• The fall of FTX, a crypto empire that defrauded investors, customers and employees to the tune of $8 billion, shook up the ecosystem.
• In 2014, Mt. Gox, the world’s largest bitcoin exchange went bankrupt due to a series of hacks and mismanagement issues.
• Mark Karpeles’ lack of expertise in running Mt. Gox led to its eventual downfall as attackers took advantage of transaction malleability on the exchange.
The fall of FTX, a crypto empire that defrauded investors, customers and employees to the tune of $8 billion, rattled the ecosystem. This was not the first time a failure of such magnitude had happened in this space; in 2014 Mt. Gox, the world’s largest bitcoin exchange at that time went bankrupt following a series of hacks and mismanagement issues resulting in customers losing over 800,000 bitcoin.
Mt Gox History
Tokyo-based Mt. Gox was originally registered in 2007 to host a trading site for the wildly popular “Magic: The Gathering” game cards before it began operating as a rudimentary bitcoin exchange in late 2010 with Mark Karpelès taking over ownership soon after. His lack of experience eventually led to its downfall due to inadequate management and technical aspects which opened up avenues for attackers who used transaction malleability on it multiple times over several years leading up to its closure in February 24th 2014 .
Transaction Malleability Explained
When receiving withdrawal requests from customers ,the exchange would observe Bitcoin blockchain for confirmation using transaction ID —a hash constructed from transaction data which is only final once confirmed on blockchain . However , attackers can alter parts (not including inputs & outputs )of transactions which creates different IDs making it seem like successful withdrawals never happened thus causing confusion & loss for company .
Mark Karpeles Role
As CEO , Mark Karpelès failed to properly secure platform by beefing up web platform code so as handle increased volume or transactions & buy/sell orders & ultimately couldn’t save business from ruin caused by hackers exploiting weaknesses .
The fall of both FTX & MT Gox demonstrate how cryptocurrency still has many flaws when it comes down to security especially if key personnel don’t have adequate expertise & understanding about technology being used . It also shows how quickly massive losses can occur if proper security protocols aren’t followed .