More on Why Mt Gox Failed

When Mark Karpeles, the CEO of what was once the world’s largest Bitcoin exchange, said that the company had gone bankrupt because 800,000 bitcoins (worth nearly half a billion dollars at the time) had been hacked, he wasn’t exactly lying. He wasn’t exactly telling the whole truth, either, but there was an intriguing element of fact.

At least 80,000 had been hacked before Karpeles even took over the company, and that initial cyber theft began a spiral of trouble that may have led directly to the firm’s financial collapse.

This week The Daily Beast obtained internal emails, contracts,, and other documents related to the implosion of Karpeles’s company, Mt. Gox. Along with information provided by a former employee who handled accounting for the firm, the documents reveal previously unreported details about how Mt. Gox failed, and why.

Daily Beast.

Financial Times.

Converging on Cryptocurrencies #1

Altcoins:

 Zcash, a supposedly untraceable alternative to bitcoin, has supposedly entered alpha release.

Bitcoin:

10 Dutch men were arrested for money laundering using bitcoin.

There are a lot of false beliefs about bitcoin.

There's an opinion piece on the intersection of bitcoin and politics.

Exchanges:

Cryptsy went under.  Supposedly this was caused by a hack, but given the history associated with MT Gox...

Bitstamp has banned Russian users access temporarily.

Blockchain:

Blockchain technology company R3CEV has successfully tested a bitcoin blockchain derived system for 11 international banks for bank transaction settlement.

All things blockchain are being hyped at Davos.

The Guardian REALLY hypes the blockchain.

The Economist also talks blockchain.

Some are trying to cut through the blockchain hype.

Mt GOX CEO Formally Charged With Stealing $2.66 Million Worth of BitCoin

Japanese prosecutors said Friday that they have charged the head of collapsed Bitcoin exchange MtGox with embezzlement, amid fraud allegations over the disappearance of hundreds-of-millions-of-dollars-worth of the virtual currency.

The indictment of France-born Mark Karpeles, 30, comes after he was taken into police custody in Tokyo last month over the affair. He remained in custody Friday but has the option of petitioning the court for release pending trial.

The charges are tied to allegations that Karpeles falsified data while another relates to claims he pocketed millions of dollars of Bitcoin deposits.

He has been held without formal charge for six weeks, as allowed under Japanese law.

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Mt GOX CEO to be Charged With Embezzlement, Misuse of Customer Funds

Mark Karpeles, the head of the collapsed MtGox Bitcoin exchange who was arrested in Tokyo, is facing fresh allegations that he misused $8.9 million in customers' deposits, Japanese media reported Sunday.

French-born Karpeles, 30, was arrested on Saturday after a series of fraud allegations led to the Tokyo-based exchange's spectacular collapse last year and hammered the digital currency's reputation.

Karpeles is suspected of manipulating data on the exchange's computer system in 2013 to artificially create about $1.0 million in Bitcoins, while police were also investigating his possible involvement in a massive loss of the virtual currency in 2014.

He was sent to the Tokyo District Public Prosecutors' Office Sunday morning for further questioning, public broadcaster NHK said.

Police now suspect that he illegally spent customer deposits worth about 1.1 billion yen ($8.9 million), according to NHK and the best-selling Yomiuri newspaper.

He is suspected of misusing the funds privately and sending them to his other firms, the news reports said.

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Report: MtGox CEO Arrested in Japan

Japanese police on Saturday arrested Mark Karpeles, CEO of the collapsed MtGox bitcoin exchange, over the loss of nearly $390 million worth of the virtual currency, local media said.

Karpeles, 30, is suspected of having accessed the computer system of the exchange and falsifying data on its outstanding balance, Kyodo News and public broadcaster NHK said.

The global virtual currency community was shaken by the shuttering of MtGox, which froze withdrawals in February 2014 because of what the firm said was a bug in the software underpinning Bitcoin that allowed hackers to pilfer them.

The exchange filed for bankruptcy protection soon after, admitting it had lost 850,000 coins worth 48 billion yen ($387 million) at the time.

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Silk Road Dark Web/Bitcoin Insanity Comes Full Circle With Charges Against DEA, Secret Service Agents

Some DEA and Secret Service Agents Helped Themselves to Silk Road Bitcoins:

The federal government became owners of one of the biggest troves of Bitcoin, thanks to seizing millions of dollars in the digital currency from criminals associated with the online black market Silk Road.

Two federal agents who helped lead one of several investigations in the case allegedly decided they wanted some of the money for themselves, according to a new federal court documents.

