Sat, Mar 01, 2014 - Page 13 News List

Bitcoin exchange files for bankruptcy

TECH OR THEFT:Tokyo-based Mt. Gox sought court protection after a loss of US$425 million in bitcoins, which were either stolen or voided by the system

AP, TOKYO

The Mt. Gox bitcoin exchange in Tokyo yesterday filed for bankruptcy protection and its chief executive said 850,000 bitcoins, worth several hundred million dollars, are unaccounted for.

CEO Mark Karpeles appeared before Japanese TV news cameras, bowing deeply for several minutes.

He said a weakness in the exchange’s systems was behind a massive loss of the virtual currency involving 750,000 bitcoins from users and 100,000 of the company’s own bitcoins. That would amount to about US$425 million at recent prices.

The online exchange’s unplugging earlier this week and accusations it had suffered a catastrophic theft have drawn renewed regulatory attention to a currency created in 2009 as a way to make transactions across borders without third parties such as banks.

It remains unclear if the missing bitcoins were stolen, voided by technological flaws or both.

“I am sorry for the troubles I have caused all the people,” Karpeles said in Japanese at a Tokyo court.

Karpeles had not made a public appearance since rumors of the exchange’s insolvency surfaced last month. He said in a Web post on Wednesday that he was working to resolve Mt. Gox’s problems.

The loss is a giant setback to the currency’s image because its boosters have promoted bitcoin’s cryptography as protecting it from counterfeiting and theft.

Bitcoin proponents have insisted that Mt. Gox is an isolated case, caused by the company’s technological failures, and the potential of virtual currencies remains great.

Debts at Mt. Gox totaled more than ¥6.5 billion (US$65 million), surpassing its assets, according to Teikoku Databank, which monitors bankruptcies.

Just hours before the bankruptcy filing, Japanese Finance Minister Taro Aso had scoffed that a collapse was only inevitable.

“No one recognizes them as a real currency,” Aso told reporters. “I expected such a thing to collapse.”

Japan’s financial regulators have been reluctant to intervene in the Mt. Gox situation, saying they do not have jurisdiction over something that is not a real currency.

They pointed to the Consumer Affairs Agency, which deals with product safety, as one possible place where disgruntled users may go for help.

Agency Minister Masako Mori urged extreme caution about using or investing in bitcoins. The agency has been deluged with calls about bitcoins since earlier this year.

“We’re at a loss for how to help them,” said Yuko Otsuki, who works in the agency’s counseling department.

It is hard to know how many people around the world own bitcoins, but the currency has attracted outsize media attention and the fascination of millions as an increasing number of large retailers such as Overstock.com begin to accept it.

Speculative investors have jumped into the bitcoin fray, too, sending the currency’s value fluctuating wildly in recent months. In December, the value of a single bitcoin hit an all-time high of US$1,200. One bitcoin cost about US$500 lately.

Roger Ver, a Tokyo resident who has provided seed capital for bitcoin ventures such as Blockchain.info, a registry of bitcoin transactions, said he believes bitcoin will survive, possibly emerging with better technology that’s safer for users.

He said Mt. Gox people were likely sincere, but had failed to run their business properly.

“Mt. Gox is a horrible tragedy. A lot of people lost a lot of money there, myself included,” he said ahead of the bankruptcy filing. “I hope we can use this as a learning experience.”

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