In August of 2015, Mark Karpeles, CEO of one of the world’s largest bitcoin exchange websites was arrested in connection with defrauding users out of millions of dollars worth of bitcoins. Through his company, Mt. Gox, the computer programmer turned King of Bitcoins was able to rise to the top of the game, and saw it all come crashing down around him through mismanagement of website resources – which some have speculated was intentional– his penchant for watching cat videos and treating the office to lavishly catered lunches, rather than leading a corporation.
While living in Japan, Karpeles acquired the domain Mtgox.com. Originally a Magic the Gathering card trading site, Karpeles utilized his knowledge of web development to transform the site’s back-end platform into a bitcoin exchange website. Users were able to use the site in order to transfer bitcoins to other users or to transfer the money into their own bank accounts in the currency of their choice. Other safer, more reliable sites, such as Coinbase have since taken over the market and offer more security than that of what Mt. Gox offered.
In spite of what many web developers would consider poor design, Mt. Gox received excellent reception within the bitcoin community. However, the neglect in standard security features on the site allowed hackers to take down the site within a short period after its opening. Karpeles was unusually calm about the matter, and with the assistance of two other programmers, was able to have the site back up and running within a matter of days. The hack did subsequently compromise user accounts, but the company made good on all promises to the existing user base and soon gained a reputation as a trustworthy organization.
As bitcoins began to gain popularity, Karpeles, who had been the highest stakeholder within the company, found himself in the midst of a windfall. However, Karpeles’ luck would begin to change and red flags that the company wouldn’t last long were beginning to show.
Professional developers eager to work with an innovative financial institution like Mt. Gox were appalled at the site design, describing it as very crude and rudimentary. Users would be forced to run untested beta versions of the site and security holes or bugs would go unpatched for weeks at a time.
By 2013, Karpeles’ poor business management skills forced at least one company to file a suit against Mt. Gox and federal agents seized nearly $5 million from the company’s U.S. Bank accounts for operating without proper registration. Karpeles seemed unfazed by the troubles within the company and set his sights on another project.
The Bitcoin Cafe would have been a French-inspired bistro located within Mt. Gox’s Japanese headquarters. The restaurant and bar would be the first of its kind to accept bitcoin as a payment method, through specialized registers Karpeles, himself, hacked the software for. This would prove to be yet another pipe dream for Karpeles.
Mt. Gox, itself, was on the verge of completely falling apart as a company. Karpeles decided to seize payouts to its 750,000 customers in the form of bitcoins and protesters stormed the offices, demanding answers from Karpeles. Instead, Karpeles occupied his time daydreaming of his cafe and monkeying with different gadgets around the office.
By the time Mt. Gox officially declared themselves insolvent, $309 million worth of bitcoin was declared missing. Karpeles argues that the missing bitcoin was due to a security flaw within the source code of the site, allowing hackers to skim millions of dollars worth of bitcoin from the site throughout the duration of its existence. Still, it doesn’t explain how some of this missing bitcoin was suddenly discovered within a “cold wallet” – a method for users to store their digital currency offline on a USB flashdrive or some other memory device, and acts similarly to a safe deposit box.
If Karpeles is found guilty of embezzling the missing bitcoin then he is facing up to five years in a Japanese prison and a $4200 fine, along with the possibility of civil suits against him from former Mt. Gox customers.
Some say that the arrest of Karpeles may have spawned a new era for bitcoin. There have since been calls for the federal regulation of bitcoin exchanges and the legitimization of the digital currency popular amongst hackers and geeks. The growing popularity is now pressuring many online retailers to accept bitcoin as a form of payment, and even industry leaders like Amazon are beginning to consider accepting bitcoin as a legitimate currency. Only time will tell the fate of bitcoin, but the more users who embrace it, the better it will become in the future.