Mt. Gox Files for Bankruptcy in Japan

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MtGox, once the world’s largest Bitcoin exchange, filed for bankruptcy in Japan, focusing attention on the digital currency’s risks.

The company, which had revenue of $1.3 million in the past year, applied in Tokyo District Court with debt exceeding its assets by about $2.6 million, Mt. Gox said in a statement. The exchange discovered on Feb. 24 that it had lost 750,000 Bitcoins belonging to users and 100,000 of its own, it said. The bankruptcy may help customers retrieve some of their funds.

The collapse follows weeks of turmoil amid reports that hackers had pilfered the missing $473 million in Bitcoin from MtGox, leading the company to halt withdrawals on Feb. 7. The regulation of Bitcoin, let alone derivatives of it, is an unresolved question in many parts of the world.

MtGox Chief Executive Officer Mark Karpeles said his company lost Bitcoins because its computer systems were weak, according to remarks broadcast on NHK today. The firm had 6.5 billion yen in debt.

Companies from San Francisco to London as well as the virtual currency’s industry group, the Bitcoin Foundation, have been seeking to assure Bitcoin users that their funds won’t disappear due to theft or mismanagement.

The digital currency was introduced in 2008 by a programmer or group of programmers under the name Satoshi Nakamoto and has since gained traction with merchants and consumers around the world. Bitcoin has no central issuing authority, and uses a public ledger to verify transactions while preserving users’ anonymity.

Even as regulators and investors struggle to grasp Bitcoin’s many uses, including investment vehicle, payment processing system and money laundering tool, they are now confronted with the complexities of an emerging derivatives market where entrepreneurs say current rules don’t apply.

George Samman, a former Wall Street investment adviser who in May helped start a platform for betting on Bitcoin’s price swings, saw trading on his website grow to more than $35 million by Jan. 21. After the shutdown at MtGox, suspended trading because it had to find another exchange partner for its customers.

In the U.S., states are wrestling with how digital currency businesses could be regulated as money transmitters. Russia has said Bitcoin is illegal under current law, while China has stopped financial institutions from dealing in it, even as trading continues.

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