance. He was also accused of assigning 321 million yen ($ 2.6 million) in bitcoins belonging to users and stored on the exchange in the form of deposits. According to the investigation, six months before the events of February 2014, he transferred this money to his account. Carpels spent almost a year in prison and was released in July 2016, secured by 10 million yen (about $ 95,000).
In April 2015, the WizSec research group published a report according to which a significant part of the bitcoins was stolen with MT. GOX back in 2011 – long before her collapse in 2014.
It was also noted that one of the most important issues was the uncertainty regarding whether these bitcoins were stolen or they did not exist at all, and https://gagarin.news/ua/news/madonnas-charity-nft-collaboration-with-beeple/ the recordings were forged. As the head of the group Kim Nilsson said, the coins were actually withdrawn from the exchange, which means that at a certain moment the administration of MT. Gox had access to them.
Another dedicated MT. The WizSec team presented GOX in July 2017, and it directly called the name of the main suspect in the theft of funds from the exchange. It turned out to be Russian citizen Alexander Vinnik, who was previously detained in Greece at the request of the American authorities. According to US law enforcement agencies, Vinnik has been one of the leading participants in the criminal organization, which since 2011 through the BTC-E exchange has beenhed more than $ 4 billion, a significant part of which turned out to be funds with MT. Gox.
The WizSec investigation was the result of several years of painstaking work, and the information itself was transferred to law enforcement agencies as the facts of criminal activity was revealed. The details were held in the strictest secrecy, so as not to attract the attention of the suspects and make the chances of their arrest as high as possible.
A brief resume according to Wizsec is as follows:
- In September 2011 by simple copying of the Wallet file.DAT were stolen private keys of the hot wallet mt. Gox. Thanks to this, hackers gained access to a significant number of bitcoins, as well as the ability to control the deposits coming to the exchange, which passed through a hacked wallet;
- Using compromised keys, hackers regularly devastated accounts and sent coins to wallets controlled by Vinnik. This continued with interruptions for a long time. The largest, second stage of thefts occurred in 2012 and 2013;
- By mid -2013, when the influx of consumed funds from the compromised wallet slowed down, the attackers were withdrawn from MT accounts. Gox about 630 000 BTC.
After the abducted bitcoins fell on Vinnik’s wallets, most of them were sent to BTC-E and sold to users of the exchange or used to launder illegal income, including through popular BTC codes. Thus, in total, about 300,000 BTC got on the BTC-E, some of which were translated under the guise of deposits to other exchanges, including MT itself. Gox.
MT. Gox and price manipulations
History MT. GOX would be incomplete without mentioning trading bots, which, according to some assumptions, could control Karpels himself. In May 2014, an anonymous report called The Willy Report was posted on the network. It said that the exchange actively used several trading robots, the most famous of which were Willy and Marcus. Willy posted the orders for the purchase, due to which for a long time he inflated the price of bitcoin, while Marcus was engaged in the sale and purchase of bitcoins at random prices.
The peak of the activity of these two bots fell on October and November 2013, when there was an unexpected increase in the price of bitcoin. Willy worked until the end of January 2014, buying about 100 BTC per hour at intervals of 5-10 minutes. In early December 2013, the price of Bitcoin reached its first noticeable historical maximum, exceeding $ 1100, and it is the “merit” of Willy that the course on MT.GOX was often much higher than on other sites.
Bitcoin price from September 2013 to the end of February 2014
By November 2013, these Willy and Marcus bought 570,000 BTC – a sufficient amount to seriously influence the course.
Later, researchers from Tel Aviv University and the American University of Tals in their report “Manipulation of prices in the Bitcoin ecosystem” confirmed the assumptions that MT bots. Gox was responsible for a sharp increase in bitcoin in 2013. Then the price of cryptocurrency in just two months increased from $ 150 to $ 1000, while what happened on MT. Gox also stimulated the growth of trading volume on other exchanges.
If you leave the criminal component of the history of MT. Gox, from it you can take out several lessons at once, which may be useful for both IT specialists and owners of cryptocurrency business. First of all, these are issues of leadership, people and values of the organization – they are the foundation on which the success of any enterprise is being built. No matter how individual talents in the field of programming may have McCaleb and Carpels, sufficient knowledge and experience to manage the developers and financial services team at that time.
It is also important to note that at the sad end MT. GOX is not to blame Bitcoin and its software component, but of the financial accounting systems and the inconsistent of the company to ensure security in general.
Finally, communication with clients. This aspect is always important, and it acquires even greater importance in crisis situations. If at the time of hacking mt. GOX in June 2011 The exchange notified users about this quite quickly, then during the events of the winter 2014 it took several weeks for this – an absolutely unacceptable approach when working with clients.
Nevertheless, ordinary users and primarily MT investors. Gox is now interested in the payment of compensation and how it will affect the market. Probably, increased volatility will begin on September 26, when Kobayashi reports on the state of assets MT.Gox at a meeting with creditors in Tokyo. And the more assets to the distribution, the stronger the potential pressure in the already stagnant market will be.