Mt. Gox — The Facts


In this episode of Crypto 101 we continue our discussion about the collapse and potential resurrection of Mt. Gox. Matthew talked with independent digital investigator, Kim Nilsson about his findings concerning the collapse.

Many Failings, Multiple Incidents

Kim has helped discover that the failings of Mt. Gox were many and occured over long periods of time; from password hacks, mismanaged wallets, and large-scale syphoning of funds over time.

“There were multiple incidents where Mt. Gox lost money. The big one that lost them the bulk of the money happened spread out over time, which was somewhat surprising for people to find out. You would normally not think this is possible because exchanges were supposed to keep a close eye on their Bitcoin.”

Part of the reason Kim commits himself to this work is to make sure that the nuance and complicated nature of the Mt. Gox saga is not lost to history.

Who is to Blame?

Many people, including Brock Pierce, have laid the blame almost exclusively at the feet of Mark Karpelès. Kim takes a more nuanced view.

“My research is about data and numbers. I can’t get into people’s heads.”

Kim considers Mt. Gox to have originally failed with an initial hack, however, the greater damage was done and was only destined to be amplified by the fact that this hack wasn’t detected or acted upon.

“I don’t know if there is a simple single answer to Mt. Gox, it’s a very complicated case. The one big thing that I found out was that coins were being taken out over a long period of time. That implies that they couldn’t have been watching.”

What are the Numbers?

Because there are a number of different incidents that befell Mt. Gox there a multiple sets of numbers and data to be discussed. We don't have the space to do that here but Kim has diligently documented all of his findings on his own blog.

There were multiple failings that occurred under Jed McCaleb, many more that occurred under Mark Karpelès

“The biggest one was a bit over 630 000 bitcoins that were slowly stolen out of the hot wallet and eventually went through a network of wallets that were owned by this Russian guy that is in prison in Greece right now.”

In total there were over 850 000 bitcoins that were either lost or stolen.

Who Were the Main Players?

As mentioned Jed McCaleb was the originator of the Mt. Gox exchange before handing it over to Mark Karpelès and he ran it from around the Spring of 2011. Around september 2011 the Russian figure enters the scene and the gradual Bitcoin leak is underway.

The Russian figure is known as Alexander Vinnik and Kim believes he was largely responsible for the laundering of the stolen bitcoins. He was arrested recently in Greece, where he was holidaying at the time.

The Bankruptcy of Mt. Gox.

At the end of February 2014, the collapse of Mt. Gox was complete. Soon afterwards the paperwork was filled for a civil rehabilitation with the Tokyo Court, which is basically a bankruptcy declaration. It was around this time that Brock Pierce’s company ‘Sunlot’ approached Mark Karpelès’ company ‘Tiban’ to begin negotiating to attempt to obtain Mt. Gox shares — this essentially amounted to a Letter of Intent to purchase which Brock has since planted his flag on as his claim to ownership of Mt. Gox. However, the court blocked this by virtue of the filing for civil rehabilitation so the negotiations led nowhere.

Soon after Mt. Gox filled for bankruptcy proper and attempted to settle it’s debts with all the affected creditors. Mt. Gox had approximately 200 000 bitcoins left in the coffers to settle its debts — which was not enough to pay everyone fairly—shareholders and creditors.

With the rise of the bitcoin price in 2017, there was more than enough money to pay everyone back in dollar value but this was obviously not an acceptable resolution for the many people who had lost bitcoin.

Brock Pierce

Check out our piece on Gox Rising here. Kim doesn’t believe that Pierce’s intentions are genuine. Brock’s professed intention is to make sure that all the creditors are paid off fairly and that Mark or anyone else won’t end up walking away with any money as a result of the collapse. But this is outcome has already been won by Nilsson and others who have fought long battles in the courts to secure the creditor’s claims.

“This horrible thing that Brock is talking about that he wants to fix, has already been fixed. That’s not going to happen anymore. He is basing this on information that is out of date, it hasn't been the case since early last year. The only reason I can imagine for why he won’t correct himself after this has been pointed out to him multiple times is that he is being dishonest and misleading people.”

“The thing that has been resolved is that it is no longer —legally speaking—a bankruptcy, it is now a civil rehabilitation.” This has an interesting real-world effect of making the valuations of the losses of the creditors to evolve with the valuation of Bitcoin. This basically means that people should be paid back an amount that respects the current price point of bitcoin, not just their initial dollar investment.

Brock’s involvement could actually serve to derail some of this progress, if not legally speaking, at least in terms of communicating the facts of the case openly to the public.

“What he is being criticised for is injecting himself in the legal process at a point where we just had this massive battle over setting things right and he rushes in like a bull in china shop and seems very uninformed about it or is actively spreading misinformation and confusing things.”

Who is Kim Nilsson?

A self-described “normal software engineer”. Kim lives in Japan, where he has called home for the last ten years. Kim codes by day for a living and a few years ago he developed a hobby of investigating the Mt. Gox saga. Being convinced that the police wouldn’t be able to solve the issue and a governmental third party was unlikely to step in to help, Kim became convinced that if justice was to be done for the creditors of Mt. Gox and if the truth was ever to stand a chance of getting out into public view that it would have to be an intentional grassroots effort — an effort he has spearheaded since, for many years.

“There were times where I hit walls, places where I thought to myself ‘what is the next step, really?’ But every time something new would happen or I would get some new piece of data or I would look at it from a new angle that would motivate me to keep things going. It kept me going for about 3 years of solid investigation.”
Kim Nilsson

Finally

The Mt. Gox saga is complicated, nuanced and arduous. It is incredibly helpful to have someone like Kim Nilsson who is dedicated to overturning the truth and then transparently publishing and communicating it to the wider community. One can only speculate as to the future of the saga as well as the intentions of all those involved. However, one thing is for sure, Bitcoin and blockchain are not going anywhere — so how we tell the important stories of its past, like Mt. Gox, matters.

“I think part of the reason that all of this looks so much like a poorly thought-through media spectacle is because I think it is a poorly thought-through media spectacle.”

Be sure to check out the podcast.