The two now-former agents from the Drug Enforcement Administration and the U.S. Secret Service are charged with wire fraud, money laundering and other offenses for allegedly stealing Bitcoin during the federal investigation of Silk Road, an underground illicit black market federal prosecutors shut down in 2013.

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More info here.

Fraud, not Hacking, Took Most of Mt Gox's Missing Bitcoins

Nearly all of the roughly US$370 million in bitcoin that disappeared in the February 2014 collapse of Mt. Gox probably vanished due to fraudulent transactions, with only 1 percent taken by hackers, according to a report in Japan’s Yomiuri Shimbun newspaper, citing sources close to a Tokyo police probe.

Of the 650,000 bitcoins unaccounted for—worth about US$208 million today—only about 7,000 appear to have been purloined by hackers, the newspaper reported on New Year’s Day, adding that investigators have yet to identify who was responsible.

That conflicts with the explanation by Mt. Gox, which blamed a bug in the Bitcoin system when it filed for bankruptcy on Feb. 28.

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Interesting and Suspicious Trading Patterns Reconstructed From Mt GOX Logs

Somewhere in December 2013, a number of traders including myself began noticing suspicious bot behavior on Mt. Gox. Basically, a random number between 10 and 20 bitcoin would be bought every 5-10 minutes, non-stop, for at least a month on end until the end of January. The bot was dubbed “Willy” at some point, which is the name I’ll continue to use here. Since Willy was buying in such a recognizable pattern, I figured it would be easy to find in the Mt. Gox trading logs that were leaked about two months ago. However, the logs only went as far as November 2013; luckily, I was able to detect the buying pattern in the last few days of November. Below is a compiled log of its trades on the last two days of November

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Mt Gox's Story Doesn't Hold up Under Analysis

On February 10, a Bitcoin exchange called MtGox announced it had lost some 850,000 bitcoins, of which 750,000 belonged to its customers. At the time, bitcoins were trading at $827 apiece, making the value of the loss equivalent to $620 million.

That’s a significant shortfall by anyone’s standards. But MtGox had an explanation. In a press release on that day, it announced it had been the victim of a fraud in which the bitcoins had been stolen by hackers.

The fraud, said the company, was a result of a problem known as a transaction malleability bug. This allows malicious users to transfer bitcoins into their accounts while making MtGox think the transfer had failed. Consequently, MtGox repeated these transactions so that the total amount was transferred twice.

Today, Christian Decker and Roger Wattenhofer at the Swiss Federal Institute of Technology in Zurich cast doubt on this version of events. These guys have been monitoring bitcoin transactions since January 2013 in a way that allows them to detect malleability bug transactions. And they say that the total number of fraudulent transfers in that time is several orders of magnitude smaller than MtGox claims.

Decker and Wattenhofer began monitoring the Bitcoin network in January 2013. They recorded all transactions, as well as those that were blocked, by connecting to around 1000 nodes in the Bitcoin network. That’s about 20 percent of the total.

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Data Mining Mt GOX Bitcoin Transactions

When hackers posted 750 megabytes of data pilfered from the bankrupt bitcoin exchange Mt. Gox, many people seized on it as a kind of treasure map, hoping it would help locate the nearly half a billion dollars in digital currency that went missing from the exchange.

But not Kai Chang and Mary Becica.

Chang is a design technologist at San Francisco visualization studio Stamen Design, and Becica is a product manager at cloud management outfit AppDirect, also in San Francisco. Both love to geek out on data. When the Gox data was released into the wild, they weren’t interested in finding the allegedly stolen bitcoins. They went looking for patterns in the way the digital currency was flowing across the net. The result is a set of some 500 visualizations that show the activity of the 500 Gox accounts that traded the most bitcoin, a graphical representation of the exchange that shows how it progressed from a casual trading table for a small group of cryptocurrency enthusiasts to a hyper-speed market dominated by fairly sophisticated traders. “As you get later in the data,” Chang says, you see the development of “more consistent techniques.”

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Mt Gox "Finds" 200,000 Bitcoins

Bankrupt bitcoin exchange Mt. Gox says it found 200,000 bitcoins, which were previously thought stolen, in disused electronic wallets. Another 650,000 bitcoins still remain unaccounted for.

The Tokyo-based company says in a statement posted on its website Thursday that the 200,000 bitcoins were identified Mar. 7 after "old format" wallets were searched as part of Mt. Gox's bankruptcy proceedings.

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