Bitcoin In Crisis: Mt Gox Quits Bitcoin Foundation

Mark Karpeles, CEO of the Tokyo-based Mt Gox bitcoin exchange, has resigned from the board of the Bitcoin Foundation following a disagreement with its members.

Earlier this month, Mt Gox temporarily suspended all withdrawal orders, blaming the little-known ‘transaction malleability’ flaw for making it possible to defraud the exchange. It claimed that the issue affected all Bitcoin users and said it was hoping to work alongside the Bitcoin Foundation to find a remedy.

In response, lead Bitcoin developer and Foundation chief scientist Gavin Andresen said that transaction malleability had been dealt with a while ago, and the problems at Mt Gox were caused by the platform’s own software.

The Bitcoin Foundation is a trade group founded in 2012 to promote the digital currency and oversee the development of its open source, peer-to-peer protocol.

A petition to oust Karpeles from his position on the Foundation, launched on the 14 February, has attracted 1,740 signatures. According to the Foundation’s bylaws, in order to remove a director, two thirds of the board would need to vote in favour of their resignation. However, Karpeles decided to leave the organisation of his own accord, rather than put his popularity to the test.

The bigger they are

Mt Gox was established in 2010 as Magic: The Gathering Online Exchange – a platform for trading collectible game cards, but its focus soon shifted to a more lucrative business – transactions in digital currency.

By 2013, it grew to become the largest Bitcoin exchange in the world, processing as many as two thirds of all BTC transactions. Mt Gox also served as one of the founding members of the Bitcoin Foundation.

The exchange entered a downward spiral last summer, when it “temporarily” stopped converting bitcoins into US dollars.

On 6 February, after noticing “unusual activity” inside Bitcoin wallets, Mt Gox abruptly stopped all transactions altogether. Several days later, it resumed exchanging virtual currencies into cash, but said it would not be transferring Bitcoins into wallets operated by other parties. It also published a statement in which it described something called ‘transaction malleability’.

“A bug in the Bitcoin software makes it possible for someone to use the Bitcoin network to alter transaction details to make it seem like a sending of Bitcoins to a Bitcoin wallet did not occur when in fact it did occur. Since the transaction appears as if it has not proceeded correctly, the bitcoins may be resent,” said the exchange. “Mt Gox is working with the Bitcoin core development team and others to mitigate this issue.

“The problem we have identified is not limited to Mt Gox, and affects all transactions where Bitcoins are being sent to a third party.”

The announcement agitated Bitcoin owners and triggered a panic sale, since Mt Gox did not say when it planned to resume transfers.

Fall from grace

This version of events was contested by Andersen who said that transaction malleability posed no danger to the bitcoin community, and the problems were created by the exchange’s own code.

“The issues that Mt. Gox has been experiencing are due to an unfortunate interaction between Mt. Gox’s implementation of their highly customized wallet software, their customer support procedures, and their unpreparedness for transaction malleability, a technical detail that allows changes to the way transactions are identified,” Andresen said in a statement on the Bitcoin Foundation’s blog.

According to the latest post on this blog, following criticism from customers and fellow bitcoin businesses, Karpeles has resigned from the Foundation’s board with immediate effect.

“We are grateful for his early and valuable contributions as a founding member in launching the Bitcoin Foundation. As CEO of Mt Gox, he held one of the three elected industry member seats. Further details, including election procedures, will be forthcoming.”

For some reason, all messages on MtGox’s official Twitter feed have also been deleted.

Last week, the exchange posted an update in which it promised to enable transfers “soon”, but once again failed to specify a date.

Recent problems prompted CoinDesk to remove Mt Gox from its Bitcoin pricing index, and many believe that this could be the end of the road for the exchange.

Bitcoins on Mt Gox were valued at about $232 in Monday trading, while the average on other major exchanges, according to CoinDesk, stood at approximately $570 – the difference in price highlighting the lack of confidence in its ability to pay back the funds.

Charles ‘Charlie’ Shrem, another Bitcoin Foundation board member, stepped down in January after being charged with operating an unlicensed money transmitting business, violating the Bank Secrecy Act and conspiring to commit money laundering through the now-defunct Silk Road marketplace.

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