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After Losing 850,000 Bitcoins, Crypto-Currency Exchange Mt. Gox Files for Bankruptcy Protection

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Japan-based Bitcoin exchange and one of the most important business in crypto-currency, Mt. Gox, has filed for bankruptcy protection and ceased transactions after allegedly losing roughly $380 million worth of customers’ Bitcoins.

According to digital currency news site CoinDesk, a Bitcoin protocol issue known as “transaction malleability” that confuses the automated systems that handle transactions has resulted in the loss of around 750,000 of its customers’ Bitcoins and 100,000 of the company’s own.

744,000 bitcoins to be taken from Mt. Gox’s active and “cold storage” accounts.

Mt. Gox’s website has been replaced with a message to customers dated Feb. 26. The site states: “In the event of recent news reports and the potential repercussions on MtGox’s operations and the market, a decision was taken to close all transactions for the time being in order to protect the site and our users. We will be closely monitoring the situation and will react accordingly.”

This vulnerability has shaken already confidence in Mt. Gox, and the future of Bitcoin itself as a currency.

Forbes reported that Bitcoins were selling for less than $200 on Mt. Gox in the days preceding its shutdown, fearing they wouldn’t be able to retrieve coins later, and unable to withdrawal Bitcoins since Feb. 7.

A Bitcoin could be sold for $817 at the beginning of February, and has since lost about 30 percent of its value, dropping to $571.47 at the end of the month. While Mt. Gox can’t be the only reason for this drop in value, it probably had the most effect.

This drop in value, however, is something that will affect the industry, essentially adding doubt to currency speculators, and, at least for the short-term, making Bitcoin mining operations less profitable.

Many of those in the hosting industry providing data center space and servers for Bitcoin mining – which has contributed to dedicated server shortages - might also see some of these customers disappear.

About the Author

David Hamilton is a Toronto-based technology journalist who has written for the National Post and other news outlets. He has covered the hosting industry internationally for the Web Host Industry Review with particular attention to innovative hosting solutions and the issues facing the industry. David is a graduate of Queen’s University and the Humber College School of Media Studies.

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