This is What Most Likely Happened to MtGox

There has been a ton of speculation as to what happened in the catastrophic failure of MtGox. The only thing we know for sure is that it somehow “lost” upwards of 750,000 of customer BTC, valued around $450 million. A number of theories have been circulating on the internet. Here I’m going to talk about the one that seems the most plausible to me. H/t to /u/PuffyHerb on Reddit for most of this.

The theory is essentially that the U.S. Government seized MtGox’s cold storage wallet and Karpeles can’t disclose that information due to a gag order.

Before getting into that let’s recap the “official” story of what is believed to have happened.

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MtGox Problems and Transaction Malleability

mtgox-bitcoinWatching the drama surround MtGox in recent days has been like watching a slow motion train wreck. It’s put a lot of strain on the community and has been causing the Bitcoin price to tank. If you’re not up to date on this story, basically MtGox has been experiencing severe Bitcoin withdraw issues with numerous customers claiming they never received their bitcoins. Apparently upwards of $38 million worth of bitcoin withdrawals have gone unfulfilled causing MtGox to freeze withdrawals altogether.

You can add this to the long list of problems MtGox has had over the last couple years. A trading platform that couldn’t handle high volume trades, operating without a license in the US and having a large amount of customer funds stolen by the US government, USD withdrawals taking months to clear, and strong suspicion it’s operating on fractional reserves.

Now this morning MtGox comes out and announces its problems aren’t its fault, but rather a bug in Bitcoin itself! News of this potentially catastrophic bug has sent the markets into a tizzy.

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