Month: February 2014

How Mt.Gox went down

Bitcoin skeptics say the digital currency is doomed. They’re wrong. But the failure of Mt.Gox shows the agony of an evolving industry without any government oversight and led by tech entrepreneurs with zero financial experience.

The shutdown of Mt.Gox — one of the world’s largest bitcoin exchanges — and the potential loss of more than $400 million worth of bitcoins is the result of abysmal mismanagement at the company.

Mt.Gox is blaming a costly computer hack for its current troubles. But in reality, the company was in dire financial straits long before that. Cash flow issues are to blame, as the exchange balanced a tiny revenue stream with a giant burning hole in its pocket.

By its own account, Mt.Gox collected only $380,450 in revenue during most of 2012. But it lost 13 times that the next year, when U.S. government agents seized $5 million from its accounts for allegedly lying on bank documents.

Such a massive loss would cripple any business, but Mt.Gox remained open. It’s still unclear how it could pay its customers — or its bills — after losing so much money.

Ever since, though, customers noticed Mt.Gox was slow to process transactions. That gave it the aura of a Ponzi scheme. You could join Mt.Gox and give it your money, but cashing out was near impossible.

Things grew worse on Feb. 7, when it halted withdrawals. The company’s computer programmers hadn’t accounted for a quirk in the way Bitcoin works, allowing cyber attackers to dupe Mt.Gox with a scheme resembling receipt fraud. When Mt.Gox discovered it was under attack, it stopped any investors from pulling their money out of their trading platform.

Share your story: Do you have bitcoins?

By the time trading at Mt.Gox was halted entirely late Monday, the price of a Bitcoin there had dropped significantly, to $130. Meanwhile it was trading for more than four times that on other exchanges.

The Mt.Gox website was back online Wednesday, but only with a statement saying…


Bitcoin is Legal, Says Cyprus Central Bank

During 2012 and 2013, Cyprus experienced crippling financial problems in the fallout from the Greek debt crisis. In the months that followed, it implemented a host of austerity measures, including an infamous one-time levy on all uninsured bank deposits.


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