By Chris, Techub News
If we talk about who can leave a strong mark in the history of Bitcoin, Mt. Gox is definitely one of them. This trading platform, which once occupied more than 70% of the global Bitcoin trading market, went from glory to bankruptcy, which was full of drama and left a profound lesson.
The story of Mentougou began in 2010, when it was founded by a programmer named Jed McCaleb. Initially, Mentougou was a trading platform for trading "Might and Magic" cards, and 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 provided a brand new trading platform for Bitcoin, making digital currency trading more convenient. McCaleb's foresight and innovative spirit laid the foundation for the Bitcoin trading market, but it also opened up the turbulent history of Mentougou.
2011 was the year when Mentougou rose rapidly. During this year, it quickly became one of the world's largest Bitcoin trading platforms, accounting for 70% to 80% of the global Bitcoin trading volume. During this period, the Bitcoin market was in an explosive period, and a large number of investors poured in, and Mentougou became their preferred platform. In the 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, making transactions faster and the user experience better. Under his leadership, Mentougou continues to expand and quickly becomes the main platform for Bitcoin transactions. However, behind the rapid development lies a huge hidden danger. Although Karpeles' management has promoted the rapid development of Mentougou, his emphasis on security and supervision is obviously insufficient.
In June 2011, Mentougou experienced a thrilling storm. The storm originated from a hacker who used the auditor's credentials to sneak into the exchange's system without anyone noticing. The hacker carefully planned a price manipulation, instantly suppressing the price of Bitcoin from several dollars to just 1 cent per coin.
As you can imagine, traders at the time were terrified as they saw the numbers flashing wildly on the screen, falling sharply from a few dollars to 1 cent. In just a few minutes of this chaos, the hacker successfully transferred about 2,000 bitcoins.
After the incident, the management team of Mentougou immediately realized the seriousness of the matter. As a Bitcoin exchange, although only Bitcoins worth more than $2,000 at the time were transferred, this incident also sounded the alarm for Mentougou. They quickly took action to transfer a large number of remaining Bitcoins to cold wallets. Cold wallets are 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 showed their ability to respond quickly to crises. This incident became an important wake-up call, making Mentougou and other exchanges realize that only by constantly improving security measures can they remain invincible in the ever-changing world of cryptocurrency. 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 every 10 Bitcoin transactions were completed on Mentougou. This once inconspicuous small exchange has become the world's largest Bitcoin trading platform. However, in this prosperity, a long-lurking storm is quietly brewing.
BTC trading volume on BTC China, Mt. Gox, and Bitstamp (August 1, 2013 - December 23, 2013). Source: BitcoinCharts
One day in May, the U.S. Department of Homeland Security (DHS) quietly took action and sealed the accounts of its U.S. subsidiary on the grounds that Mentougou was not registered as a money transmission service provider. When this news came, the top management of Mentougou felt like a bolt from the blue. This action not only caused the freezing of Mentougou's funds in the United States, but also made it face an unprecedented cash flow crisis.
Imagine the tense atmosphere in the office building of Mentougou headquarters at that time. Employees anxiously made phone calls, trying to contact various parties to seek solutions. In the conference room, the management team held an emergency meeting, and everyone's faces were full of worries. The founder of Mentougou was probably staring into the distance at the window of his office, thinking about this sudden predicament.
This action by the U.S. Department of Homeland Security is like a sharp knife, deeply cutting the wound of Mentougou in terms of compliance. Mentougou has been busy expanding its business and failed to pay attention to and comply with the strict financial regulatory laws and regulations of the United States in a timely manner. This incident not only exposes its shortcomings in compliance, but also indicates that it will face more regulatory challenges in the future.
The closure caught Mentougou off guard, but it also taught it an important lesson. Mentougou's management began to realize that only by moving forward 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 indispensable.
