Tokyo—with a register that
would be powered by a point-
of-sale system that Mark had
been designing. Mark was
spending his time working
out the details of the café,
down to the programmable
LED lighting on the ceiling
and the recipes for the
pastries that would be served.
The café was almost ready to
open, with wine on the
shelves and light blue Bitcoin
Café mugs sitting next to the
register.
As he puttered around the
café, Mark did not look like a
man
responsible
for
a
financial company that was in
the throes of an existential
crisis. For most of January,
the price of a Bitcoin on Mt.
Gox had been almost $100
higher than on any other
exchange. This was a result
of the continued difficulty
that Mt. Gox was having in
transferring withdrawals to
customers
outside
Japan.
Mark
blamed
this
on
American
banks,
which
refused
to
accept
wire
transfers from his Japanese
bank. For all the people with
dollars stuck at Mt. Gox it
seemed that the only way to
get money out was by using
the dollars trapped in the
exchange to buy Bitcoins and
then transferring the Bitcoins
out of Mt. Gox. The pressure
of all these people trying to
buy Bitcoins on Mt. Gox,
with
no
ability
to
go
elsewhere, allowed sellers on
Mt. Gox to charge higher and
higher premiums for their
coins.
Then, in late January and
early February, something
even more worrisome started
happening that sent the price
heading in the other direction.
The customers earlier in
January
had
complained
about the difficulty of getting
dollars out of Mt. Gox, but
now a growing number of Mt.
Gox customers reported that
they
had
requested
withdrawals of Bitcoin and
never gotten the coins. A few
days after the hearings in
New York, Mark put up a
formulaic statement on the
Mt.
Gox
website
acknowledging the problem:
“Please rest assured that this
is only affecting a limited
number
of
users
and
transactions, and that we are
working hard on resolving
this problem as soon as
possible.”
The thirty or so Mt. Gox
employees in the company’s
Tokyo offices knew little
more than Mt. Gox customers
about what was going wrong.
When Mark wasn’t working
on the café, he was in his
office, behind a locked door
on the eighth floor, far from
the second- and fourth-floor
offices where most of his
staff was located. There were
visible signs that all the stress
was wearing on Mark. He
was not yet out of his
twenties but gray hairs were
visible in his big black mane
and he was clearly gaining
weight. People in the office
heard that Mark’s Japanese
wife had taken his young son
and gone to live with family
members in Canada, but
Mark said nothing about it.
Mark rarely interacted with
his employees and maintained
the
same
grip
on
the
company’s essential accounts
that he had back in 2011
when Roger Ver came to help
after the first big crisis at the
exchange.
The
alienation
from the ordinary world,
which had helped lead Mark
to Bitcoin, also made him a
terrible person to run a
Bitcoin company.
The Mt. Gox employees
were as surprised as the
exchange’s customers when
Mark decided, on Friday,
February 7, to shut off all
withdrawals from Mt. Gox.
The panic that this caused
only got worse on Monday
when Mark provided the first
explanation of what was
going wrong. In a statement,
Mark explained that the
exchange had run up against a
flaw in the Bitcoin protocol.
The
flaw,
known
as
transaction
malleability,
allowed devious users to alter
the codes that identified
transactions in a way that
made it impossible to tell if a
transaction had gone through.
Users in the know could
request a withdrawal, change
the code, and then request the
same
withdrawal
again.
Mark, in his statement, said
this was not just a problem
for Mt. Gox, but an issue with
the Bitcoin software, which
should
have
been
fixed
earlier.
The
statement
immediately sent the price of
Bitcoin plunging on every
exchange around the world—
a flaw in the Bitcoin protocol
could jeopardize everything.
And Mark was correct that
transaction codes had been
susceptible to alteration for
some time. What he didn’t
mention was that all the other
major Bitcoin companies had
known about the issue for
years
and
had
designed
around it, generally by not
relying on the transaction
code in question. Gavin
Andresen, the chief scientist
at the foundation that Mark
had funded, quickly came out
swinging against Mark and
said that the issue was not a
bug, but a quirk, which others
had dealt with easily. Mark
came under withering attack
from nearly every developer
working
on
the
Bitcoin
software.
“MtGox tried to blame
their issues by throwing
Bitcoin under a bus and I am
glad there has been a public
rebuttal showing up their
incompetence,”
one
programmer on the developer
e-mail list wrote.
After Mark publicized the
issue, transaction malleability
did, in fact, become a point of
attack on the Bitcoin network.
Bitstamp,
the
largest
exchange, shut off Bitcoin
withdrawals one day after Mt.
Gox’s announcement. But
Bitstamp emphasized that it
had lost no money as a result
of the issue and, after putting
together a quick patch, it was
back up by the end of the
week.
Other
exchanges
remained open throughout.
Mt. Gox, on the other hand,
remained closed, creating a
growing fear that something
bigger was wrong.
WHEN
MARK
KARPELES
showed up for work on
Friday morning, his umbrella
barely protected him from the
unfriendly wet snow falling
from the sky. He was wearing
a short-sleeved shirt that
hugged his round body, and
he carried a large frothy
coffee drink. Almost all the
other exchanges around the
world had recovered from the
transaction malleability scare,
but Mt. Gox showed no signs
of allowing customers to
again
withdraw
money.
Mark’s
entrance
to