Bitcoin exchange Mt. Gox files for bankruptcy following data breach

Likely to see an influx of investor suits following the event

Mt. Gox, a digital currency exchange, has filed for bankruptcy in Japan as of Feb. 28. The move comes following a cyber-attack that claimed 750,000 bitcoins from the service’s supposedly secure systems. Reuters reports that at a current unit price of $565, the potential loss makes up approximately $480 million, roughly seven percent of the global supply of bitcoins.

Appearing at a press conference following the filing, CEO Mark Karpeles apologized for the lapse in security, and emphasized that the breach should not impact investor’s views about the safety of bitcoin. "First of all, I'm very sorry," he said. "The bitcoin industry is healthy and it is growing. It will continue, and reducing the impact is the most important point," Karpeles said.

While the nature of the breach is likely to have been the result of several factors, the Mt. Gox website references an exploitable bug that may have caused the bulk of the theft. “At the start of February 2014, illegal access through the abuse of a bug in the bitcoin system resulted in an increase in incomplete bitcoin transfer transactions and we discovered that there was a possibility that bitcoins had been illicitly moved through the abuse of this bug,” the site says.

Gox had shut down trading in early February due to a number of technical issues, and says that it had noticed a considerable discrepancy in its account Monday that ultimately caused the bankruptcy action. Investors are already seeking legal action against the exchange in response to the event. ArsTechnica reports that an Illinois man filed a class-action lawsuit again Mt.Gox on Thursday, just prior to the news of bankruptcy. The man says that he has yet to be approached by Mt.Gox to discuss settlement terms.

While there may be a way to track the stolen assets, the breach raises questions about the safety of bitcoin. Recently the subject of a judicial hearing in the U.S. bitcoin has made a recent thrust towards legitimate usage that could be derailed by events like this.

 Though the breach and resulting theft at Mt. Gox does not represent a weakness in the currency itself, but rather the intermediaries, the breach could still have a chilling effect on the adoption of bitcoin by a wider spectrum of investors.

 

For more on cybersecurity check out these stories:

EBA issues warning against Bitcoin trade

Data breaches transforming the GC's role in the company

Apple data breach compromises users of iOS and OS X

Managing Editor

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Chris DiMarco

Chris DiMarco, Managing Editor of InsideCounsel magazine, has a background in multimedia production with previous involvement in projects in which he developed and created content for...

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