Office workers walk past a multi-tenant building, where Mt. Gox is based in Tokyo. Japanese Vice Finance Minister Jiro Aichi said yesterday that the ministry would respond to the bitcoin exchange issue after finding out exactly what happened.

Reuters/Tokyo


Any regulation of the bitcoin crypto-currency should involve international co-operation to avoid loopholes, Japanese vice finance minister Jiro Aichi said yesterday.
Commenting on the closure this week of Tokyo-based Mt. Gox, once the world’s biggest exchange for the bitcoin virtual currency, Aichi said the ministry would respond to the problems “if necessary”, after finding out exactly what happened.
“It’s not just the Ministry of Finance; many other agencies are related,” Aichi told a news conference. “As for its legal position, a currency (under Japan’s jurisdiction) would be coins or notes issued by the Bank of Japan. At the very least, we can say bitcoin is not a currency.”
The Mt. Gox website and Twitter feed went blank on Tuesday after weeks of turmoil. It suspended withdrawals on February 7 following a series of cyber attacks, leaving customers unable to recover their funds.
A document circulating on the Internet saying that more than 744,000 bitcoins - worth around $423mn at current rates - were missing from Mt. Gox was created by a Tokyo-based consulting firm, said Ryan Selkis, a blogger who initially leaked scans of the document. Selkis, who uses the handle “twobitidiot”, said in an e-mail that the “Crisis Strategy Draft” had been written by consulting firm Mandalah in meetings with Mt. Gox CEO Mark Karpeles.
Mandalah said it could not immediately comment.
On Wednesday, Karpeles had sought to assure investors that he was working with others to solve the problems. “As there is a lot of speculation regarding Mt. Gox and its future, I would like to use this opportunity to reassure everyone that I am still in Japan, and working very hard with the support of different parties to find a solution to our recent issues,” he said in a statement posted on the Mt. Gox website.
While proponents of bitcoin hail its anonymity and lack of ties to traditional banking, regulators have become increasingly interested in the digital currency due to its volatility and usage by criminal elements.
Bitcoins are created, or “mined”, in a process using a network of computers that solve complex mathematical problems as part of a process that verifies and permanently records the details of every bitcoin transaction that is made. At current prices, the bitcoin market is worth about $7bn.
The document leaked this week by Selkis - who says he sold all his bitcoins - said 744,408 bitcoins, or about 6% of the 12.4mn bitcoins in circulation, were “missing” due to thefts that exploited “malleability” in the code governing transactions, which the Bitcoin Foundation and others have blamed on Mt. Gox’s customised software.
“Mt. Gox has been broken and it was obvious there was something really bad going on there for nearly a year. They were processing withdrawals very slowly and generally being very opaque about what was going,” said Mike Hearn, a bitcoin developer in Switzerland.
The leaked crisis plan proposed that Mt. Gox reduce its liabilities, switch off the exchange for a month while bringing in transition advisers, and reset all social network channels while rebranding under a different CEO.
Karpeles told Reuters in April 2013 that Mt. Gox was seeing daily inflows of $5-$20mn. He told Forbes his company hadn’t been able to keep up with all the changes as it became the largest exchange in the world.
The crisis plan said Mt. Gox had liabilities of $174mn, based on an assumed exchange rate of $160 per bitcoin - well below the $550 or so offered for bitcoins at other exchanges yesterday - against assets of $32mn. A financial statement included in that document said Mt. Gox was expected to make $2mn in net income in the year to end-March, a sevenfold increase on the previous year.
It also said Mt. Gox turned a profit in its second year of existence, banking $286,000 in net income. Those figures match a 2013 report by credit research firm Tokyo Shoko Research, which was reviewed by Reuters. It said Mt. Gox “had a strong start”.
Mt. Gox had 600,000 customers at the time, the research report said - 30% from the US, 10% from Britain and just 300 in Japan. Given that most users are overseas, any court case to retrieve missing funds would be more likely in the US than Japan, said Ken Kiyohara, a lawyer at Jones Day. “It probably comes under the (Japanese) Financial Services Agency’s (FSA) remit, but giving a reason for that in one sentence is impossible,” he said.
Officials at the FSA and Finance Ministry each told Reuters bitcoin does not fall within their purview, while the Bank of Japan says only that it is studying the bitcoin phenomenon, which Governor Haruhiko Kuroda has called “interesting.”
People who had bitcoins at Mt. Gox are more definitive. “It was the only place you could buy bitcoin directly with yen, so it hurts that it’s gone,” said Ryoichi Taga, a fellow at the Japan Digital Money Association.
Manhattan US Attorney Preet Bharara has sent subpoenas to Mt. Gox, other bitcoin exchanges and businesses that deal in bitcoins to seek information on how they handled recent cyber attacks, a source familiar with the probe said. A spokesman for Bharara declined to comment.
Mt. Gox is under investigation by the US federal law enforcement, according to a second source familiar with the case, while a third said the US Federal Bureau of Investigation was monitoring the situation.
The federal probe was spurred by information provided by the Bitcoin Foundation, an advocacy group for the digital currency, Bloomberg reported. The foundation could not be reached immediately for comment. Karpeles, a founding member of the foundation, resigned from its board on Monday.