Bankrupt Bitcoin Exchange Mt. Gox begins to Pay Back Account Holders in Bitcoin | ABI
Bitcoin is not a “coin” at all in the traditional sense. Rather, one bitcoin is essentially a complex mathematical code which is recorded on a public ledger as one bitcoin. That bitcoin has a two security keys which permit the bitcoin to be owned by (and transferred) by a person.
- The public key allows the bitcoin to be utilized by the bitcoin exchanges.
- The private key is what is used by the bitcoin holder to transfer the bitcoin value to the recipient.
So, in a sense, your bitcoin “wallet” will not hold any coins (or currency), but rather your bitcoin private keys. When you spend bitcoins from your wallet, you are using your private key to tell the online public ledger to reflect a transfer of bitcoin to a new owner. That new owner gets a new private key and the bitcoin transaction is complete.
The mathematics and cryptography are significantly more complicated than that. But, from a consumer standpoint, this is essentially what the transaction looks like.
Unlike sovereign issued (and backed) currency, Bitcoin has no government backing and very little government regulation.
- There is no Federal Reserve or similar body for bitcoin.
- There is no government producing bitcoin.
- Regulations (or lack of regulation) vary significantly globally.
- All bitcoins are produced by “mining” which is basically utilizing a very complex mathematical proof to create a one-of-a-kind number, which is the bitcoin.
The amount of computing power to mine bitcoins is not insignificant because of the complexity. Thus, Bitcoin exchanges, such as Mt. Gox will commit resources to do so and will offer exchange services, payment services, wallets and other ancillary quasi-banking services to consumer account holders.
Second, what is going on in the Mt. Gox Case.
When Mt. Gox filed bankruptcy, one of the stated reasons for the bankruptcy was that it had lost 850,000 bitcoins. At the time, the value of these was about $500,000.00 (USD).
After the bankruptcy was filed, the bankruptcy trustee found about 200,000 of the lost bitcoins. However, much of the remaining unaccounted bitcoins belonged to account holders at Mt. Gox. Although, Mt. Gox did hold bitcoin on its own account. The loss was attributed to hackers and technical issues with the exchange site itself.
After proceeding with the bankruptcy case, the bankruptcy trustee had suggested that the Mr. Gox bitcoins be converted to USD and then used to repay the account holders at Mt. Gox who had lost their bitcoins. In an interesting turn of events, the creditors demanded to be repaid in bitcoin. The reasons probably vary, but it is likely the creditors did not want the already volatile bitcoin market to tank when the bitcoins were exchanged for cash.
In order to go about that, the bankruptcy trustee has enlisted the help of another bitcoin exchange named Kraken, which is based in the US.
Finally, things to consider
From an overview perspective; the first thing to consider is that Bitcoin specifically, and perhaps the other crypto-currencies, are not going away despite high profile failures such as Mt. Gox. Some domestic retailers are now accepting Bitcoin for day-to-day exchanges as they would cash. Notwithstanding, the market remains very volatile.
At a more narrow level, a bankruptcy court (even in Japan) that pays the creditors in non-sovereign backed crypto-currency should raise a few eyebrows. In this case, it appears that the payment in bitcoin was at the request of the creditors. However, it is not clear what would happen if account holders had demanded USD (or yen), but received bitcoin while non-account holder creditors were paid from liquidating traditional hard assets in cash.
Obviously there are significant other issues to consider which are not covered in this humble blog post. Regardless, these issues and others are on the horizon.
Bitcoin is one of several crypto-currencies which are exchanged generally outside of sovereign control and all electronically. In early 2014, a Bitcoin exchange named Mt. Gox filed bankruptcy in Tokyo and subsequently sought additional protection in the US by filing a chapter 15 bankruptcy petition. Just recently, the bankruptcy trustee in Tokyo has announced he will begin to pay back account holders in Bitcoin using a US based bitcoin exchange. Dogecoin is another crypto-currency and is my personal favorite because of the mascot., some background. Skip this is you are familiar with Bitcoin Bitcoin is not a “coin” at all in the traditional sense. Rather, one bitcoin is essentially a complex mathematical code which is recorded on a public ledger as one bitcoin. That bitcoin has a two security keys which permit the bitcoin to be owned by (and transferred) by a person.So, in a sense, your bitcoin “wallet” will not hold any coins (or currency), but rather your bitcoin private keys. When you spend bitcoins from your wallet, you are using your private key to tell the online public ledger to reflect a transfer of bitcoin to a new owner. That new owner gets a new private key and the bitcoin transaction is complete. The mathematics and cryptography are significantly more complicated than that. But, from a consumer standpoint, this is essentially what the transaction looks like. Unlike sovereign issued (and backed) currency, Bitcoin has no government backing and very little government regulation.The amount of computing power to mine bitcoins is not insignificant because of the complexity. Thus, Bitcoin exchanges, such as Mt. Gox will commit resources to do so and will offer exchange services, payment services, wallets and other ancillary quasi-banking services to consumer account holders., what is going on in the Mt. Gox Case. When Mt. Gox filed bankruptcy, one of the stated reasons for the bankruptcy was that it had lost 850,000 bitcoins. At the time, the value of these was about $500,000.00 (USD). After the bankruptcy was filed, the bankruptcy trustee found about 200,000 of the lost bitcoins. However, much of the remaining unaccounted bitcoins belonged to account holders at Mt. Gox. Although, Mt. Gox did hold bitcoin on its own account. The loss was attributed to hackers and technical issues with the exchange site itself. After proceeding with the bankruptcy case, the bankruptcy trustee had suggested that the Mr. Gox bitcoins be converted to USD and then used to repay the account holders at Mt. Gox who had lost their bitcoins. In an interesting turn of events, the creditors demanded to be repaid in bitcoin. The reasons probably vary, but it is likely the creditors did not want the already volatile bitcoin market to tank when the bitcoins were exchanged for cash. In order to go about that, the bankruptcy trustee has enlisted the help of another bitcoin exchange named Kraken, which is based in the US., things to consider From an overview perspective; the first thing to consider is that Bitcoin specifically, and perhaps the other crypto-currencies, are not going away despite high profile failures such as Mt. Gox. Some domestic retailers are now accepting Bitcoin for day-to-day exchanges as they would cash. Notwithstanding, the market remains very volatile. At a more narrow level, a bankruptcy court (even in Japan) that pays the creditors in non-sovereign backed crypto-currency should raise a few eyebrows. In this case, it appears that the payment in bitcoin was at the request of the creditors. However, it is not clear what would happen if account holders had demanded USD (or yen), but received bitcoin while non-account holder creditors were paid from liquidating traditional hard assets in cash. Obviously there are significant other issues to consider which are not covered in this humble blog post. Regardless, these issues and others are on the horizon.
