The pioneering yet much-reviled Bitcoin exchange MtGox has officially filed for bankruptcy protection. According to a report in the Wall Street Journal, a company lawyer told Japanese journalists on Friday that the outfit had outstanding debts of roughly $63.6 million against assets of little over half that.
This is no surprise — Tokyo-based MtGox suffered a huge theft of Bitcoins sometime in recent years (no, it didn’t conduct any audits) and had major liquidity problems, meaning many of its customers are unlikely to get their money back. On Friday the company said it had lost 750,000 of its customers’ bitcoins and 100,000 of its own bitcoins. That’s pretty much everything MtGox had in its virtual vaults.
The theft appears to have been largely MtGox’s fault for handling the Bitcoin protocol badly, but there also seems to be a wider weakness as other outfits have fallen victim to similar attacks.
“We have lost Bitcoins due to weaknesses in the system,” Bitcoin CEO Mark Karpeles told a press conference in Japanese, according to AFP. “We are really sorry for causing trouble to all the people concerned.” (If your Japanese is up to scratch, the video is embedded below.)
Earlier this week, it emerged that American and Japanese regulators are looking into the MtGox collapse, and it also seems that no one was willing to throw Karpeles’s ailing outfit a lifeline.
Bitcoin users do not have any regulatory backup if things go wrong – if their funds are stolen from their virtual wallet, there’s no bank to replace the funds, and if the exchanges fail, there’s no central bank to prop them up. They’re on their own.
On Thursday, U.S. Federal Reserve Chair Janet Yellen told a congressional committee that the Fed has no authority to regulate Bitcoin as it is a global, decentralized initiative. Japan’s vice finance minister said on the same day that regulating the cryptocurrency would require international collaboration, for the same reason.
MtGox used to handle the majority of Bitcoin trades, and many feared its sliding fortunes would have a major knock-on effect on the currency as a whole. It’s certainly been a factor in Bitcoin’s recent cooling-down, which has been significant, but Bitcoin hasn’t entirely crashed as such. Indeed, the ecosystem now appears to be broad enough to withstand a major shock like the MtGox debacle – sure, it was trading above $1,000 late last year, but it’s now around where it was in early January, at around $550.
Incidentally, for schadenfreude fans, the blogger who recently leaked MtGox’s hopeful turnaround plan has now leaked what purports to be a Europe-specific plan that describes the company’s plans for rolling out point-of-sale and other e-commerce systems, based around Bitcoin and Litecoin. Perhaps someone else can make that happen now.
This article was updated at 2:45am PT to reflect the certainty of the bankruptcy proceedings, as initial reports became more detailed, and again at 6am PT to include details of Mark Karpeles’s statement.