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More than $400 Million Disappeared in One of the Biggest "Bank" Heists Ever

Feb 28 2014 - 12:00pm

After hiding out for a few days, the founder of bitcoin exchange MtGox, Mark Karpeles, took to Japanese TV Friday to confirm he lost almost half a billion dollars' worth of the digital currency. The "vault" of his digital bank was emptied earlier this week due to a "weaknesses in the system," he explained, and he added, "We are really sorry for causing trouble to all the people concerned." In total, 750,000 bitcoins were lost by the Japanese-based company. That's about $477 million. If this heist is leaving you scratching your head, here are some answers to the questions you might asking:

OK, so what exactly is bitcoin? According to this bitcoin breakdown even a fifth grader can understand [1], bitcoin is a "hard-to-trace digital currency that can be transferred instantly — poof! — between two people." Think of it as electronic cash. Unlike PayPal or your credit card, it conducts transactions in a new monetary unit that has its own currency fluctuation based on demand.

So does this mean bitcoin is over? No. MtGox was just one exchange, "bitcoin wallet." Bitcoin.org [2] is the currency's main resource website, but people store their coins in various places, including several different companies and apps like Armory, Multibit, Coinbase, and Blockchain. (Although, Apple recently removed bitcoin wallets [3] from the app store). While MtGox doesn't mean the end of bitcoin per se, the security breach confirms vulnerabilities with the currency, and a lack of trust could undermine it.

What kind of regulation could there be? It's unclear. Unlike a traditional bank account, bitcoin wallets are not backed by the Federal Deposit Insurance Corporation (FDIC) that insures US deposits in the case of a bank run or theft. So, if your bitcoins vanished from MtGox, you're out of luck. US Fed chair Janet Yellen said Friday that it's not easy to regulate bitcoin, but US prosecutors have been investigating businesses using the currency [4] to learn more. And following the theft, Japan's finance minister said the country might take action. Some countries, like China, have banned it, but there's no inclination that the US is on the verge of doing so.

Will people ever get their money back from MtGox? It's not likely. The site, which started as a place to trade Magic: The Gathering cards, has gone bankrupt. And since bitcoins are anonymous and unregulated by design, they're probably gone forever.


Source URL
http://www.popsugar.com/MtGox-Bitcoins-Stolen-34205908