A common refrain from the cryptocurrency community is just how early a lot of the technology involved is. Whilst the fundamental concepts behind Bitcoin originated in the 1980s, the modern crypto world is less than 15 years old.
Despite this, it has reached a level of accessibility that enables people who do not intimately understand the technology to get a crypto card, buy-in, trade, hold and stake tokens as and when they want.
Part of the reason for this is that the crypto community has managed to make the 15 years since the launch of Bitcoin’s white paper somewhat eventful, with a lot of different events
shaping the course of cryptocurrency as it made its path towards legitimacy.
One of the most important epochal moments in the early history of crypto concerned the early exchange Mt. Gox, which provided so many lessons in both its rapid rise to success and sudden demise that helped the budding decentralised financial world to blossom.
It was also a rather unusual case that some people who were affected stand to receive a massive financial windfall a decade later.
At The Foot Of The Mountain
At its peak, Mt. Gox handled over two-thirds of all Bitcoin transactions, at a time when that was the only cryptocurrency token with any traction.
However, in 2006, Mt. Gox started life as a very different type of asset exchange.
An acronym for “Magic: The Gathering Online eXchange”, the original Mt. Gox was a world apart from what it would become.
Jed McCaleb, who would later be the person behind the Ripple payment protocol and its XRP token, saw the infamously lucrative secondary market that saw some Magic: The Gathering cards sell for huge sums and developed a service to allow cards to be traded like stocks.
He developed a beta version of the website but quickly got bored and moved on, retaining the domain largely to avoid the inconvenience of getting rid of it.
This was shrewd for two reasons; firstly, the secondary market for Magic: The Gathering would quickly get extremely saturated, and secondly the empty domain was in the right place at the right time to become the first major cryptocurrency exchange.
In July 2010, two months after Bitcoin Pizza Day and around the time that the currency was starting to both generate attention and also rapidly increase in value, Mr McCaleb retooled Mt. Gox as a currency exchange service.
It rapidly grew in popularity as Bitcoin did, to the point that it became well beyond the capabilities of Mr McCaleb on his own, so he sold the site to Mark Karpeles, a French entrepreneur who had founded an early Bitcoin technology provider in Japan called Tibanne.
Mr McCaleb retained 12 per cent of the shares, something that gave him the capital to develop Ripple and later Stellar, a protocol that allowed for easier and more affordable cross-border transactions using the blockchain in combination with fiat currencies.
Meanwhile, Mt. Gox skyrocketed in popularity, ultimately handling over 70 per cent of all crypto transactions in the world by 2014. Its success was astonishing, but its collapse was just as dramatic, and illustrated a lot of lessons that have been learned in the decade since.
Avalanche
As early as 2011, there were security issues with Mt. Gox, which had proven vulnerable to the inexperience of its developers, with reports of 25,000 BTC being stolen from accounts at Mt. Gox and 2,600 BTC being lost through invalid transactions that would have ordinarily have been rejected with the standard client.
However, despite a few warning signs, most notably an issue with the e-commerce platform Dwolla, a temporary fork of Mt. Gox’s transaction ledger, and regulatory issues in the United States.
All of these issues had an effect on end customers, causing months-long delays with withdrawals from the exchange, issues with lost transactions and other bugs and an exceptionally long thread on Bitcoin Talk, an online forum that was at the centre of the early popularity of crypto.
This came to a head in February 2014, when Mt. Gox suspended withdrawals after up to 850,000 Bitcoins (worth over $450m at the time) had been “lost” from its hot wallets, only 200,000 of which were ever recovered.
This created a liquidity crisis from which Mt. Gox quickly realised it would never recover, especially after it was revealed that the company had been insolvent for years.
It was an extremely difficult time for crypto, but one that proved to be a learning experience for regulators, investors and developers. Future exchanges prioritised security and regulatory alignment, avoiding the “move fast and break things” mentality that had led to so many issues.
Mr Karpeles was arrested on serious embezzlement charges, although he was only found guilty of falsifying data for financial gain.
Ironically, he was also accused at the time of being “Dread Pirate Roberts”, the pseudonymous owner of the infamous Silk Road marketplace, although this was quickly dismissed and Ross William Ulbricht was sentenced to life imprisonment.