The blog of Tokyo based photographer and photojournalist, Damon Coulter

Where’s the Money?

Bitcoin protest in Tokyo Bitcoin protest in Tokyo Bitcoin protest in Tokyo

Had a good day on Friday. Catching up with some friends I hadn’t seen in a while and shooting a newsworthy protest. Not the usual sort though…

It was a very quiet protest: just one man holding a sign that was curt, with real anger at the unfairness of the situation , but strangely polite; simply asking;  “Where is our money?”

There had been two men, even three or four on occasion, as the severity of the Bitcoin crisis at the Tokyo-based Bitcoin exchange company, Mt. Gox, became clearer. But according to the Tokyo Police, more than one person is a demonstration and thus needs a licence. To get a licence you need to notify the authorities of the route your demo will take. All Glaswegian bitcoin trader, Kolin Burges, wanted to do however was stand outside Mt. Gox’s offices and hold his sign. Unable to get a license he continued his protest alone.

Mr. Burges arrived in Japan on February 12th, two days after Mt. Gox suspended all trading in bitcoins. A press release given out by the company on that day stated this was due to: “a software flaw that would allow people trading in the virtual currency to defraud the exchange.”

This was not exactly reassuring news to investors like Kolin. Having  only started investing in bitcoins last June and then giving up a career in software design to do it full-time from December, finding himself unable to withdraw his assets from his account was quite a shock. So, he came to Tokyo to confront the company directly about its problems and any plans they had to rectify them because the usual customer service approaches had proved unhelpful and uninformative.

“My Funds were stuck in a Mt. Gox account and there was no adequate explanation as to why they were stuck or when I would be able to access them.” He told Channel 4 News in the UK on February 26th. “I decided to go and ask them in person.”

On Friday he was more succinct: “It was a lot of money. I wasn’t going to let them just take it away.”

Kolin seems much too nice a guy to get angrier than that, though it is obvious he is. He has over $260,000 worth of bitcoins whose wherabouts are unknown yet his protest was quiet, meditative even: he merely stood with his sign, ate a sandwich or worked on his computer as passers-by stopped to look, confused for a moment about what a group of journalists and a lone protester were doing here in the grey back-streets of Shibuya.

It would be easy to say it was a peculiarly stage-managed act of ersatz victimhood for the benefit of the press, after all he is a trader who should have  known the risks involved in trading generally and especially in a new and relatively un-tested currency. But that negates the very real indifference Mt Gox appears to have treated its customers with when things started to go wrong. In merely trying to get someone from the company to explain the situation to him, you have to admire the fact that he was willing to travel all the way from the UK to try and get an answer that should have been quickly emailed to all concerned investors. When even this direct approach didn’t work it is also easier to understand why you would court media attention to raise the profile of the issue. Especially when the protest was visibly pointless in its original target, demanding, as it was on Friday, answers from an already empty office.

“I’ve been here everyday for two weeks. But I’m arriving later and later each day.” said Kolin as he started another protest late Friday afternoon by checking the internet to get the latest news on the crisis. “If [Mt. Gox] declare bankruptcy today I don’t know if it is worth coming here anymore. I’ll probably just go home.”

He knows he is unlikely to get his money back this time but has not lost his faith in the Bitcoin system, telling Channel 4 news that, “Once Mt. Gox is out of the way, Bitcoin will be stronger.”  He also mentioned that even though he has lost a lot of money, he is still ‘up’ on the investments he made.

***

Later Friday evening the 28-year-old, French CEO of the company, Mark Karpeles, announced at the Tokyo District Court that Mt. Gox was filing for bankruptcy protection. He reiterated that the Bitcoin industry was still strong and growing and blamed the collapse on, “a weakness in our system.” The company’s lawyer stated that nearly all the 850,000 bitcoins in the customers’ accounts had been lost. This is about 7% of the total number of bitcoins in circulation in the world and is worth almost half a billion Dollars.

The year started very differently for Mt. Gox. At the end of last year it had been the largest Bitcoin exchange in the world, handling 80% of the global transactions of this five-year old crypto-currency. Though withdrawals of bitcoins were suspended on February 7th, due to ‘unusual activity’ on the site, no one expected the business to fold as a result and the losses to be quite so large.

There were rumours of course that the problems were because Karpeles had orchestrated a massive swindle: that the ‘unusual activity’ was what the company was doing itself and stories of hacking attempts were just convenient covers for fraud. The internet gossip was aided in these worst-case imaginings by Karpeles and Mt. Gox’s almost total silence on developments, so much so that many people assumed he had already fled the country with his investors’ money.

