Mt. Gox is the largest bitcoin exchange in the world. Based in Tokyo, the exchange handles a substantial amount of the worlds’ bitcoin trade. Despite this, its offices are unassuming, located in a building on a quiet side street not far from Tokyo’s centrally located Shibuya station. Walking past, you would never notice or suspect that here lies the world’s largest bitcoin exchange, handling billions of USD.
We popped in for a chat with CEO Mark Karpeles and communications manager Gonzague Gay-Bouchery. Both men are very friendly and enthusiastic and seem to have a genuine love for what they do. We talked to them about past experiences and future developments for bitcoin and Mt. Gox.
IN THE BEGINNING
Mark came to Japan a few years ago to create a hosting and domain registration service. That is the original business of Tibanne K.K., the entity that runs Mt. Gox. A friend suggested he start accepting bitcoin for the services. He did, and over time became more interested in bitcoin, which motivated him to start working on his own bitcoin client named QBitcoin. (https://en.bitcoin.it/wiki/QBitcoin) At one point, the founder of Mt. Gox, Jed McCaleb, approached Mark about taking over the exchange.
“Basically the site was slowly growing bigger and at the time there was trouble with some customers who were quite verbal about some issues, so Jed was looking for someone else to handle this because he didn’t want to keep doing it by himself,” Mark explains. “So I agreed to buy Mt. Gox.” Although the rising price of bitcoin after Mark took over should have been a boon for the company, weakness in the original Mt. Gox led to the exchange being hacked.
“But we managed to stay alive and work everything together, to continue working with bitcoin and we are here today.”
Gonzague had known and worked together with Mark for a long time. He didn’t think much of bitcoin when Mark first introduced him to it, but has since changed his mind.
“Now I see the beauty of bitcoin- I see its potential to change a lot of things, and to give some leverage to its users against the financial world, so I really believe it has huge potential. Now I am addicted to it, I have my own personal display with the price on my desk. Its great,” Gonzague says.
Both men think that more users and merchants are key for bitcoin to become universally accepted and used.
“If we get some large scale merchants like Amazon to accept bitcoin, the rest of the merchants will just have to follow,” Mark says.
Mark says they hoped for but did not expect the currency’s recent boom. After buying Mt. Gox, the bitcoin price climbed to 30 USD, but then it started falling. They were hacked as it slumped to 14 USD. After that, it skidded even further- but then started climbing last year.Bitcoin started going “really crazy” at the beginning of this year, Mark says.
IS BITCOIN IN A BUBBLE? WHAT ABOUT DEFLATION?
Some people think that bitcoin is currently in a bubble. Do they have any opinion on this?
“Not really that we can share at this point” says Mark. “Anyway, there’s no way to tell what’s going to happen. What I can say, however, is that if it is a bubble, it is lasting longer than the previous one.”
“The other thing is that we all know that the value of bitcoin will grow with time,” says Gonzague. “Some people think it’s going too fast, some others think it’s too slow.”
Both men argue that bitcoin is designed to increase in value. They are seeing a lot new customers adopting the currency, and say that trend combined with the fact that less bitcoin are being generated means each bitcoin will increase in value. They also think large websites like Reddit accepting bitcoin is contributing to the trend. Mark, however, doesn’t think that has been the main drive for the currency’s recent rally. “I believe the media has more to do with this,” he says. “The question is: will new users continue using bitcoin enough to keep the price at its current level, or will they get tired and give up at some point?”
Gonzague also cites the European crisis as a factor. “We see a huge increase of people from Spain getting bitcoin, where Spain is also in a kind of bad situation, so I believe that what Mark says is definitely true… but the real fact today is that we are in a crisis, a lot of people are upset with regular currencies,” he says.
“I mean, if I were someone in Spain or Cyprus right now, I would definitely try to get as much bitcoin, silver, gold, anything that’s outside of the current system to make sure that I won’t lose too much.”
He argues that bitcoin has advantages over precious metals, for example, it is easier to store and secure compared to having ingots at home or having to deal with insurance and so on.
