Mt. Gox: Five Years After Disaster

Five years ago yesterday, Mt. Gox was hacked and over the course of just a few days, the Japanese based exchange, which dealt with more than 70 percent of Bitcoin transactions, closed its website, suspended trading and filed for bankruptcy by reported that 850,000 Bitcoins had vanished as a result of the hack.

Fast forward to now and the situation isn’t much better as creditors are still trying to get back all their funds which will most likely never be found. Breakermag spoke to two crypto exchange CEOs and a few Chief executives at a crypto wallet to reflect on the events that occurred five years ago at the Mt. Gox crypto exchange.

Where were you?

The first question that was asked was where they were at when they heard the news that the Mt. Gox exchange had fallen and what the impact it had on the industry.

The co-founder and CEO of BitMEX Arthur Hayes said that he was in Hong Kong working out when he heard the news. He also said that he “expected some sort of collapse given how disconnected the Mt. Gox price was from Bitstamp’s. The collapse confirmed the bitcoin bear market was in full swing.”

The CEO of Ledger, Eric Larchevêque said:

“I was working on opening La Maison du Bitcoin (The House of Bitcoin), a bitcoin center in Paris. The collapse triggered extreme media reactions, saying that bitcoin was dead and couldn’t recover. The mood was quite gloomy, and many people I knew were impacted by the loss. But despite the contrarian forces, the promise of bitcoin held, and it showed how resilient it was to adversity.”

Answering the question, Paul Puey, CEO of the Edge Wallet, said:

“I was at our original Edge office, and it honestly did not surprise me. Many people saw it coming and had already made attempts to get off the sinking Titanic. Some were successful, and some weren’t. Many like to think it caused or contributed to the 2014 price decline, but we were already in the downtrend. The collapse had an eye-opening effect on the importance of private key ownership. Unfortunately, humans are short sighted and we now see annual “goxxing” events, with Quadriga being the latest.”

Gox Rising

Another question that was asked was what the interviewees thought of Brock Pierce’s Gox rising effort. The mission to support creditors of the Mt. Gox Estate in making sure the recoveries are maximised in order to relaunch to the now failed exchange.

Puey said:

“It’s an absolutely valiant effort. I’m not sure that keeping the brand for a new exchange is a good idea, given that “goxxed” is now a verb in crypto lingua. However, any attempt at recovering value for those early users will be appreciated.”

The CEO Zebpay, Ajeet Khurana had this to say:

“Any attempt made to support the creditors of Mt. Gox is hard to disagree with. However, apart from any digital assets that were recovered from the hackers, there isn’t a straightforward or hard value that creditors can get. Perhaps the Mt. Gox customer base, if encashed in a certain way, can help the creditors. At Zebpay, we have often had suggestions and offers of ways to capitalize on the Mt. Gox brand and consumer base, but such propositions generally end up being gimmicky.”

QuadrigaCX

The conversation later moved on to the QuadrigaCX exchange. The interviewer asked why, five years on after Mt. Gox failed, are we still seeing exchanges like QuadrigaCX failing?

Responding to this Hayes said “Humans will be humans. Some are lazy, some are inept, some are dishonest. That is not special to bitcoin. Banks still go under, commit fraud, and break laws.”

The Ledger CEO, Larchevêque said:

“In the early days, many exchanges were built by entrepreneurs believing in crypto but having absolutely no clue about security, best practices, and regulations. QuadrigaCX comes from the Mt. Gox legacy of thinking that basic web-programming tools are good enough to manage critical financial platforms.”

Khurana gave an interesting answer saying:

“Crypto as a space has set a level playing field between big corporations and startups. While this has happened repeatedly throughout history, with platforms such as the internet, with crypto the first-mover advantage is still with new-gen entrepreneurs. Unfortunately, not many innovators have been able to build the business-continuity plan and security robustness that this industry demands.”

Looking to the future

Last but not least, the CEOs and founders were asked what needs to happen in order for exchanges to become more trustworthy entities with Larchevêque saying:

“Exchanges need to be audited on their security process and adhere to very high standards when dealing with private keys management, both in terms of technology and governance. Regulators, whose role is to protect the end customer, must enforce the use of state-of-the-art hardware security systems.”