On February 7, 2014, Mentougou announced that it would suspend all Bitcoin withdrawals, saying that suspicious activity had been discovered. The issue was due to a transaction malleability vulnerability in the Bitcoin software, which made transactions appear incomplete, which could result in Bitcoin being sent repeatedly. However, just seventeen days later, on February 24, things got even worse. Mentougou issued another announcement, this time announcing that Bitcoin trading would be permanently suspended. This news was like a heavy hammer, completely shattering the confidence of users. Four days later, Mentougou filed for bankruptcy protection. This once glorious exchange is now on the verge of bankruptcy. Karpeles admitted that he had lost 744,408 Bitcoins belonging to customers and 100,000 Bitcoins held by the exchange itself. The hacker attack caused Mentougou to be unable to pay customers' Bitcoins, and thus declared bankruptcy. At this moment, Mentougou's reputation completely collapsed, and user confidence also collapsed.
In March of the same year, the Mt. Gox exchange came to a crossroads of fate. They applied for bankruptcy protection in the Tokyo District Court of Japan and officially entered the bankruptcy liquidation process. This was undoubtedly a bleak moment for the once largest Bitcoin exchange in the world.
Just when everyone thought there was no hope, Mentougou brought an unexpected news. They claimed to have recovered 200,000 bitcoins. These bitcoins were found in the company's old wallet. This news was like a ray of light in the darkness, bringing a ray 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 missing. This discovery is not only a spark of hope, but also a mirror that reflects the chaos and loopholes in Mentougou's management system. How did these bitcoins get lost? How did the hackers break into the system? These questions still have no answers, and behind each of them, there may be management failures.
In 2015, Mark Karpeles was arrested in Japan and faced multiple charges for alleged data manipulation and misappropriation of client funds.
In court, he repeatedly insisted on his innocence. He explained in detail the operation process of the exchange and tried to prove that the lost bitcoins were due to hacker attacks rather than his negligence. Inside and outside the court, the voices of supporters and opponents were one after another, and emotions were intense. Supporters believed that he was innocent and was unfairly accused, while opponents believed that he was responsible for the collapse of Mt. Gox and should be punished by law.
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.
Mt. Gox founder Mark Karpeles
In 2018, the Tokyo District Court approved the transfer of Mentougou from bankruptcy liquidation procedures to civil rehabilitation procedures to compensate victims by selling remaining bitcoins.
According to this decision, Mt. Gox will compensate victims by selling the remaining bitcoins. These bitcoins were once locked in the exchange's wallets, and now they will be used to make up for the huge losses caused by hacker attacks and management chaos. Although the value of these bitcoins can no longer fully make up for all the losses, this decision has undoubtedly brought 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 escaped the harshest punishment, his reputation has been damaged.
In November 2021, the Japanese court and Mentougou's creditors reached a compensation agreement, establishing a registration and compensation process. Approved creditors can submit compensation applications through an online system.
Trustee Nobuaki Kobayashi announced at a press conference that victims could begin submitting compensation applications. This news once again caused a strong reaction among victims. Kobayashi detailed the application process and assured that the entire process will be strictly carried out in accordance with the agreement to ensure that every victim will receive the compensation they deserve.
In September 2023, Kobayashi issued another statement announcing that the deadline for repaying creditors would be extended to October 31, 2024. This decision was made to ensure that all victims have enough time to submit applications to avoid any omissions or misses. Kobayashi said: "We hope that every victim will receive due compensation, and no one's rights should be ignored." The plan includes the payment of 142,000 bitcoins, 143,000 BCH (Bitcoin Cash) and 6.9 billion yen. In May 2024, part of the bitcoin in the wallet of Mentougou was transferred out, marking the further advancement of the repayment plan.
The story of Mentougou not only reveals the many risks and challenges of 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 shows the risks and opportunities of the cryptocurrency industry. This history reminds us that although technology and markets are constantly evolving, security and compliance are always the cornerstones to ensure the healthy development of the industry.
Looking back on this period of history, we see that technological progress and market development 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 security measures and regulatory requirements. This is not only a reflection on the past, but also an inspiration for the future.