MtGox 'lost coins' long before collapse

MtGox, once the world's most popular venue for trading and storing bitcoin, was in effect insolvent long before it collapsed, according to a report that claims thieves were routinely stealing the digital currency from its thinly protected vaults.

When the Tokyo-based exchange pulled down the shutters in February 2014, saying it had lost track of 850,000 coins worth about $500m, it triggered thousands of claims from creditors, many of whom had been using the platform up until its demise.

But findings by a team of independent investigators suggest that raids had begun more than two years earlier, in late 2011, and that MtGox was practically cleaned out of coins by the summer of 2013. Most or all of the missing coins were stolen straight from an online pool held for settling daily transactions - the "hot wallet".

The investigators trawled millions of entries on the blockchain, the central ledger that logs all transfers between bitcoin addresses, and found a recurring pattern: MtGox-related bitcoins would periodically be sent to a new non-MtGox address, without a withdrawal log entry, often in lots of a few hundred coins at a time.

These addresses would then be gathered into bigger addresses holding a few thousand bitcoin. From there the coins would be deposited in chunks of a few hundred on to various bitcoin exchanges - including MtGox itself - and probably sold for cash.

"This kind of activity would be hard to interpret as anything but intentional theft," wrote Kim Nilsson, the report's author, and chief engineer at WizSec, a consulting firm.

It is the second attempt by WizSec to get to the bottom of the events leading up to the collapse of MtGox - short for "Magic: The Gathering Online eXchange" - which sparked fury among users and sent the price of the digital currency crashing.

<

The tabular content relating to this article is not available to view. Apologies in advance for the inconvenience caused.

Mark Karpeles, former chief executive of MtGox, has said he was unaware that any coins were missing until late in February, weeks after users began to report difficulties withdrawing funds. He could not be reached for comment.

Last year WizSec analysed the activity of an automated trading bot that appeared to outsmart the fragile MtGox system by assigning itself dozens of accounts with apparently faked US dollar balances, allowing it to buy and withdraw the digital currency at will.

In light of the new findings, it appeared that the bot could have been trying to cover the tracks of the earlier thefts, said Mr Nilsson.

WizSec was set to release the report on Sunday evening, Japan time, ahead of a meeting of MtGox creditors at a Tokyo court on Wednesday.

A police investigation into the collapse is ongoing.

© The Financial Times Limited 2015. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation