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Bitcoin exchange Mt.Gox files for bankruptcy and leaves investors at a loss

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It has been several months of pain and agony for Bitcoin holders of the crypto-currency who have seen their value disappear. Today, bankruptcy was finally announced, reports The New York Times.

CEO Mark Karpeles, who has only sent emails, appeared in Tokyo bankruptcy court with lawyers today and filed for Mt.Gox bankruptcy forms.

‘We have lost Bitcoins due to weaknesses in the system,’ said the France-born Karpeles in Japanese at the press conference. He added, 'I’m truly sorry to have caused inconvenience.’

Mt.Gox’s attorney stated that the loss to be 755,000 bitcoins plus the personal holdings of Mt.Gox amounted to around $477 million dollars, calculated against the price on the Coindesk exchange at 1030 GMT for the announcement today.

Mt.Gox, once the largest Bitcoin exchange in the world, has been sending emails to Reuters this past week announcing that it was at a ‘turning point.’

Earlier in the month when Mt.Gox began showing serious problems and suspended trading, Gavin Andresen, chief executive scientist for the Bitcoin Foundation, countered Karpeles’ words with in depth knowledge of the computer systems for bitcoin storage and stated that Mt.Gox had customized the wallet software, their customer support procedures and they were unprepared for transaction malleability.

Jeff Garzik, a core developer with the Bitcoin Open Source Project, which produces the most widely accepted version of the code that sets up and maintains Bitcoin’s transactions, states that, ‘It’s not inherently a bug or flaw.’ Transactions can be changed with even valid reasons if there are multiple users on transactions and create multiple IDs.

The system produces a transaction with an ID and then produces another transaction in the group. It is possible that a transaction is not recorded in the public ledger or it is doubled in the public ledger due to the bitcoins in the group. The public ledger is maintained by the exchange so it is Mt.Gox’s accountability for the bitcoin entries and accounting reports.

‘Mt.Gox is the only exchange that wasn’t backed by venture funds or institutional investors,’ Mickey Malka, the founder of Palo Alto, California-based Ribbit Capital and a Bitcoin investor, said in an interview. ‘It will take time for the rest of the Bitcoin ecosystem to prove that this is a bad apple and not a problem of the entire ecosystem.’

Mt.Gox’s bankruptcy which was filed with the Tokyo District Court under Japan’s Civil Rehabilitation Law is similar to Chapter 11 in the United States. While a bankruptcy supervisor will set up a restructuring plan there is at this point $64 million in lost funds of 127,000 creditors. MtGox only has a few hundred thousand dollars on the books. Its reputation is another issue as investors have packed up and left their watch at the former offices in Tokyo for Mt.Gox.

‘I didn’t think something like this would last for long. I thought it would collapse at some point,’ Taro Aso, the Japanese finance minister, told reporters earlier Friday, according to the Nikkei website.

Consensus is that it is poor management and not flaws of Bitcoin trading and exchanges was listed, according to Andreas Antonopoulos, the chief security officer for Blockchain.info, a company that hosts online digital wallets for Bitcoin storage.

This loss of investor moneys and bad publicity of Bitcoin exchanges and investments has been countered with the immediate announcement by the venture capitalist, Barry Silbert. He will set up an exchange that is self-regulated, in concert with banks and regulators. He plans this new exchange to be part of SecondMarket as a spin off to oversee all the firm's bitcoin crypto currency activities.

'Bitcoin has always been volatile and speculative,' said bitcoin user Ken Shishido, who had about a tenth of his bitcoin holdings at Mt. Gox, but spread his bitcoin investments around other exchanges during the past 18 months, says he has seen his portfolio of bitcoins soar.

'It's too bad that this happened, but we have to let it go. And then we'll buy more.'

James MacWhyte said, 'competition is great. Mt.Gox had no competition for a long time, and that’s how it got to where it got.’ He added: ‘Now it’s time to raise the standard.’

To read more about the Bitcoin news see the list below in Author’s suggestions and view the video atop this article about today's bankruptcy announcement.

I am Twitter Victoria Wagner@Victoriaross888

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