Mt.Gox: Learn from the bad example of crisis management

about 1 year ago

In a few moment of personal research, it dawned on me that crisis management has been well endorsed in recent times, thus it has led to the growth and em race of many cryptocurrencies by the masses. The fact that these good management protocols outweighs the bad or defective ones do not underestimate the fact that there had once been bad crisis management which led to the abrupt death of some cryptocurrency projects

In the research made, I stumbled across a few bad examples of crisis management, you may wanna know of them and I wouldn't hesitate to bring to your notice, these examples, we wanna learn lessons and work on ensuring better crisis management on existing and upcoming NFT programs from these examples

FTX implosion which destroyed a value of $32 Billion USD
UST Peg failure with a destroyed value of $17 Billion USD
BitConnect Ponzi Scheme
Mt. Gox theft with a value loss of $400 million
The DOA Hack with a value of 70 million gone down the drain

All these are bad examples of crisis management and we've seen how massive the value losses are. Out of the five mentioned examples, one caught my interest the most and we'll be evaluating more on it. It's the Mt. Gox theft

Let's get this in details

Mt. Gox was a Bitcoin based exchange which existed in Tokyo, Japan and was effective for use after an official launching in the year 2010. But while it bubbled in a huge percentage of Bitcoin transactions across the globe, it was noted in the early part of 2014 that a lot of Bitcoin losses were recorded. This led to a suspension and later on an abrupt end of the trading website due to the countless fraudulent activities on the website. Infact, after a short while, it was concluded that thefts, frauds and hacks had secretly been in existence on the website while trading activities were ongoing after it must have been sold to Mark Karpelês, a french developer in the year 2011.

At this point, was it a bad management crisis or was there more to it? Let's dig deeper

Mt.Gox's Existence

Jed McCaleb was inspired to build a website for magic users in the year 2006. This spurred the idea that users could trade their cards through the online trading card games. Early 2007, Jed McCaleb was able to purchase a domain name mtgox.coma shortened form of Magic: The Gathering Online eXchange. After a brief succour and bubbling for 3 months, it went numb and dead.

Jed McCaleb was fond of changing projects at will. He was known for doing this often, hence he relaunched the Mt.Gox on the 18th July 2010, at this juncture he became an intermediary and service quoting plug for Bitcoin exchanges and trading

Mt.Gox intial sales and security rifts

While it was noted that Jed McCaleb was fond of making project changes often, it was also observed that it was at this period that the website was officially sold to the French developer, Mark Karpelês in March 2011. Under the full coodination and control by it's new oversee, things happened......

On June 13 2011, it was reported that 25,000 Bitcoin was stolen from the Mt.Gox (approximately US$400, 000 then but apparently a US billion now) had been frauded from about 478 accounts, this took place just 3 months after being sold to the French developer, Mark Karpelês.

Meanwhile that was just a tip of the iceberg in bad crisis management that led to the gradual end of Mt.Gox.

Within that short time frame, in the long run, in June a hacker was able to compromise a Mt.Gox auditors computer and was able move thousands of Bitcoin to himself, this led to a great loss to the Mt.Gox exchange

Subsequently, other fraudulent trading activities took place that led to a temporary crash on one of the core chains on the Mt.Gox website

In a bid to try averting the crisis and to showcase Mt.Gox grand authority over Bitcoin, 424,242 bitcoins was moved from cold storage to the website address after an announcement that

Withdrawal suspension beginning from the year 2013

With a reason to entertain "market cooldown" as the case may be, trading was suspended by Mt.Gox on 11th April.

Problems kept accumulating and emerging on a daily. On the 2nd of May 2013, a $75 million lawsuit was filed by CoinLab alleging a breach of contract by Mt.Gox.

An established partnership allowed CoinLab to handle Mt.Gox North American services. It was alleged by CoinLab that Mt.Gox were not enabling the movement of existing customer from Mt.Gox to CoinLab.

On another occasion, the US Department of Homeland Security issued an order/warrant that money be seized from Mt.Gox US account on the 15th of May, 2013.

On 20th June 2013, Mt.Gox suspended withdrawals in US dollars. These activities were carried out with the aim to annoy the bank branch in Tokyo which coordinated almost all transactions concerning Mt.Gox and coaxed them into shutting down their account.

Although it was announced that withdrawing resumption was implemented fully on July 4th 2013 but it seems that was not the case.

Despite all efforts to make things right, conditions kept worsening as announcements of significant losses were made on August 5th, 2013 concerning the credited deposits which still has not been cleared. Thus, the body made a decision not to credit new deposits until funds were cleared and completed.

The death of Mt.Gox

It got to a point whereby several complains were made by the masses about not getting inability to receive their withdrawals, it went thus:

On 7th Feb, Mt.Gox stopped all Bitcoin transactions with the aim of having a thorough technical scrutiny of how currency were processed andfunds were presented.
On 17th Feb, Mt.Gox got up with another claim of addressing security issues and problems
Mt.Gox's office was moved to an entirely new location in Shibuya, meanwhile withdrawals were still on hold
There was a 20% drop of Bitcoin prices which were quoted by Mt.Gox on other exchanges, marring their reputation in the process
The CEO of Mt.Gox, the French developer Mark Karpelês resigned and relieved duty from the Board of Bitcoin Foundation on 23rd Feb.
On that same date, all it's Twitter posts were deleted
The next day which was 24th Feb, all trading on Mt.Gox was suspended and few hours later, the website was no longer found online.

It was later found out that a leaked crisis management document was found which claimed that the company's incompetence had led to loss of over 744.408 bitcoins to fraud which could not be traced until now, this led to chaos and heated disputes which remains unresolved