Japanese authorities are trying to unravel what happened at Mt. Gox, the popular Bitcoin exchange that collapsed last week, and recent revelations are only serving to thicken the plot, not clarify it.
The tale of the Tokyo-based exchange appears to be like the code its software ran on; the latter was deemed "a spaghetti mess" by a company source who spoke on condition of anonymity.
Mt. Gox filed for bankruptcy protection in the Tokyo District Court on Feb. 28, saying that some 750,000 customer bitcoin and 100,000 of its own bitcoin had vanished, possibly stolen. Based on the valuation of the volatile cryptocurrency at the time of the filing, that is roughly US$474 million. An additional ¥2.8 billion (about $28 million) in cash was unaccounted for.
Tokyo police are now scratching their heads. "The National Police Agency seems to lack the ability to analyze the bitcoin trading history of Mt. Gox," a government official told a source probing the investigation.
What really happened? Mt. Gox has never quite escaped the adolescent image associated with its origins as a market for trading cards used in the fantasy game "Magic: The Gathering," even as it changed gears and rocketed to success as the world's largest forum for trading in bitcoin, the digital currency launched in 2009.
The site had 1 million customers as of December 2013, according to a document posted on the Web that was purported to be a leaked business plan.
Presiding over it all was CEO Mark Karpeles, who uses the online moniker MagicalTux. The attendant image of Karpeles as a stage magician may now inflame Mt. Gox customers who suspect their losses are due to sleight of hand, not sloppiness or outside thieves.
In the weeks before it went bust, Mt. Gox suspended bitcoin withdrawals to outside wallets, blaming a bitcoin software bug known as transaction malleability and warning that it could be used for fraudulent purposes.
After all, Mt. Gox had been attacked before. In June 2011, $8.75 million in bitcoin was apparently purloined by hackers using stolen passwords.
In April 2013, Mt. Gox's website was coming under distributed denial-of-service (DDoS) attacks combined with frantic, frequent trades by a surge of new customers as the price of bitcoin climbed as high as $266.
'People trust us with a lot of money right now'
At that time, nearly a year ago, Gonzague Gay-Bouchery, Mt. Gox's head of marketing, talked with IDG News Service about the company's travails.
"We don't have a life, and we want to see our kids," he said. "And we want our customers to be very happy."
The site choked and sputtered, unable to cope with the massive amounts of traffic. Customers became angry, leaving Mt. Gox to attempt to quell a public relations disaster and a very real threat from cyberattackers trying to manipulate bitcoin's market price. Gay-Bouchery detailed Mt. Gox's plans for a faster trading engine that would be resistant to cyberattacks.