Bitcoin investors and enthusiasts were in turmoil on Tuesday after one of the largest exchanges of the virtual currency ceased operations amid reports of a massive theft.
Mt Gox, a Tokyo-based website that acted as a kind of Bitcoin bank was unreachable on Tuesday following a leaked memo. It allowed holders to store their virtual currency there or exchange it for dollars, yen or other hard currency and had conducted hundreds of millions of dollars in transactions since its 2010 founding.
The memo, which purported to come from Mt Gox management detailed how the site may have lost some 744,000 Bitcoins to theft over several years and was on the verge of bankruptcy.
The stolen Bitcoins amount to about 6 per cent of all the Bitcoins in circulation. At peak value of $1,200 per Bitcoin, the lost currency represents over $893 million. But the value of Bitcoin has fallen sharply in recent months, including a more than 10 per cent drop on the news of Mt Gox’s trouble, and was trading at less than $500 on Tuesday.
“In light of recent news reports and the potential repercussions on Mt Gox’s operations and the market, a decision was taken to close all transactions for the time being in order to protect the site and our users,” a notice on the Mt Gox website read.“We will be closely monitoring the situation and will react accordingly.”
Other Bitcoin exchanges sought to distance themselves from the website troubles issuing a joint statement that called Mt Gox’s action “a tragic violation of the trust of users,” and assuring that other companies “would continue to build the future of money by making Bitcoin more secure and easy to use for consumers and merchants.”
The imbroglio has highlighted the supposed dangers posed by a virtual currency that is unregulated by Governments. But the group of Bitcoin companies urged the adoption of a set of security standards, including independently audited security measures, transparent balance sheets and policies to not use customer balances for leveraged trading.
However, the Mt Gox incident undermined even the most ardent Bitcoin supporters.
“I do believe that this is one of the existential threats to Bitcoin that many have feared and have personally sold all my Botcoin holdings,” prominent Bitcoin blogger Ryan Galt said. “I am a risk-tolerant investor, but I believe this will be catastrophic for Bitcoin, both as a currency and as a fledgling industry.” Mt Gox halted withdrawals from user accounts earlier in the month, citing what it said was a flaw in Bitcoin software that potentially allowed fraudulent withdrawals.
The demise of what had been the largest Bitcoin exchange represented the deepest crisis in the history of the virtual currency which was introduced in 2009. Hailed by supporters as a revolutionary economic innovation, the coins can be traded between accounts using secret passwords which allow for near complete anonymity. Only 21 million coins can be in circulation.