Neither of them think that the deflationary nature of bitcoin is an issue.
“Please remember the Satoshi,” Gonzague says. “If tomorrow 1 bitcoin was worth 1 million USD, we could still use and purchase 1 Satoshi. So its not a big deal- even if you can’t get 1 bitcoin, you’ll still be able to get the decimal ones, so theres no problem with that. Its been designed for that.”
SCAMMERS, HACKERS AND REGULATIONS
Since Mt. Gox is such a big player in the bitcoin universe, what would be different if Mt. Gox didn’t exist?
Mark says there are other ways of trading bitcoin, but that unfortunately there are a lot of scammers and players who do not apply any regulations. When we tell them of being scammed 7.5 bitcoin or about 320 USD when trading over the counter not long ago, everyone in the room breaks into a laugh. Mark calls OTC trading a “heaven” for scammers. He goes on to mention services like Mybitcoin, who lost something like a hundred thousand bitcoin to hackers.
Hacker attacks are a problem facing anyone who wants to operate an exchange: “Mt. Gox has become the main target for anyone trying to steal bitcoin. We get a lot of hack attacks, a lot of not really nice things,” Mark says. He also mentions other obstacles facing exchanges, such as banks shutting down bank accounts without warning merely out of a dislike for bitcoin.
Having brought up the subject of regulations and rules, we wondered what Mt. Gox are subjected to, if any. What does it mean to be registered in the Tokyo Chamber of Commerce registry?
“To make things clear: every company in Japan needs to be registered as a company. The Tokyo Chamber of Commerce registration is just a registry,” Gonzague says.
“We are on there because there is no way to look through company registries online, so we registered with the Tokyo Chamber of Commerce,” Mark continues.
“A lot of people are saying that we are not a real company, that we don’t exist, and so we have to prove to them that we do.”
“In terms of regulation, we have been in contact with Japanese authorities and explained about bitcoin and what our activities are. In Japan, there are actually three kinds of relevant licenses, but none of those licenses match our activity. The authorities think that we don’t need a license,” Mark adds.
He says there hasn’t been any problems with the Japanese authorities, with whom Mt. Gox has been very open with right from the start. Authorities can be slow to deal with, however: replies can take up to a whole year, a lot of questions need to be answered and referrals around different levels of authorities has to be dealt with. Because Mt. Gox does not issue, lend or deal with interest on money, and because the authorities do not even consider bitcoin a “financial product”, no license is currently needed. The authorities, however, reserve the right to change their minds and enforce certain regulations if necessary- and Mt. Gox are prepared for such eventualities.
“We are well prepared to take whatever license they want to apply, but since they don’t know which license we should take we are just waiting,” Gonzague says.
On the recent development in the US concerning regulations on bitcoin, they say that their recently announced agreement with Coinlab (see https://mtgox.com/press_release_20130228.html and http://coinlab.com/transition) stipulates that all regulations need to be followed.
“Our deal with Coinlab is in order to be proactive on this matter. We knew that at some point the US will say something about it, and we want to be proactive to keep our customers and our business safe,” Gonzague says.
They don’t think that the regulations will have much impact on the bitcoin economy. Both argue that goal of regulators is to target criminal activity such as money laundering. As for miners, while the issue is complex and may be a source of debate, Mark points out that miners don’t actually issue money: they receive bitcoin as payment for performing work for the network. He also doesn’t think that miners are large enough to warrant regulator scrutiny. Further, he says that bitcoin mining is not a financial activity, and that miners don’t deal with enough money to qualify for registration.
Even in a worst case scenario of miners becoming subjected to regulation, Mt. Gox could offer a service where miners actually mined for Mt. Gox, and Mt. Gox pays the miners for their CPU work, Mark says.
THE JAPANESE ECONOMY, GOING PUBLIC AND OPERATING IN TWO WORLDS
As Mt. Gox is located in Japan, we felt compelled to ask what they think about the Japanese economy. The Japanese economy has not been doing very well the last two decades; some have even referred to it as a “zombie economy”.
