Apr 16, 2014 · 5 minutes

Mt. Gox, the embattled bitcoin exchange accused of using its customers' funds for its own purchases, losing hundreds of thousands of bitcoins, and otherwise mishandling its finances, has canceled rebuilding plans and asked the Japanese government to allow it to liquidate.

The company is also trying to avoid lawsuits in the United States by filing for bankruptcy protection in Texas. Its chief executive, Mark Karpeles, has refused to visit the US for the bankruptcy hearing even though he hasn't been charged with any crimes. Yet. This is how almost half a billion dollars -- real dollars, not virtual coins -- disappears into the aether.

It's unclear how the liquidation would affect those who trusted Mt. Gox with their bitcoin stash. Perhaps the company will find another couple thousand bitcoins in the couch cushions -- or maybe it can sell off the robot, 3-D printer, and race car Karpeles allegedly bought with money entrusted to his company. Neither option seems likely at present.

Reactions from around the Web

The Verge reports that Mt. Gox is still looking for a buyer:

One source says that Mt. Gox is still attempting to find a buyer, which may entitle creditors to a portion of future earnings. But the exchange's decision to file for liquidation after planning rehabilitation means those with substantial investments are likely to get less of their money back. The court still has to approve Mt. Gox's request, at which point a trustee would assume CEO Mark Karpeles' control over the company's assets.
Tech in Asia notes that Mt. Gox's homepage hasn't been updated with the liquidation news:
Mt. Gox claims that hack attacks caused it to lose 850,000 bitcoins, including 100,000 belonging to the company itself. The exchange said last month that it recovered 200,000 bitcoins in old ewallets – but the rest remains lost for now.

It’s a rumor at this stage, so the Mt. Gox temporary homepage has yet to be updated with an official notice of its liquidation. A partner at the Evershed law firm tells ZDNet that Mt. Gox's failure shouldn't affect bitcoin:

'The insolvency of Mt Gox was a predictable conclusion following its recent troubles, and many people will be using this news to jump on the bandwagon and criticise Bitcoin generally. The reality is that Bitcoin is here to stay, and the real issue here is to address, quickly, how this new form of currency can be properly regulated and monitored to help it move away from the adverse publicity that it has attracted, as well as the ad hoc refusal of some jurisdictions to recognise it as a currency.'
CoinDesk reports that Mt. Gox CEO Mark Karpeles has refused to travel to the United States:
Today’s liquidation application could be related to Mt. Gox CEO Mark Karpeles’ reluctance to travel to the US, either to testify in the class action against his company or further defend its case for bankruptcy protection.

Though he has not been charged with any criminal offence in the US or his current home country of Japan, Karpeles was reportedly concerned he might be detained in the US as part of investigations into Mt. Gox’s collapse and even its prior connections to users of the Silk Road Marketplace. Pando weighs in

Tim Worstall wrote about Mt. Gox’s lackadaisical business practices after it “found” 200,000 bitcoins in a forgotten wallet earlier this month:

There’s two implications of this announcement. The first being that the organisation wasn’t, in fact, an organisation at all. It was a bunch of script kiddies having a lark. This isn’t, perhaps, the greatest of surprises to anyone who has been following the story.

The second is that MtGox has clearly been trading insolvently since June 2011. For those not entirely current on accounting law (and why should you be? This is a most, most, boring area) this is one of those no-nos that every entrepreneur is warned about. It’s OK to go bust: failure is how we learn. But don’t cross over into fraud and deception which is what insolvent trading is. Michael Carney wrote about allegations that the Bitcoin Foundation, a group that often serves as the cryptocurrency’s mouthpiece, is led by corrupt individuals seeking personal profit:

The Foundation has been a central point of communication for the media and key regulators, including Congress and the New York Department of Financial Services, as they seek to understand and react to this increasingly mainstream new financial technology. In that way, the Foundation holds immense power to impact all those who are betting their time, money, and careers on the crypto-currency revolution.

The crypto-currency community is still grappling with the questions of how to present a unified and representative voice for what is still a nascent and highly distributed industry. But while there remain more questions than answers about the inner-workings of the Bitcoin Foundation, it’s clear the time for ignoring questions about its leadership has passed. Transparency and decisive action are badly needed.

That supports an earlier argument Carney made about Bitcoin’s trust problems:

In many ways this type of transparency and such a solitary leader are at odds with bitcoin’s foundational tenets: it was created as a decentralized and distributed system meant to remove the need for trust between parties. Rabid libertarians and cyberpunks may be ok with such a system, but average Joes, not to mention the regulators intent on protecting them, are not.

The bitcoin protocol solves a real problem by allowing digital transactions to be completed outside of the costly and cumbersome existing financial infrastructure, but for the value of this solution to be realized, people have to use it. Bitcoin may have emerged as an anti-establishment financial instrument, but for it to survive and more importantly fulfill its lofty potential, it will need to shed much of its early ideology. Trust is key, and trust does not grow in the shadows.

Mt. Gox’s unraveling doesn’t need to be the end of bitcoin, but it needs to be the end of its innocence.