Claims From The Mt.Gox Insolvency: Procedure, Taxation, Advice

Mt.Gox was the world's first bitcoin exchange when it was founded in Japan in 2010. By 2014, Mt.Gox handled up to 80 percent of all bitcoin transactions.

Due to security holes in the software, Mt.Gox had gradually lost several hundred thousand bitcoins by 2014. Ultimately, it was a near total loss. In filing for insolvency in February 2014, the full extent of the disaster became visible. In the meantime, the initially minimal insolvency assets grew to a considerable sum as a result of several transactions to the extent they exceeded the nominal claims. Since then, a large number of international creditors have been fighting for their claims.

Mt.Gox was the first bitcoin exchange (trading platform) worldwide when it was founded in 2010. The company was and is based in Japan. A bitcoin exchange allows its users to trade crypto assets by creating a market for them. For this purpose, money as well as crypto assets, in this case bitcoins, are transferred on the exchange, which can then be used for trading.

Until 2014, a substantial proportion of all bitcoin transactions worldwide was conducted via Mt.Gox. The market share was up to 80 percent of the global volume. Mt.Gox held about 850,000 bitcoins for these purposes, foreign as well as its own. After these were stolen, Mt.Gox had to file for bankruptcy and is under the administration of a trustee.

Mt.Gox had lost about 850,000 bitcoins by the time it filed for bankruptcy. The events that led to this can be traced back to several incidents. 

During the sale of Mt.Gox between Jed McCaleb and Mark Karpelès, approximately 80,000 bitcoins flowed out of the Mt.Gox wallet without a record of any receipt for it. This deficiency was also discussed by the parties, as revealed in chat transcripts released during the criminal trial in the USA.

These 80,000 bitcoins flowed out of the Mt.Gox hot wallet to the - now known - wallet address of 1FeexV6bAHb8ybZjqQMjJrcCrHGW9sb6uF. They remain there, untouched to this day, at least until the private key is found.

It is still unclear how this theft could have happened. Part of the responsibility for this certainly lies with the operators, who did not ensure sufficient data security. At the beginning of March 2011, the wallet.dat file, which is responsible for all transactions, was copied from the servers.

Due to the compromised wallet.dat file, hackers managed to transfer approximately 650,000 bitcoins directly from Mt.Gox's hot wallet to third-party accounts. These thousands of transfers were long lost in the millions of legitimate transactions but could be reconstructed from the data that became public. To date, approximately 630,000 of the lost bitcoins have been tracked from Mt.Gox's wallet. These were most likely liquidated via several intermediary wallets, obfuscation services and ultimately other exchanges.

300,000 bitcoins ended up on the BTC-e exchange. The central figure of this exchange is Alexander Vinnik, who has been accused of having "laundered" the stolen bitcoins through the site he co-founded. In 2017, he was arrested in Greece through efforts by U.S. authorities on charges of laundering 4,000,000,000 USD through BTC-e. In France, he was sentenced to five years in prison for this. In principle, it is possible, even if unlikely, that larger quantities from Mt.Gox are to be found among the bitcoins seized by BTC-e and returned to the insolvency estate.

More detailed information on the exact events can be found under https://blog.wizsec.jp/. The WizSec collective consists of experts in cryptotechnology and cybersecurity and has provided extensive insight into their investigations since the events surrounding Mt.Gox began.

As Mt.Gox is based in Japan, the liquidation of the company will be carried out under Japanese law. In this case, "normal" insolvency proceedings were filed due to a lack of assets, which means that assets are divided among the creditors in fractions. The creditors' claim was valued at the bitcoin rate at that time. Otherwise, the insolvency rates would have been very low.

However, in the course of the insolvency, a forgotten wallet, i.e. a storage medium for bitcoins, was found at Mt.Gox. This was used until June 2011 and contained approx. 200,000 bitcoins which were thus made available to the insolvency estate again. Due to the price increase of bitcoins since 2017, the value of the insolvency estate grew strongly and, in the meantime, has even exceeded the nominal value of the liabilities many times over.