Mark Karpeles is the man who built the world’s largest bitcoin exchange. But now that the digital currency is reaching the mainstream, his success may slip through his fingers.
In 2011, Karpeles bought a fledgling website called Mt. Gox. Founded a few years earlier by an unemployed software hacker named Jed McCaleb, the site was originally an online marketplace where people could buy and sell cards for Magic: The Gathering, a weirdly addictive trading card game. Mt. Gox was short for “Magic: The Gathering Online Exchange.” But then McCaleb turned it into a website where people could exchange cash for bitcoins, a digital currency that had only just found its way onto the internet, and just as the exchange started to take off, he sold it to Karpeles.
Under Karpeles, Mt. Gox evolved into a reliable marketplace for buying and selling bitcoins, now the world’s most popular digital currency. By one estimate, Karpeles has made over $ 8 million (£5 million) plus 345,000 bitcoins (at current rates: £53 million) swapping bitcoins for dollars and yen and other federal currencies. But much like McCaleb, he’s a hacker rather than a businessman. He seems more at home talking about IRC than the IMF, and as Mt. Gox has grown, he and his company have found it difficult to deal with the realities of the financial world.
In all, 2013 has been a horrible year for Mt. Gox. The feds have seized $ 5 million (£3 million) from its bank accounts, claiming that Karpeles and company operated a money transmission business without properly registering with federal and state authorities. Then there’s the $ 75 million (£46 million) lawsuit with onetime-partner CoinLab. And with its US bank accounts seized, Mt. Gox has had a terrible time moving money to US customers, many of whom are rather uphappy about it. Although the company won’t answer questions about its problems, they appear to have spread to other countries as well. In Vancouver, Canada, owners of a bitcoin trading shop called Bitcoiniacs say that every week they deal with walk-in customers who are frustrated by their inability to get their money out of Mt. Gox.
Then, last month, Mt Gox briefly lost its status as the world’s largest bitcoin exchange, failing behind not one but two other operations: one in China and one in Slovenia.
Karpeles and his company are a metaphor for the bitcoin world as a whole. Created by an anonymous computer scientist — or group of computer scientists — the digital currency rose to prominence after it was embraced by software geeks across the globe. But now, as its influence continues to grow, these young, idealistic hacker types are running into the government regulators who control the existing financial system, and this doesn’t always go well. Bitcoin is at point where it will either find a way to play nicely with regulators or fail to reach its obvious potential as a currency that can truly change the world.
When someone using the name Satoshi Nakamoto dreamed up the math-based bitcoin currency in 2008, it was very much born of a mistrust in the international financial system. Lehman Brothers had just declared bankruptcy and rampant speculation had pushed the world’s economy to the brink. The bitcoin standard was quickly seized as a rallying point by libertarians and cryptographers — a technically elegant financial hack that embodied both a payment processing system that would work without the banks, and a currency that would be inoculated against inflation. The total number of bitcoins is fixed at 21 million. The last one will be minted in 2140.
Mt. Gox was a big part of the currency’s growth. Back in January, a single bitcoin traded for $ 13 (£8), and Mr. Gox was a rarity in the Wild West of bitcoin startups: a trusted brand. When the exchange was hacked soon after Karpeles took over in 2011, he didn’t fold and leave his customers hanging, as other fly-by-night bitcoin businesses had done. He made good on his obligations and built a measure of goodwill throughout the bitcoin community. “They’ve made it through a lot of difficulties in the past,” says Greg Schvey, head of research with The Genesis Block, a bitcoin market analytics company. “They basically built the digital currency exchange market.”
But you can point to the exact date that this goodwill started to sour: May 14, 2013. That’s when federal agents seized $ 2.9 million (£1.8 million), shutting down a Wells Fargo bank account belonging to a Mt. Gox subsidiary. Mt. Gox had been using this account as a critical stepping stone to pay off its US customers. The next month, the government seized another $ 2.1 million (£1.3 million) from a second bank account. Later that month, Mt. Gox temporarily suspended US money transfers, and since then, its ability to move money to the US has ground to a near-halt.
Karpeles may have helped bootstrap the bitcoin world, but the feds say he made a basic mistake when he set up the bank account used to disburse funds in the US: he claimed that he was not in the money transmission business. He hasn’t had a lot of contact with the media, and he won’t talk to Wired. But you can glean at least a little about the man online. Until this summer, he was ubiquitous on bitcoin forums, where he posts under the pseudonym Magical Tux, also his Twitter and GitHub handle. His LinkedIn profile says he’s the CEO of Mt Gox’s parent company, but the skills he lists on the site tell a different story. It’s all geeky programming stuff: “Linux Servers, Network Security, PHP, Bash, C, C++, Posix API, ASM.”