Mark Kapeles, self-proclaimed “king of Bitcoin” and former head of Mt. Gox, once the digital currency's most popular trading site, has come under huge scrutiny over the disappearance of 850,000 bitcoins (approximate worth: $460million). The official line is that Mt.Gox lost the coins to hackers, but is this a cover for a government investigation into Silk Road traders?
According to a leaked Mt.Gox document that surfaced last week, hackers had been hitting the site for years without anybody noticing, skimming off its reserves of Bitcoins by exploiting a weakness in its transaction system. But another theory exists: that Mt. Gox’s bankruptcy is all a smokescreen for an ongoing US government investigation into Silk Road, the infamous online drug marketplace.
Widespread speculation on Reddit claims that it was impossible that Mt. Gox could have been ignorant of this transaction malleability issue: the security flaw had been known for years (at one point, there was even a Wiki page dedicated to it). So where have those 850,000 bitcoins disappeared to? Could Mt.Gox really have been so blind to the slow relief of that many coins from their site?
Mt.Gox say that they kept 98% of their coins in cold storage, meaning multiple safe deposit boxes that are physically impossible to hack. In the only interview that Karpeles has done since the crisis began, he alludes to the coins being “temporarily unavailable, not stolen”.
However, if the coins were hacked and taken, then they aren't temporarily unavailable – they're gone. And who’s the likely culprit? Potentially, the U.S. government, which has seized the Bitcoins as part of their ongoing investigation into Silk Road. In fact, cryptocurrency blogger Chris Pacia believes this is the “most likely” theory behind the demise of Mt. Gox.
The crisis comes as Senator Joe Manchin has lobbied for Bitcoin to be banned due to its potential to be used in illicit transactions and Jon Stewart described Bitcoin as the 'tamagotchi of currency' on the Daily Show, an indication of the currency's shift into mainstream consciousness. Do any of you use Bitcoin or have money tied up in Mt.Gox? Does anyone think Bitcoin should be banned?
Follow Thomas Gorton on Twitter here @angstromhoot
Have some news? Let us know on email@example.com