850,000 Bitcoin Vanished from the World's Largest Exchange

The Origin

Mt. Gox began as a trading platform for Magic: The Gathering cards. The name stands for “Magic: The Gathering Online eXchange.” In 2010, programmer Jed McCaleb repurposed the domain to create a Bitcoin exchange — one of the first platforms where users could buy and sell Bitcoin for traditional currency.

McCaleb sold the site to Mark Karpelès, a French developer living in Tokyo, in March 2011. Under Karpelès’s management, Mt. Gox grew rapidly. By 2013, it was processing approximately 70% of all Bitcoin transactions worldwide. For many early adopters, Mt. Gox was Bitcoin. The exchange was the primary gateway between cryptocurrency and the traditional financial system.

The Growth

Mt. Gox’s dominance was a product of timing. It was one of the only functioning exchanges during Bitcoin’s formative years, and it benefited from the network effects of being the largest marketplace. Traders congregated where liquidity was deepest, and liquidity was deepest where traders congregated.

But the platform’s infrastructure had not kept pace with its growth. Mt. Gox was, at its core, a repurposed trading card website being used to handle hundreds of millions of dollars in financial transactions. The codebase was fragile, the security practices were inadequate, and the management team was small and inexperienced in financial regulation.

The Warning Signs

Problems at Mt. Gox were visible long before the collapse. Users regularly reported delays in withdrawals, sometimes waiting weeks or months to receive funds. The exchange suffered multiple outages during periods of high trading volume. In June 2011, a security breach led to the theft of approximately 25,000 BTC from user accounts.

In 2013, the US Department of Homeland Security seized $5 million from Mt. Gox’s American subsidiary for operating without proper money transmission licences. The exchange’s banking relationships became increasingly strained, and competitors began to chip away at its market share.

Despite these red flags, the majority of users continued to trust Mt. Gox with their funds. The exchange’s dominant market position created a false sense of security. If everyone else was using it, the reasoning went, it must be safe.

The Collapse

In early February 2014, Mt. Gox suspended Bitcoin withdrawals, citing a technical issue related to “transaction malleability” — a known quirk in the Bitcoin protocol that could, under certain circumstances, allow transactions to be altered before confirmation. The exchange said it was working on a fix and that withdrawals would resume shortly.

They never did.

On 24 February 2014, the Mt. Gox website went offline. Two days later, a leaked internal document revealed that the exchange had lost approximately 850,000 BTC — 750,000 belonging to customers and 100,000 belonging to the company. At prevailing prices, the total loss was approximately $450 million.

On 28 February 2014, Mt. Gox filed for bankruptcy protection in Tokyo.

The Investigation

The question of how 850,000 BTC could vanish from a single exchange sparked one of the most complex financial investigations in cryptocurrency history. Japanese police, the FBI, and independent blockchain analysts all examined the evidence.

The emerging picture was that the theft had not been a single dramatic heist but a slow bleed over several years. Bitcoin had been systematically drained from Mt. Gox’s wallets through a combination of external hacking and internal mismanagement. The exchange’s accounting systems were so poor that the losses went undetected for years.

Karpelès was arrested by Japanese authorities in August 2015 on charges of fraud and embezzlement. He was accused of manipulating financial records and misappropriating customer funds. In 2019, he was convicted of falsifying data but acquitted of the more serious embezzlement charges. He received a suspended sentence.

Approximately 200,000 BTC were later discovered in old Mt. Gox wallets that had been overlooked during the initial investigation, reducing the net loss to approximately 650,000 BTC. The circumstances of this discovery added to the confusion surrounding the case.

The Decade of Waiting

Mt. Gox’s bankruptcy proceedings became one of the longest and most complex legal processes in cryptocurrency history. Creditors — the users who had lost their Bitcoin — were forced to navigate Japanese bankruptcy law, a system designed for traditional companies, not cryptocurrency exchanges.

The proceedings were complicated by Bitcoin’s price movements. When Mt. Gox collapsed in 2014, Bitcoin was worth approximately $500. By the time the estate was being distributed, Bitcoin had reached prices of $30,000, $50,000, and beyond. The 200,000 recovered BTC, worth roughly $100 million in 2014, had appreciated to billions of dollars.

This created a peculiar situation. Creditors who had lost Bitcoin in 2014 stood to receive repayments in 2024 that exceeded — in fiat terms — the value of their original deposits. But they received only a fraction of their Bitcoin back, meaning they missed out on the full appreciation of their original holdings.

In 2024, a full decade after the collapse, creditors finally began receiving distributions. The process involved converting some Bitcoin to cash and distributing the remainder in cryptocurrency, according to a complex formula approved by the Japanese courts.

The Legacy

Mt. Gox’s collapse was a watershed moment for the cryptocurrency industry. It demonstrated the catastrophic risk of entrusting funds to centralised exchanges — an irony not lost on a community built around the principle of decentralisation. The phrase “not your keys, not your coins” became a mantra in the Bitcoin community, a direct response to the Mt. Gox disaster.

The collapse also accelerated the development of regulatory frameworks for cryptocurrency exchanges. Governments around the world pointed to Mt. Gox as evidence that the industry needed oversight, and exchanges that followed invested heavily in security, insurance, and compliance to avoid the same fate.

Lessons

Mt. Gox remains the largest exchange failure in Bitcoin history and one of the most significant events in the development of the cryptocurrency ecosystem. The fundamental lesson is unchanged a decade later: leaving Bitcoin on an exchange means trusting a third party with assets that were designed to be held without trust.

For individuals planning their Bitcoin inheritance, Mt. Gox is a reminder that custody matters above all else. An exchange can be hacked, mismanaged, or shut down by regulators. Self-custody — holding your own keys in your own wallet — is the only way to ensure that your Bitcoin is truly yours. And if it is truly yours, it can be passed on to the people who matter.

“Seven hundred and fifty thousand people trusted someone else to hold their Bitcoin. They all learned the same lesson.”

Related Reading

• What Happens to Bitcoin When You Die? — Why self-custody is the only way to ensure your Bitcoin is truly yours.
• Bitcoin Inheritance Planning (UK) — Build an estate plan that doesn’t rely on a third party holding your keys.
• Multi-Sig Inheritance Explained — How multi-sig provides exchange-grade security without exchange-grade risk.
• Gerald Cotten: QuadrigaCX — The closest parallel to Mt. Gox — another exchange where one person held all the keys.
• Individual X: 69,370 BTC Seized — Silk Road-era Bitcoin that ended up in government hands through a different route.