Mt. Gox was the world's biggest bitcoin exchange — then 850,000 coins vanished

Mt. Gox, run from Tokyo, was once the world's largest bitcoin exchange — at its peak it handled the large majority of all bitcoin trades. Customers trusted it with their coins the way they would trust a bank with cash. In early 2014 it abruptly halted withdrawals, and soon reported that hundreds of thousands of bitcoins were missing from its wallets.

The company's first explanation was technical: it blamed a 'transaction malleability' bug in bitcoin's framework, arguing that incomplete transaction messages had let coins be moved illicitly from accounts. But the scale of the loss — as many as 850,000 to 950,000 bitcoins, with bitcoin trading around $600 at the time, worth hundreds of millions of dollars — pointed to a deeper failure of custody and security rather than a software quirk. Only a fraction of the missing coins were later recovered.

In February 2014 Mt. Gox filed for bankruptcy protection in Tokyo. Customers who had deposited bitcoins found themselves unsecured creditors in a years-long proceeding. The collapse wiped out the savings of many early bitcoin users and shook confidence in the entire young industry.

Mt. Gox is the foundational custody failure of the crypto era. The lesson is the one every exchange after it has had to learn: when a platform holds customers' assets, safeguarding and accounting for them is the product — and blaming the protocol does not answer for coins the platform could not keep track of.