Mt. Gox

Mt. Gox started as a trading card exchange. Magic: The Gathering Online eXchange — the name is a clue to its origins.

In 2010, its founder Jed McCaleb converted it into a Bitcoin exchange and sold it to Mark Karpelès, a French developer living in Japan. At its peak in 2013, Mt. Gox was handling roughly 70% of all Bitcoin transactions worldwide. If you bought Bitcoin in those years, you probably used Mt. Gox.

Behind the scenes, the situation was catastrophic.

The exchange had been losing Bitcoin since at least 2011 — through hacks, through a software bug that allowed coins to be duplicated, through what appeared to be significant mismanagement. By the time the problems became public, approximately 850,000 Bitcoin were missing. At the prices of the time, that was around $450 million. At today’s prices, it would be tens of billions.

In February 2014, Mt. Gox suspended trading, took its website offline, and filed for bankruptcy. Hundreds of thousands of users woke up one morning and found their Bitcoin simply gone.

The collapse triggered a crash that took years to recover from. Trust in Bitcoin exchanges — already fragile — shattered.

The lesson the community absorbed was brutal and permanent: exchanges are not banks. They have no deposit insurance. They have no regulator standing behind them. If they fail, lose your coins, or simply disappear — you have limited recourse.

Not your keys, not your coins. Mt. Gox is why that phrase exists.

Tomorrow: what Mt. Gox taught the world — and how custody changed forever.

— The Daily Bit