To say who can leave a mark in the history of Bitcoin, Mt. Gox (Mentougou) is definitely one of them. This trading platform that once occupied more than 70% of the global Bitcoin trading market share, its journey from glory to bankruptcy is both full of drama and left with profound lessons.
Mentougou’s story began in 2010, founded by a programmer named Jed McCaleb. Initially, Mentougou was a trading platform for trading "Magic and Magic" cards. Its name was taken from the abbreviation of "Magic: The Gathering Online Exchange". In July 2010, McCaleb keenly captured the potential of Bitcoin and transformed the platform into a Bitcoin exchange. This decision provides a new trading platform for Bitcoin, making digital currency transactions more convenient. McCaleb’s vision and innovative spirit laid the foundation for the Bitcoin trading market. However, it also started Mentougou’s troubled history.
Source: Techub News
2011 was a year of rapid rise for Mentougou. Over the course of the year, it quickly became one of the largest Bitcoin trading platforms in the world, accounting for 70% to 80% of global Bitcoin trading volume. During this period, the Bitcoin market was in an explosive period, with a large number of investors pouring in, and Mentougou became their preferred platform. That same year, McCaleb decided to sell the exchange to Frenchman Mark Karpeles. Karpeles not only became the largest shareholder of Mentougou, but also served as CEO and began to lead the operation of the platform.
Karpeles is a person with great technical sensitivity. He constantly improves the technical architecture of the platform to make transactions faster and provide a better user experience. Under his leadership, Mentougou continued to expand its functionality and quickly became the dominant platform for Bitcoin trading. However, behind the rapid development there are huge hidden dangers. Although Karpeles' management promoted the rapid development of Mentougou, his emphasis on safety and supervision was obviously insufficient.
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In June 2011, Mentougou experienced a thrilling storm. The storm stemmed from a hacker who used an auditor's credentials to unobtrusively infiltrate the exchange's systems. The hacker orchestrated a price manipulation that instantly drove the price of Bitcoin from a few dollars to just 1 cent per coin.
It is conceivable that the traders at that time felt as if they were on a roller coaster and were terrified when they saw the numbers flashing crazily on the screen and the sharp drop from a few dollars to 1 cent. In just a few chaotic minutes, the hackers managed to move around 2,000 Bitcoins.
After the incident, Mentougou’s management team immediately realized the seriousness of the matter. As a Bitcoin exchange, although only Bitcoin worth more than $2,000 at the time was transferred, such a thing also sounded the alarm to Mentougou, and they took quick action to transfer a large number of remaining Bitcoins to cold wallets. Cold wallet is a storage method that is not connected to the Internet, which greatly improves the security of Bitcoin and effectively prevents further theft by hackers.
Although this incident exposed the loopholes in Mentougou's security management, it also demonstrated their ability to respond quickly to crises. This incident became an important wake-up call, making Mentougou and other exchanges realize that only by continuously improving security measures can they remain invincible in the ever-changing cryptocurrency world. Mentougou’s quick response not only saved a large number of Bitcoins, but also laid a solid foundation for subsequent security protection work.
In 2013, the Mentougou Exchange reached its peak. At that time, almost 7 out of 10 Bitcoin transactions were completed on Mentougou. This once humble little exchange has become the largest Bitcoin trading platform in the world. However, amidst this prosperity, a storm that has been dormant for a long time is quietly brewing.
Chart source: BitcoinCharts Bitcoin trading volume on China, Mt. Gox and Bitstamp (August 1 to December 23, 2013)
One day in May, the U.S. Department of Homeland Security (DHS) quietly took action. They seized the accounts of its U.S. subsidiary on the grounds that Mentougou was not registered as a currency transmission service provider. When the news came, the top management of Mentougou suddenly felt like a bolt from the blue. This action not only caused Mentougou's funds in the United States to be frozen, but also caused it to face an unprecedented cash flow crisis.
Imagine that the Mentougou headquarters at that time was filled with a tense atmosphere in the office building. Employees frantically made phone calls trying to reach various parties to find a solution. In the conference room, the management team held an emergency meeting, and everyone's faces were filled with sorrow. The founder of Mentougou may be staring into the distance in front of his office window, thinking about this sudden predicament.
This action by the U.S. Department of Homeland Security is like a sharp knife, deeply cutting open the wound in Mentougou’s compliance. Mentougou has been busy expanding its functional business and failed to pay attention to and comply with the strict financial regulations in the United States in a timely manner. This incident not only exposed its shortcomings in compliance, but also indicated that it will face more regulatory challenges in the future.
The seizure caught Mentougou off guard, but it also taught it an important lesson. The management of Mentougou began to realize that only by moving steadily on the road of compliance can the long-term development of the exchange be truly guaranteed. In this global digital currency market, compliance and security are equally important and one cannot exist without the other.
