After days of speculation and evasive public statements, and the complete shutdown of its website late Monday, leaked internal documents have emerged indicating that the Mt. Gox bitcoin exchange is insolvent. This would seem to confirm speculation about repeated undetected thefts from Mt. Gox’s bitcoin holdings, perhaps over the course of years, enabled by its software’s flawed handling of transaction malleability in bitcoin. The document was obtained and distributed by Ryan Selkis, a bitcoin entrepreneur and investor, who has stated to the bitcoin news outlet Coindesk that several sources have confirmed the authenticity of the document.
The document, which Coins2Day is currently working to verify, also indicates outstanding liabilities in US dollars totaling more than $55 million, against only $22 million in cash assets held by the exchange.
Most shocking of all, it appears from the document that Gox only counts roughly 2,000 bitcoin in assets, plus 80,208 from customer accounts seized for suspicious activity, against customer liabilities of more than 624,000 bitcoin, or roughly $374 million at Monday’s market price.
The price of bitcoin on non-Gox exchanges has plummeted to $490 on the news, from around $600 yesterday. Prices on Mt. Gox prior to the shutdown were just over $100, indicating mounting concerns about the exchange’s solvency.
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The transaction malleability issue that seems to have brought down what was once the world’s largest bitcoin exchange stems from the exchange’s use of unreliable transaction ID information to track trades. Users could ‘mutate’ this ID when making withdrawals, then contact Mt. Gox to claim that they had not received their withdrawals. It appears Mt. Gox regularly re-sent these withdrawals, even in the absence of any method of confirming that they had not been received.
It is unclear at this point when Gox management became aware of their progressive loss of bitcoin. Before the leak of the document, sources including Charlie Shrem, the indicted former head of the Bitinstant exchange, were being told that a buyout of Mt. Gox was in the works.
The leaked document details plans of a rebranding as Gox.com, with customers to be reimbursed for lost coins at lower Mt. Gox internal price. Among assets listed as exploitable in the relaunch of the exchange, the document lists Mt. Gox’s valuable domain name holdings, its high public profile, and the Bitcoin Café Mt. Gox was in the process of opening on the ground floor of its previous office space.
The full document can be viewed below.
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