Mt Gox was the top bitcoin exchange in 2013. It handled 70% of all bitcoin trades in the world. The amount of finance exchanged at Mt. Gox during its zenith was massive. How the most popular bitcoin exchange in the world lost $473 million worth of bitcoins is simply a story of poor management. Let us briefly analyze the story behind the largest exchange hack in the history of bitcoin.
Jed McCaleb, a programmer bought the domain name, “mtgox.com” in 2007. He wanted to create a fan website for Magic: The Gathering Online, a fantasy cards game. Although, he launched his website in late 2007 but soon decided to abandon the project.
After developing his interest for the new digital currency bitcoin, McCaleb planed to launch the first bitcoin exchange on the same domain, “mtgox.com” in 2010. The Idea of first decentralized cryptocurrency soon took off and so did the first bitcoin exchange Mt Gox.
The unexpected popularity of Mt Gox created a lot of management issues for the unprepared managers of the bitcoin exchange. Unable to manage the exchange website, McCaleb sold his bitcoin exchange to French developer Mark Karpeles in 2011.
Mt Gox under Mark Karpeles
Based in Japan, Mt Gox under Mark Karpeles continued to increase in popularity. But, behind the curtains things were getting real messy. Investigations conducted after the hack have indicated that the software used by the exchange was not following industry standards in financial services.
Despite continuous smaller hacks, CEO Mark Karpeles remained causal in dealing with serious security issues. With no previous experience of financial management, Mark Karpeles lacked the necessary skills to deal with the massive financial surge faced by his exchange at the start of the bitcoin boom.
The Hack that lead to Bankruptcy
In late 2013, exchange users started complaining about increasing delays in funds withdrawal from Mt Gox. At that time users were totally unaware of the crisis unfolding behind the scenes. To make matters worse, the exchange completely stopped funds withdrawals in early 2014.
The exchange also did not provided any credible reasons for the ban. The agitated users even protested outside the office of Mt Gox in Japan, demanding the release of their funds.
It was in February 2014, that the exchange stopped all trading and the website went offline. At the end of the same month, Mt Gox filed for bankruptcy in Japan.
Later, investigations and leaks from former employees confirmed that the exchange had suffered a severe hack that stole $473 million over the years. Mismanagement and the lack of standard software security measures lead to the fall of the once top bitcoin exchange.
Any exchange hack is completely isolated form the bitcoin network, the bitcoin network and its governing protocols use strong cryptographic methods that make it completely safe. Mt Gox got hacked due to pure mismanagement and its weak exchange software.
Never keep your cryptocurrency funds in exchange wallets, centralized exchanges are always vulnerable to hacks.