Collapse imperils Bitcoin economy

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Posted: Wednesday, February 26, 2014 12:00 am

Mt. Gox, the Tokyo-based Bitcoin exchange that halted withdrawals this month, went offline as a document surfaced alleging long-term theft of about $365 million in the digital currency.

The document, which appeared to be an internal strategy paper, said unidentified thieves stole 744,408 Bitcoins from the exchange — about $365 million at current rates — and that the theft “went unnoticed for several years.”

“The reality is that Mt. Gox can go bankrupt at any moment, and certainly deserves to as a company,” according to the document.

The document, which outlines plans for leadership changes, rebranding and a possible move to Singapore, was posted online by blogger Ryan Galt.

The price of a bitcoin fell 5 percent to about $516 by late afternoon Tuesday, according to the CoinDesk Bitcoin Price Index, down from as high as $1,151 Dec. 4. The quoted price plunged due to speculation that account holders wouldn’t be able to get their coins back.

Mt. Gox went offline to “protect the site and our users,” according to a statement on its website. “We will be closely monitoring the situation and will react accordingly.”

A group of Bitcoin-related companies sought to distance itself from Mt. Gox and promised to protect customer funds to promote usage of the currency.

“This tragic violation of the trust of users of Mt. Gox was the result of one company’s actions and does not reflect the resilience or value of Bitcoin and the digital currency industry,” San Francisco-based Coinbase said in a joint statement on its website with Kraken, BitStamp, Circle and BTC China, which are other prominent Bitcoin companies.

“As with any new industry, there are certain bad actors that need to be weeded out, and that is what we are seeing today,” the companies said.

Efforts to reach the website Tuesday directed users to a blank white page, a day after Mt. Gox Chief Executive Officer Mark Karpeles resigned from the Bitcoin Foundation, an advocacy group for the digital money. “We are shocked to learn about Mt. Gox’s alleged insolvency,” the foundation said.

Bitcoin was introduced in 2008 by a programmer or group of programmers under the name Satoshi Nakamoto and has since gained traction with merchants around the world. The digital money, based on a peer-to-peer software protocol, has no central issuing authority and uses a public ledger to verify transactions while preserving users’ anonymity.

The Bitcoin Foundation said that, despite the troubles at Mt. Gox, the Bitcoin protocol was functioning normally. In recent days, Mt. Gox had stopped withdrawals, citing an alleged flaw in the protocol.

Since at least 2011, enthusiasts have been trading Bitcoins for dollars and other traditional currencies, and in early 2013 Mt. Gox was one of the biggest exchanges. Mt. Gox said this month that it identified a bug that enables people to withdraw the same Bitcoins more than once, leaving it vulnerable to hackers.

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