Bitcoin exchange Mt. Gox is facing scrutiny on both sides of the Pacific Ocean as government authorities in the U.S. and Japan are investigating the abrupt shutdown of the service, which apparently lost more than $350 million worth of its customers’ virtual currency.
Japan-based Mt. Gox, founded in 2010, shut down its exchange of Bitcoin after an apparently internal “crisis strategy” report was leaked online by Ryan Selkis, a Bitcoin entrepreneur based in San Francisco. The report states approximately 744,408 Bitcoin are missing from Mt. Gox due to “theft which went unnoticed for several years.” That total is a big chunk of the estimated 12.44 million Bitcoin in existence according to Bitcoin Charts, a ticker for virtual currency.
Bitcoin is not regulated by any country, but authorities are investigating as the loss raises worries about consumer safety and the reliability of the digital currency. The Japanese Financial Services Agency and Finance Ministry are collecting information on the closure, according to Bloomberg. The Tokyo Metropolitan Police Department is also speaking with Mt. Gox customers who have expressed concern, Bloomberg reports.
Preet Bharara, U.S. Attorney for the Southern District of New York, also has sent subpoenas not only to Mt. Gox, but to other Bitcoin exchanges and businesses that accept the virtual currency to determine how they manage and secure their payments, Reuters reports.
Mt. Gox CEO Mark Karpeles posted a statement on his website Wednesday in place of his shuttered Bitcoin exchange.
“As there is a lot of speculation regarding Mt. Gox and its future, I would like to use this opportunity to reassure everyone that I am still in Japan, and working very hard with the support of different parties to find a solution to our recent issues,” Karpeles said.
Congress also may step in to consider regulation. In response to the shutdown of Mt. Gox, Senate Homeland Security and Governmental Affairs Committee Chairman Tom Carper, D-Del., said in a statement his staff is “closely working with relevant federal agencies to determine what lessons can be learned from this failure to help ensure this does not happen here in the U.S.”
“As any industry matures it will face growing pains and there will be individuals who believe they can use the fog of uncertainty to cover up their follies,” Carper said.
Seeking to ensure customers' confidence, a group of other Bitcoin exchanges – including Kraken, BTC China and Circle – issued a joint statement on Monday promising investment in security technology.
Any company accepting the digital currency still needs to stay on the good side of regulators, as seen when the Department of Homeland Security cut Mt. Gox off from accessing one of its U.S.-based accounts in 2013. Mt. Gox registered as a money-services business in the U.S. in June, after the Treasury Department’s Financial Crimes Enforcement Network expressed concern that businesses exchanging Bitcoin for dollars do so to ensure Bitcoin does not become a venue for money laundering.
Bitcoin is designed to exist in a controlled supply through an algorithm that generates and manages the virtual currency based on how often it is used. It is growing as a means of payment for online goods and even in some brick-and-mortar shops. Bitcoin ATMs, at which users can buy or cash out the virtual currency, also will soon be coming to Seattle and Austin, Texas, according to Robocoin, the company that builds the kiosks.
"The Mt. Gox failure marks the end of bitcoin’s youth," Robocoin CEO Jordan Kelly said in a blog post, predicting new Bitcoin services would make the currency more secure and reliable. "It’s a shame that many people lost money, but when underperforming businesses are replaced by innovative ones, the economy grows stronger,"