On February 7, 2014, Mentougou announced the suspension of all Bitcoin withdrawals, saying that suspicious activities had been discovered. It pointed out that the problem was due to a transaction malleability vulnerability in the Bitcoin software, which made the transaction appear incomplete, leading to the possibility that Bitcoin would be Send repeatedly. However, just seventeen days later, on February 24, things took a turn for the worse. Mentougou once again issued an announcement. This time, they announced that they would permanently stop Bitcoin trading. This news was like a heavy hammer, completely shattering the confidence of users. Four days later, Mentougou filed for bankruptcy protection. This once prosperous exchange is now on the verge of bankruptcy. Karpeles admitted that he lost 744,408 Bitcoins belonging to customers and 100,000 Bitcoins held by the exchange itself. This hacking attack caused Mentougou to be unable to pay customers’ Bitcoins, thus declaring bankruptcy. At this moment, Mentougou's reputation completely collapsed, and users' confidence also collapsed.
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In March of the same year, Mentougou Exchange reached a crossroads of destiny. They applied for bankruptcy protection in the Tokyo District Court of Japan and officially entered the bankruptcy liquidation process. It’s certainly a bleak moment for what was once the world’s largest Bitcoin exchange.
Just when everyone thought there was little hope, Mentougou brought unexpected news. They claim to have recovered 200,000 Bitcoins. The bitcoins were found in the company's old wallet, and the news was like a ray of light in the darkness, bringing a glimmer of hope to the desperate victims.
However, the 200,000 Bitcoins recovered are just the tip of the iceberg, and a large number of Bitcoins are still unaccounted for. This discovery is not only a spark of hope, but also a mirror reflecting the chaos and loopholes in Mentougou's management system. How did these Bitcoins get lost? How do hackers break into systems? There are still no answers to these questions, and behind each question, there may be management negligence.
In 2015, Mark Karpeles was arrested in Japan and faced multiple charges related to data manipulation and misappropriation of client funds.
In court, he repeatedly maintained his innocence. He explained the exchange’s operations in detail and tried to prove that the Bitcoins that were lost were due to hacking rather than any negligence on his part. Inside and outside the court, the voices of supporters and opponents came and went, and emotions were intense. Supporters believe he is innocent and unfairly accused, while opponents believe he was responsible for the collapse of Mt. Gox and should be brought to justice.
In July 2016, after a year of trial and detention, Karpeles was finally released on bail. Karpeles' arrest and trial became the focus of global attention.
Source: Techub NewsMt. Gox founder Mark Karpeles
In 2018, the Tokyo District Court approved the transfer of Mentougou from bankruptcy liquidation proceedings to civil rehabilitation proceedings to compensate victims by selling remaining Bitcoins.
Following this decision, Mt. Gox will compensate victims by selling remaining Bitcoins. The coins, once locked in exchange wallets, will now be used to recoup huge losses caused by hacks and mismanagement. Although the value of these Bitcoins cannot fully compensate for all losses, this decision undoubtedly brings new hope to the victims.
In 2019, Mark Karpeles was found guilty of data manipulation but acquitted of charges of misappropriation of funds and sentenced to two and a half years of probation. Although Karpeles was spared the harshest punishment, his reputation was tarnished.
In November 2021, the Japanese court and Mentougou’s creditors reached a compensation agreement and established the registration and compensation process. Approved creditors can submit claims for compensation through the online system.
Trustee Nobuaki Kobayashi announced at a press conference that victims can begin submitting applications for compensation. The news once again caused a strong reaction among the victims. Kobayashi introduced the application process in detail and assured that the entire process will be strictly implemented in accordance with the agreement to ensure that every victim can receive the compensation he deserves.
By September 2023, Kobayashi issued another statement announcing that the deadline to repay creditors would be extended to October 31, 2024. This decision is to ensure that all victims have sufficient time to submit their applications and avoid any omissions or mistakes. Kobayashi said: "We hope that every victim can receive due compensation, and no one's rights should be ignored." The plan includes paying 142,000 Bitcoins, 143,000 $BCH (Bitcoin Cash) and 69 billion yen. In May 2024, some of the Bitcoins in Mentougou’s wallet were transferred out, symbolizing the further advancement of the repayment plan.
The story of Mentougou not only reveals many risks and challenges in the early development of Bitcoin, but also provides important lessons for the future development of the entire cryptocurrency industry. Through the above events, Mentougou’s journey from glory to decline demonstrates the risks and opportunities of the cryptocurrency industry. This history reminds us that although technology and markets are constantly evolving, security and compliance have always been the cornerstone of ensuring the healthy development of the industry.
When looking back at this period of history, we see that technological advancements and market developments cannot replace the emphasis on security and compliance. The rise and fall of Mentougou has sounded the alarm for us, reminding us that while pursuing innovation and growth, we cannot ignore basic safety measures and regulatory requirements. This is not only a reflection on the past, but also an inspiration for the future.
[Disclaimer] There are risks in the market, so investment needs to be cautious. This article does not constitute investment advice, and users should consider whether any opinions, views or conclusions contained in this article are appropriate for their particular circumstances. Invest accordingly and do so at your own risk.
This article is reprinted with permission from: "Foresight News"
Original author: Chris, Techub News
