Report: Mt. Gox’s explanation of losing thousands of bitcoins is doubtful

Late last month, Mt. Gox, one of the biggest bitcoin exchanges in the world, filed for bankruptcy and claimed that approximately 850,000 bitcoins, totaling a value of $450 million at the time, were lost and likely stolen. Last week, it confirmed that it discovered 200,000 bitcoins in an unused wallet.

“We believed there were no bitcoins left in old wallets, but found 199,999.99 bitcoins on March 7,” Mt. Gox CEO Mark Karpeles said in a document (PDF) released Thursday.

A new study published on academic prepress website ArXiv.org claims doubt on Mt. Gox’s official story that nearly half a billion dollars were stolen because of malleability attacks. In fact, the report authors believe only fewer than 400 bitcoins could have actually gone missing or stolen.

Authored by Christian Decker and Roger Wattenhofer of the Distributed Computing Group at the Swiss Federal Institute of Technology Zurich (ETH), it was suggested that there actually were no prevalent malleability attacks prior to the shutdown of Mt. Gox. The Tokyo-based exchange explained that a bug in the bitcoin software could have been utilized to revise records highlighting how bitcoins changed hands.

“In February 2014 MtGox, once the largest Bitcoin exchange, closed and filed for bankruptcy claiming that attackers used malleability attacks to drain its accounts,” the authors stated in its report that has yet to be peer-reviewed. “In this work we use traces of the Bitcoin network for over a year preceding the filing to show that, while the problem is real, there was no widespread use of malleability attacks before the closure of MtGox.”

The report further added that only close to 1,200 bitcoins were involved in the attacks before Mt. Gox suspended withdrawals, nearly four-fifths of the attacks were ineffective and fewer than 400 bitcoins could have been stolen during the attack.

“Even if all of these attacks were targeted against MtGox,” the authors said. “MtGox needs to explain the whereabouts of 849,600 bitcoins.”

Once the study is peer-reviewed and if it is verified by technology and bitcoin specialists then this could very well vindicate bitcoin. Many have argued that bitcoin is dead and it doesn’t have a future because of the numerous heists, shutdowns and bugs associated with the virtual currency. However, this could prove that bitcoin is a sound and sustainable digital currency and it’s the exchanges that maintain the problem.

We reported this month that other bitcoin exchanges have taken Mt. Gox’s place, particularly BTC-e and Bitstamp. Proponents of bitcoin’s bright future usually purport that exchanges need to improve their security and technology otherwise it could give bitcoin a bad image.

Whatever the case, it appears that the only problem that bitcoin has now is with the government and regulatory bodies that want to impose strict controls on the cryptocurrency. Other than that, the latest study could certainly remove the chains and bags of bricks placed on bitcoin by the mainstream media, politicos and other critics.