The Mt. Gox Collapse

For the people who had funds on Mt. Gox, February 2014 started like any other month.

Then the withdrawal requests stopped processing. Then the website slowed. Then a leaked internal document appeared online showing the exchange was insolvent. Then the site went dark.

Forums filled with panic. People who had held Bitcoin through the 2011 crash, through the Silk Road closure, through years of dismissal from friends and family — they logged into their accounts and saw zeroes.

Some had their life savings there. Some were early adopters sitting on thousands of Bitcoin that represented years of work. Some were ordinary people who had bought a few hundred dollars’ worth and left it there because the exchange had seemed trustworthy.

Mark Karpelès was eventually arrested in Japan and charged with fraud and embezzlement. The legal proceedings took years. A partial recovery was eventually organised for creditors — but it took nearly a decade, and by the time it came through, the coins had appreciated so dramatically that the settlement was worth far more than anyone expected.

For many victims, the recovery arrived too late or too small.

The Mt. Gox collapse is the founding trauma of Bitcoin security culture. It is why the community repeats, endlessly, the same warnings: move your coins off exchanges, hold your own keys, don’t trust custodians with amounts you can’t afford to lose.

Every security practice covered in Phase 3 exists because of what happened in February 2014.

Tomorrow: the 2013 bull run — Cyprus and Bitcoin’s first mainstream moment.

— The Daily Bit