Gonzague says the matter is very complicated and that there are a lot of things that they don’t fully understand.
“We were talking to our accountant about maybe doing an IPO or something, and the accountant told us to not go on the Japanese market. Which was quite surprising, for a Japanese accountant,” Mark says.
Going public? Excited, we probed for more:
“Well, we’ve been discussing this, its not for anytime soon. First we need to get everything stabilized with licensing and we are considering creating entities around the world with the correct licensing, which is a lot of work. Sometimes it’s less work, e.g. in Europe where you get a license for one country it’s valid within the EU, but in the US you need to get a license from every single state. It means you need an office in every single state, you need to discuss with every single state conditions, there are a lot of differences between them… It’s a nightmare. That’s one reason why we want Coinlab to do it for us: it’s too much work.”
Gonzague adds that some states, like e.g. California, don’t even issue licenses: “Even if you have a perfect request and everything is perfect, the state may say no because there is only a limited number of licenses issued.”
The amount of time they think it will take to “get stabilized” apparently, depends on the regulators. “For opening in the US we were working with Coinlab. It was supposed to go smoothly, but then the regulators say ‘Hey, you need to do that, that, that, that etc’ so we are currently evaluating the new information that we got and how it’s going to affect the situation. In Europe, we are also trying to move forward, but it takes time. We believe that in Europe, we may have something by the end of the year. Or not,” Mark chuckles.
Gonzague is more optimistic: he says they will hopefully achieve it by summer.
“The thing is that in Europe we need staff, we need a location, we know where we are going to do it and we are preparing and working on this right now. Then we need to submit this to the authorities over there in the country we decided and start moving, so hopefully by summer, maybe September, October.”
They say that even though they work with experienced people, it’s hard to evaluate how long things will take because of the lack of experience with the bitcoin business. Gonzague adds that he wishes customers realized how slow things can be “in the real currency world”.
“Some believe that since bitcoin is an internet thing, you should go at the speed of the internet,” he says.
“Unfortunately the real currency world takes a lot of time, they love to take their time. And a lot of our customers are frustrated about this. And I say over and over, we are extremely sorry, please be patient, and we thank you so much for being patient, but we are not doing things slowly to piss you guys off: it’s because behind there are banks, there are regulations that we need to follow. So we want to do everything by the book in order to protect you guys, and also to protect us.”
Mark and Gonzague seem to be very professional and passionate businessmen who really care about bitcoin, their users and their business. Some may worry that an entity as large as Mt. Gox would grow stale or start abusing their leading position, but to us Mt. Gox seems nothing like that. They are still hungry and working hard to provide the bitcoin community with services that work and are well anchored in the world outside of bitcoin, allowing bitcoin to enjoy more legitimacy and making it significantly easier for bitcoin to enjoy more widespread mainstream adoption.
The author of this article has an account with Mt. Gox, but is not affiliated with them in any way. No compensation has been paid out to or received by the author or anyone related to or affiliated with the author for writing this article.
A while ago, I got scammed when trying to sell some bitcoin. The scammer got away with 7.5 bitcoin, which was about 320 USD at the time.
For whatever reason, rather than selling my bitcoin on one of the large exchanges, I decided I wanted to try out selling my bitcoin “over the counter” over IRC (internet chat). Freenode (a large IRC network) has a #bitcoin-otc channel where people get together to buy and sell bitcoins in this fashion.
After announcing what I wanted to sell and my price, a user contacted me via private message. He provided me with a link to his ratings (http://bitcoin-otc.com has a catalog of people with ratings and reviews so traders can mitigate the counter party risk inherent in trading over the counter) and they were stellar.
Now, before going any further with trades, you are supposed to use a bot inside the chat channel called “gribble” that can verify that people are who they claim they are. I had some trouble using the bot so I was left with the choice of aborting the deal or going through with it anyway. I thought to myself that surely whoever this guy is his ratings wouldn’t be that good if some scammer had access to the password of his registered nickname, so I decided to go through with the deal anyway.
