Apr 28, 2024 1:13:57 AM

Bitcoins are generated through a process called mining. In its early days, it wasn’t difficult to mine bitcoins; you just had to be part of the network. All users had similar computational power, making the bitcoin distribution relatively fair. This was Sathoshi’s original idea for a consensus mechanism: one computer, one vote. But in a short time, with the development of equipment suitable for Bitcoin mining, mining them with a home computer became almost impossible.

So for many people, a transfer would be the only way to get bitcoins. If you knew someone who owned bitcoins, you could negotiate with that person to transfer some of their bitcoins in exchange for cash or some product. The willingness of people to buy bitcoins led to a business opportunity, with entrepreneurs creating the first bitcoin exchanges.

was a Bitcoin exchange created in 2010 by programmer Jed McCaleb. Its name comes from the fact that the domain was previously used to exchange cards from the card game Magic, the Gathering. Mt. Gox was not very successful in trading RPG cards, but it was very successful in the Bitcoin business. In 2014, it was responsible for around 70% of the world’s Bitcoin transactions.

In 2011, McCaleb sold the company to French programmer Mark Karpelès, who took the company to Japan, where he resided. Karpelès continued as CEO of Mt. Gox until it declared bankruptcy in 2014, leaving a massive loss for everyone who had bitcoins in custody by the company.

Kerpelès alleges that the company was hacked and the bitcoins were stolen by attackers, quite possibly over the years. For that, a condition present in Bitcoin called transaction malleability was explored, in which it is possible to change the hash of a transaction without changing the recipients or the value of the transaction.

The hack and subsequent crash of Mt. Gox were the first, if not the last, of the problems involving cryptocurrency exchanges. Many do not keep the cryptocurrencies supposedly purchased by their customers or the necessary for withdrawals. The crash of FTX, one of the largest cryptocurrency exchanges in operation, recently led to a loss of tens of billions of dollars.

The Breaking of Mt. Gox and FTX raise the discussion about who should keep custody of cryptocurrencies. Assets held in exchanges are not controlled by their buyers, as they do not have the private key to move them. However, moving such assets to a personal account is possible after they have been purchased on the exchange. In this case, the assets will be kept under self-custody.

The failure of major cryptocurrency exchanges always casts doubt on the sustainability of this ecosystem. But we have seen over the years that the market always recovers itself despite consumers’ significant losses. Customers of exchange Mt. Gox fought a legal battle for years to get their bitcoins back. A recent decision released the exchange’s blocked bitcoins to pay those affected by the company’s bankruptcy. Ironically, although the value recovered by the exchange was only 20% of the total stolen, each bitcoin unit is now worth almost 30 times its value at the time of the hack.