When asked if he though he had been a victim of a crime though, Kolin Burges was clear: he considered Mt Gox itself to be the victim of an ‘outside theft’ .

Something perhaps that investors in Bitcoin might have to get used to.

Like any internet business there were always going to be issues of security and many academics have argued that some sort of illegal interest in bitcoins was inevitable considering not only the way the value of each coin had increased so dramatically over the last year, making them more attractive and profitable to steal, but also the way the deregulation and anonymity of the Bitcoin business itself had been useful, from its outset, in hiding the commerce of the underworld. When the FBI shut down the SIlk Road website in October 2013 due to the large amount of drug deals and other illegal activity taking place there, they confiscated 3.5 million Dollars worth of bit coins.

Indeed it was the lessening of this air of criminality that had enabled the brand to boom in 2013 and had attracted investors like Kolin: ordinary people who wanted to get a little richer and had an interest in alternative forms of finance (as let’s face it the established banks are hardly any less gangsterish or any less reckless in their approach to trading currencies).

It appears that Bitcoin is fully on the radar for exploitation now. Dell Secure Works analysed computers around the subject recently and found 150 distinct cases of malware designed specifically to steal bitcoins. Coupled with glitches in the system that had enabled users to trick  it into thinking a transaction had failed,  and allow traders to buy double the amount of bitcoins they had paid for simply by quickly clicking on the buttons, and you had a scandal waiting to happen.

A report in the Daily Beast by Jake Adelstein managed to interview a former employee about the professional and security culture at Mt Gox. the employee, who wished to remain anonymous, called Mt. Gox ‘A dysfunctional organisation’. On the personal honesty of Mark Karpeles the employee is more forgiving though.

“He’s a workaholic and a geek, but a good-hearted geek. He just has very limited management skills, a little hubris, and didn’t pay attention to accounting. He only 27 or 28 years old.“

“It’s his own fault.” Said Kolin about Karpeles. He doesn’t want to get drawn on the details because, like everyone, he is still unsure of them but basically thinks the CEO could have done a lot more to improve the security of the computer systems he was using. He has been contacted by lawyers in the United States, where many investors are already building law-suits against the the company and Karpeles himself, but is unsure if he wants to go down that route. Mt. Gox is also being investigated by the Japanese and US authorities and according to the Wall Street Journal, a  small army of bitcoin enthusiasts and hackers are already trying to find the missing coins.

As each day goes past there appears to be a lot of evidence that Kolin’s and others’ suspicions about lax security measures at Mt. Gox are probably true. The company folded with a massive 27.4 million Dollar discrepancy in it accounts and liabilities of 63.67 Million Dollars to 127,000 creditors. A leaked crisis strategy paper (which has not been confirmed as genuine yet) seems to suggest they were discussing how to fix these problems in their operations, some of which seem to have been ignored for years. But was it too little, too late?

“This was an amateurish and incompetently managed company. ” Andreas Antonopoulous, chief security officer at Bitcoin wallet Blockchain.info,” told Forbes Magazine on Feb 28th. “It will be replaced by competent operators who will run better exchanges.”

Indeed Mt. Gox’s many mistakes in their operation appear to have been legendary enough to have even created their own term for incompetence. “To be goxed”, apparently means to be fooled or trolled repeatedly in the language of the Bitcoin treaders.

Kolin was quite adamant that if Bitcoin is to continue and flourish in the way he hopes, it will need to lose some of its maverick character-traits, even though these are, of course, what has made it so attractive to many investors in the first place. In an interview with Asahi Television News he expressed his hope that there will be a ‘forensic investigation’ into the causes and links of the Mt. Gox debacle and changes made to the way companies that facilitate bitcoin trading are managed in the future.

“I think there should be a certain degree of regulation. I think exchanges need to be accountable for their security precautions and have to be able to prove they have the money to repay their customers.”

Perhaps this time he will be one of the unlucky ones and not benefit from the growing pains of the Bitcoin system by getting his own money back. However he is determined  he wants to follow-up on the issues this experience has brought to him and write or talk about it.

“I know I am not going to get my money back.” said Kolin as he held up  his polite sign outside the empty Mt. Gox office. But perhaps he will use his own loss to make sure others are not similarly mistreated in the future.

Anyway I hope Kolin does get some good news from this. It was a pleasure meeting him and learning about his story and I wish him luck recovering at least some of the money he lost.

More images of Kolin Burges protesting outside the Mt. Gox, bitcoin exchange,  company office in Tokyo at my archive here:

Later

Damon

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s