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Mt. Gox, the troubled Bitcoin exchange that suspended operations following allegations of financial woes and lax security, today filed for bankruptcy protection in Japan. The company confirmed that it has lost roughly $473 million worth of bitcoin; some of its own bitcoins (100,000 BTC) were stolen, but the vast majority (750,000 BTC) belonged to its customers. It also said that it has an outstanding debt of roughly $63 million with just $37.7 million in assets.

A leaked document describing the company business plan makes no mention of its security problems or outstanding debt. Instead it details the company’s plans to release products that promise more secure Bitcoin transactions, the fast rate at which consumers joined the exchange, and the company’s plan to promote the use of cryptocurrencies around the world.

Perhaps the exchange should have focused on delivering on claims made about the security of its existing infrastructure, which have been dismissed as “either a stunning misrepresentation of their security or an outright lie,” first.

Reactions from around the Web

Bitcoin owner Ken Shishido tells Reuters that Mt. Gox’s problems won’t stop cryptocurrency enthusiasts from supporting Bitcoin:

Bitcoin has always been volatile and speculative. It’s too bad that this happened, but we have to let it go. And then we’ll buy more.

Ars Technica notes that Mt. Gox’s bravado and irresponsible practices call its operators’ motives into question:

Given MtGox’s recent self-implosion, it seems that either [Mt. Gox] was grossly incompetent, or it was set up as an elaborate scheme for its principals to walk away with hundreds of millions of dollars in bitcoins.

Reuters explains how hackers might have made off with the exchange’s bitcoins and slow a number of exchanges to a crawl:

The hackers exploited a process used by some bitcoin exchanges that introduced “malleability” into the code governing transactions, experts said. Simply put, this allowed hackers to slightly alter the details of codes to create thousands of copies of transactions. These copies slowed the exchanges to a crawl, forcing them to independently verify each transaction to determine what was real and what was fake.

The Wall Street Journal describes the effect Mt. Gox’s collapse will have on investors:

On Tuesday, Mt. Gox, which at one point handled more than 80% of trades in the virtual currency, stopped all transactions, dealing the severest blow to the bitcoin industry yet and raising concerns about a lack of protection for users. Several Mt. Gox investors say they have little hope of recovering their funds, with some individual investors saying they had bitcoins valued at hundreds of thousands of dollars in Mt. Gox.

A former Mt. Gox employee tells the Daily Beast that the exchange’s failures were rooted solely in its leaders’ incompetence, not in criminal mischief:

Mt. Gox was a dysfunctional organization. Nobody was doing accounting reconciliation and there was an exploitable fault in the transaction system that allowed people to get paid twice—or in other words, withdraw more or less the same amount of Bitcoins two times. Think of it this way—if Bitcoins were like frozen hamburger patties being served at a diner with a touchscreen menu, someone figured out that by tapping the screen twice you could get two hamburgers for the price of one. One day someone at the diner went to the freezer and realized that they were completely out of hamburgers—and they’d only served half the customers they thought they had.

Pando weighs in

Tim Worstall predicted Mt. Gox’s ultimate demise on Wednesday:

So, my very rough and ready analysis of this very short set of numbers is that I don’t believe, assuming anyone tries to rescue this dog, that margins will hold up thus making their predictions of future profitability, umm, unlikely in the degree they forecast.

Which leaves us with just one last point. There’s also a $350 million hole of missing Bitcoins. We might, if we thought we could make more than that by running the exchange, try to figure out a way to cover that hole. An “investment” if you wish. But that hole is a decade’s worth of the highly speculative profits that are predicted to arrive two years out: that’s not a deal that is going to have prospective resuscitators of the site rubbing their hands with glee.

I admit that I’ve been wrong before about Bitcoin but at this point I think it’s about time to purchase the wreath for Mt.Gox and wave it a tearful farewell.

Michael Carney wrote about Bitcoin’s trust issues, which aren’t based only on Mt. Gox’s woes, on Thursday:

Moving forward, the alternative currency and its cornerstone institutions need to regain trust. Most early adopters and core users will jump right back in, but the casual and prospective users that represent the future growth of this financial instrument will not be so easily comforted.

There are plenty of people, including [Blockchain.info CSO Andreas] Antonopoulos, who have issued warnings about Mt. Gox reliability in the past and believe that Gox’s failure was inevitable and should be celebrated as a necessary cleansing. These same people should ask themselves how such an institution was allowed to grow to control more than 70 percent of global trading volume in a multi-billion dollar market. If everyone was so sure of the company’s ineptitude, were clandestine Reddit conversations enough action to protect the bitcoin ecosystem?

The several hundred million dollar answer, according to 750,000 mission bitcoins, is no.