Bitcoin Exchange MtGox Files for Bankruptcy Protection

On Friday, the world’s largest bitcoin trading platform filed for bankruptcy protection in Tokyo, blaming “a weakness in our system” for its collapse.

The website provides a way for customers to exchange US dollars for bitcoins, a digital currency that has soared in price over recent years but remains largely unregulated. Photo: cameraguy105c10/ Flickr

The troubled Mt.Gox Bitcoin exchange filed for bankruptcy protection in Japan Friday, with its chief executive saying it had lost nearly half a billion dollars worth of the digital currency in a possible theft.

Wearing a suit instead of his customary T-shirt, Mt.Gox’s French CEO Mark Karpeles bowed in contrition and apologized in Japanese at a news conference at the Tokyo District Court, blaming his firm’s collapse on a “weakness in our system”, but predicting that bitcoin would continue to grow.

“We are really sorry for causing trouble to all the people concerned,” he said, before bowing deeply.

The company and Karpeles have said little in the days before Friday’s court filing, which is similar to Chapter 11 bankruptcy in the United States, except that they were working with others to resolve their problems, says Reuters.

On Tuesday the company’s website appeared to be shut down, what coincided with the circulation online of an apparent internal document claiming an error had allowed hackers to steal more than 740,000 Bitcoin, worth around $350 million at Monday’s prices.

Japan’s finance minister said earlier Friday he had always thought Bitcoin was suspect and said the country might take action following the MtGox debacle. Yesterday it emerged that Japanese authorities are conducting a high-level investigation into the stricken Bitcoin exchange Mt.Gox after it dramatically ceased trading earlier this week.

Mt.Gox had liquid liabilities of 6.5bn yen (£38m), dwarfing its total assets of 3.84bn yen (£22.6m), the company said. It had 127,000 creditors in bankruptcy, just over 1,000 of whom are Japanese.

Gregory Greene, who estimated his bitcoin stake at $25,000, filed a lawsuit in the U.S. District Court in Chicago late on Thursday, saying Mt. Gox had failed “to provide its users with the level of security protection for which they paid.

Kolin Burges, a London-based Bitcoin trader who has been picketing the Tokyo offices of Mt. Gox, said he was “disgusted” with the company’s handling of the issues.

He said: “I am extremely disappointed with the company but not surprised. I am thoroughly disgusted by them and by the way they have ruined so many people’s lives, and I’m disgusted by their conduct throughout this whole situation.”

The “weakness” referred to by Karpeles is thought to be an issue related to “transaction malleability“, a loophole in the bitcoin system which was exploited by malicious actors to get free bitcoins from the site.

“MtGox filing for bankruptcy is not the end of bitcoin but it is the beginning of the end of bitcoin in its current form,” says currency trader Alistair Cotton of Currencies Direct.

“Over the last year we’ve seen ever-increasing usage and with it huge volatility in value and blows from banks and regulators. These are growing pains as the currency evolves in front of our eyes and the MtGox bankruptcy is part of that.”

Mt. Gox’s troubles sent the price of Bitcoin down 3.8% to $554.53, according to news site CoinDesk, although the price is still higher than Tuesday’s low when Mt. Gox first went offline.

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