Following Mt. Gox’s decision to abruptly suspend all bitcoin withdrawals on 7th February, many industry commentators and observers, CoinDesk included, began to feel the writing was on the wall for bitcoin’s first and once-largest exchange.
But, despite the results of our extensive reader survey and critiques from industry heavyweights like Andreas Antonopoulos, there were those who maintained that given its industry reputation, the company’s critics may have been premature in their statements.
However, Mt. Gox’s future may be even more uncertain after controversial statements issued Monday further damaged the company’s reputation and industry standing.
The comments, which blamed inherent problems with the bitcoin protocol for the withdrawal delays, ignited a veritable firestorm of anger on message boards, much of which was directed at Mt. Gox CEO Mark Karpeles.
Karpeles’ critics alleged he failed to take responsibility for his exchange’s technical failures and management limitations. A swift rebuke from other industry thought leaders soon followed, with many saying that Mt. Gox was being deceptive by blaming previously known issues for its delays.
In reddit posts, some community members even went so far as to call for Karpeles’ resignation from the Bitcoin Foundation, of which he is a board member.
At press time, the Bitcoin Foundation has not responded to requests for clarification regarding Karpeles’ standing within the organization.
Regardless, some industry observers believe that the intent of the statements may not matter.
Boston University professor Mark T. Williams suggested that there will be little Mt. Gox can do to stem the damage. Speaking more broadly of virtual currency companies in a still developing market, he said:
“They’re really only as strong or as weak as their reputation. And once they’ve lost their reputation, it’s almost impossible to rebuild.”
The bitcoin community reacts
Following the announcement, the Bitcoin Foundation moved to contradict Mt. Gox and Karpeles’ statements, though it did recognize the underlying problem of transaction malleability they cited has still yet to be completely fixed.
The Foundation said in a press release:
“The issues that Mt. Gox has been experiencing are due to an unfortunate interaction between Mt. Gox’s implementation of their highly customized wallet software, their customer support procedures and their unpreparedness for transaction malleability, a technical detail that allows changes to the way transactions are identified.”
Even controversial members of the bitcoin community, such as BitInstant’s former CEO Charlie Shrem, called for Karpeles to step down from the organization:
“I resigned for this exact reason. I did not want my own issues to get dragged into the Foundation, an organization that I founded. At this point, I have no involvement with the Bitcoin Foundation.”
Some community members alleged that the comments were meant to buoy confidence in Mt. Gox’s service, not harm the community, while others went so far as to suggest that the exchange intentionally crashed prices in an attempt to profit from a later recovery.
Bitcoin developers calm user concerns
The development community also distanced itself from Mt. Gox’s statements, downplaying the severity of its claims. Bitcoin core developer Greg Maxwell suggested that Mt. Gox was spinning the news to its own benefit, but provided evidence that the problems the company addressed are not only real, but that they may take a long time for developers to address.
“These characteristics are annoying but don’t inhibit basic operation. They are slowly being fixed – but fixing them completely will likely take years as they require changing all wallet software.”
Andreas Antonopoulos, Blockchain’s chief security officer, moved to calm its users about the issue as well, calling the problem a “known implementation issue” that would not affect users of its bitcoin wallets.
Bitcoin exchanges weigh in
The leaders of other major exchanges were quickly besieged with requests for comments on the ongoing drama, and all downplayed concerns. Leon Li, CEO and founder of China-based Huobi, shared his views with Forex Magnates, suggesting that Mt. Gox was presenting the problem as larger than necessary.
“Wallets sometimes experience small technical problems, but all of them can be fixed and thus won’t cause large-scale withdrawal problems,” he said.
Jesse Heaslip, CEO of Bex.io, the maker of white-label bitcoin exchange software, told CoinDesk that Mt. Gox’s technical limitations were the cause of the issues:
“This is the real issue, their software was repurposed from a Magic card trading site to a Bitcoin trading site. Also some of the language choices were OK for when it was built (Facebook was mostly on PHP back in 2009 too), but they haven’t upgraded since then whereas Facebook has rewritten the majority of the platform in more scalable languages.”
“Bitcoin itself is completely fine. I fully agree with Gavin and his team’s response.”
Rich Teo, CEO at itBit, said: “Recently, at least one bitcoin exchange has found a flaw in the way they watched transactions on the block chain. This is not a problem with bitcoin or the Bitcoin software, but the way the exchange was watching the transaction for completeness.”
“itBit does not watch transactions in this way, and malleability of transactions does not affect deposits or withdrawals at itBit,” he added.
Major bitcoin indexes remove Mt. Gox
The reaction from major bitcoin price indexes may have been the most damaging to Mt. Gox, as the CoinDesk Bitcoin Price Index was far from the only major price tracker to swiftly remove the once once-dominant exchange from its offerings.
Cryptocoin charts not only barred Mt. Gox from its charts and orderbooks, but offered a reprimand of its actions:
“Today Bitcoin Exchange Mt. Gox made a press release which harmed the whole Bitcoin Network and everybody who is working with it. Price dropped heavily because of [fear, uncertainty and doubt] FUD spread by Mt. Gox.”
BitcoinAverage announced its removal of the service via GitHub and Twitter.
We’ve removed mtgox’s data from our calculations until such time as BTC withdrawals are resumed
— BitcoinAverage (@BitcoinAverage) February 10, 2014
A history of turbulence
While the future of Mt. Gox remains uncertain, what is more clear is that this is just the latest setback for a major company that once saw 80% of all trading activity occur on its platform.
For a detailed history of Mt. Gox’s ups and downs, view our complete timeline here.
Image credit: Angry businessman via Shutterstock
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