I gave out my account number and bank details so that traditional currency could be put into my traditional bank account and then transferred the bitcoin. I got a reply saying “sending payment now”, and then, nothing. The person had left the chat. I then realized that at the very end of the nick there was a ` which was barely visible due to the color settings in my IRC client. Whoever that was wasn’t really the person behind the nick with the stellar ratings and reviews, but just a scammer who had “hijacked” the nick by putting a ` at the end, looking for easy pickings from uncatious over the counter n00bs like me.
Now, clearly the blame lies *completely* with me here. I was rushing to close the deal because bitcoin had recently been appreciating wildly and I was convinced it was a bubble bound to pop any minute. My greed and stress enabled me to overlook the fact that I was unsuccessful in verifying the nick before making the trade and probably contributed to me not noticing the ` at the end of the nick. Actually, even if I had been successful using the gribble bot, chances are the person behind the hijacked nick had actually registered that so that any verification attempt had come out as successful for the hijacked nick.
Fortunately, the bitcoin had been acquired on a whim years ago when they were worth next to nothing, so in a way it could be said that not much value was lost, and I still had plenty more coin left. But that doesn’t mean that loosing them didn’t hurt. I was furious with myself for a few days but then got over it, and looking back at it now I can but laugh at my n00bness. I hope whoever scammed me at least uses the coin to contribute to something useful in the bitcoin economy.
This should go without saying, but just in case: this post is by no means a critique of over the counter trading in general or over the counter trading through freenode’s #bitcoin-otc channel in particular. Again, the blame lies completely with me for not being more careful. Bitcoin could use more over the counter trading to compensate for the large volume of trades being done at the big exchanges. Just be careful not to fall prey to easy scams like I did and try not to trade when greed and stress are clouding your judgment. If something feels odd or out of place, cancel the trade rather than go through with it and risk being scammed.
Spending bitcoin can be a bit of a challenge. Despite ever increasing adoption, it is currently nowhere near being universally accepted.
Enter bitspend.net, a service that enables spending bitcoin to buy pretty much anything from pretty much anywhere. Basically, you tell them what you want to buy, they buy it for you using traditional means (like credit card etc), and you send them payment in bitcoin, including a fee of a few USD on top. (fee depends on order value)
On March 3 2013, bitspend announced their service on reddit. The thread quickly climbed to the top of the /r/Bitcoin sub and remained there for quite a while. The service was highly lauded, and was so overwhelmed with orders that orders had to be halted in order to get in place systems and procedures that could better cope with the massive unanticipated volume, but we managed to get an order through. We sent an order for a Nexus 7 tab off amazon. The product has a price tag above the initial bitspend 100 USD limit in place at the time, but we were hoping they would make an exception.
The reply was swift and friendly, initially informing us that the order was being processed, and then asking whether we wanted to add a 2-year warranty. After having sorted that out came the fun part: international shipping (address outside of the US) and payment. Turns out amazon, like many other vendors, do not like shipping to addresses in a different country from the one the credit card used for the payment was issued in. After some back and forth trying to figure out from where to get the product, eventually we realized that using ebay would allow bitspend to pay with paypal and then have the seller ship internationally. Despite the issues with amazon and some other vendors not having anything to do with bitspend, they offered to waive the bitspend fee as compensation for the trouble.
After confirming that the ebay option was possible, we received an invoice with a bitcoin address. After paying the bitcoin (again, no bitspend fee included) we received another confirmation email, and then it was just a matter of a few days to wait for the package to arrive.
We are very pleased and impressed with bitspend and their service, and we thoroughly recommend them. We made sure to send them a substantial tip which more than made up for them waiving their fee. Hopefully whatever problems they had with handling the overwhelming order volume is being sorted out so that more people can try them out.
In coming posts, we plan to review other means for spending bitcoin outside of the bitcoin nominated economy, such as e.g. btcinstant.com, bitcoinrunner.com and paybit.co so be sure to come back and check that out.
The authors of this review are not affiliated with bitspend or any of their competitors.
FYI for reddit users: bitspend also have a subreddit of their own at http://www.reddit.com/r/bitspend