Mentougou was robbed six years ago: No compensation in sight, but the mystery remains

Only by holding the private key can you truly become the master of the cryptocurrency.

Due to the black swan incident of OKEx, the issue of user asset security has once again been taken seriously. However, compared with the "accident" of the private key custodian of a centralized exchange, the hidden dangers and impacts of crypto hackers seem to be more far-reaching.

The past decade has been a decade of twists and turns for the cryptocurrency industry, but it has also been a decade of hacker conquest. Data shows that from 2011 to 2019, more than 1 million bitcoins were stolen by hackers in the cryptocurrency field.

The most influential case was the theft of the Mt.Gox exchange in Mentougou, where 850,000 bitcoins were looted and thousands of users suffered.

October 15 was the date for Mentougou to submit its liquidation compensation proposal. However, as most people expected, Mentougou once again backpedaled.

Six years later, the mystery of the theft has not yet been resolved, the user compensation plan has not yet been implemented, and the sword hanging over the cryptocurrency industry is still flickering and shaking.

By Mark

Unable to compensate? Indefinitely postponed liquidation compensation date

October 15th is an extremely important date for the cryptocurrency field: it is the date for the Mt. Gox liquidation compensation proposal.

However, the market situation was not affected by this. Mentougou once again "failed" everyone, and users do not have to worry that the 142,000 bitcoins and BCH in the Mentougou compensation incident will bring about a wave of market crashes.

Mentougou postpones liquidation compensation date

Since 2020, Mentougou has postponed the date of the liquidation compensation proposal twice, and the new date has been postponed again to December 15. This is undoubtedly another long wait for the victimized users.

Six years later, users still cannot get compensation from the Mentougou incident and get their assets back. The stolen funds have now increased by nearly 30 times, but all they have brought to the victims is anxiety.

The Mentougou incident and the Craig Wright incident are two major uncertain risk events in the field of cryptocurrency, because both involve hundreds of thousands of bitcoins, which may cause the market to crash at any time and bring negative impact.

As reported by Bitcoin.com in May, Puerto Rico-based company Gox Rising had proposed purchasing the claims of Mt. Gox creditors. The company said it would pay claims of $800 per Bitcoin in the form of BTC or cash to creditors who did not want to wait for the civil lawsuit to end. The announcement from Gox Rising stated: "Our payment will be held in escrow and paid within 10 business days after the transfer of the claim is confirmed."

However, considering the current price of Bitcoin at $11,500, the victims of the theft are unlikely to choose to sell their claims at a low price.

However, it is extremely difficult for victims to get their assets back.

850,000 Bitcoins Stolen, Mentougou’s Dark History

Mentougou is the Chinese translation of Mt.Gox, an early Bitcoin exchange located in Tokyo, Japan, which was bought by French developer Mark Karples from programmer Jed McCaleb.

Mentougou started its Bitcoin trading business in 2010. Its trading volume once accounted for about 80% of the total Bitcoin trading volume, making it the world's largest online Bitcoin trading platform at the time.

Because the market is so large and early security measures were not strong, there have been many hacker attacks.

The first attack occurred in 2011, when hackers attacked the computer of an auditor in Mentougou and then used exchange access rights to change the trading price of Bitcoin to 1 cent, transferring about 2,000 Bitcoins in this way.

However, this attack did not have much impact on Mentougou, nor did it attract much attention from the platform. After all, the price of Bitcoin was around US$1 at the time, and 2,000 Bitcoins were just a drop in the bucket.

Disasters often accumulate from small things. It was this attitude of not paying attention to safety that laid the groundwork for the subsequent large-scale thefts in Mentougou.

Victims of theft in Mentougou are taking action to protect their rights

In 2014, Mentougou suffered its second hacker attack, which is the "Mentougou theft incident" that is still attracting attention today: this incident resulted in the theft of 850,000 bitcoins, including 100,000 bitcoins from the Mentougou platform and 750,000 bitcoins from users.

This black swan event directly caused the price of Bitcoin to drop from US$600 to US$400, a 30% plunge in a short period of time.

Subsequently, users began to question the security of exchanges, and hackers became an indelible shadow for various exchanges.

Let's take a look at some of the thefts in Mentougou:

In 2016, Mentougou was still a game card trading website.

In July 2010, Mentougou started Bitcoin trading.

In June 2011, hackers launched a large-scale attack and Mentougou began to lose a large number of bitcoins.

Starting from June 2013, Mentougou suspended the platform withdrawal function, and a run on the bank occurred.

On February 7, 2014, Mentougou was attacked by hackers, who falsely claimed that all Bitcoin withdrawal services were suspended due to Bitcoin problems.

On February 17, Mentougou issued another statement, saying that it was unable to give an exact withdrawal date.

On February 20, the Mentougou office moved to Shibuya.

On February 24, Mentougou suspended all transactions, cleared all Twitter content, and fell into an irreparable situation.

On February 28, the CEO of Mentougou publicly admitted that he had lost 100,000 bitcoins from the platform and 750,000 bitcoins from users, and filed for bankruptcy protection in Tokyo.

On March 9, Mentougou filed for bankruptcy protection in the United States again.

On March 20, Fat Fat recovered 200,000 bitcoins from his old wallet, reducing the number of stolen bitcoins from 850,000 to 650,000.

In August, Fatty was given a suspended sentence for falsifying digital records.

Mentougou CEO Fa Pang

In 2015, Fatso was arrested and imprisoned. He was released on bail in July 2016. He was not guilty of most of the charges brought against him by the Japanese authorities, but his entry and exit were restricted.

According to professional analysis, in the Mentougou theft incident, the actual number of bitcoins stolen by hackers was about 7,000, and more losses were suspected to be theft by the Mentougou staff. The biggest reason may be that the platform shorted Bitcoin in the early days, but due to the rapid price increase, it was unable to repay the user tokens, so it chose this method to solve the "debt" problem and let the hackers take the blame.

Although Mentougou filed for bankruptcy protection, a Japanese court ruled that it still had to return tokens worth $1 billion to the victims of the theft.

In this incident, "Bitcoin richest man" Li Xiaolai was also one of the victims, allegedly losing more than 500 BTC.

Stolen Bitcoin Flow Chart

Ultimately, most of the stolen bitcoins flowed to BTC-e and were difficult to recover, so Mentougou could only use the remaining bitcoins for compensation.

However, after many years, Bitcoin has risen nearly 30 times from US$40, but it has also brought a lot of trouble to subsequent compensation.

Compensation and liquidation have been full of twists and turns, and Mentougou's compensation has become the biggest negative

The compensation was delayed for several years, causing many problems: users forgot the number of bitcoins in their accounts; bitcoin rose too fast and had valuable forks, so if compensation was made according to the legal currency at the time, the gap would be too large; according to the currency standard, the bitcoins and forked coins in Mentougou were not enough for compensation.

However, no matter which method is adopted, it will be extremely bearish for the market and there is a possibility of selling.

Between December 2017 and February 2018, Fat Fat's lawyer, Kobayashi, publicly stated that he had sold 35,800 bitcoins through over-the-counter transactions to repay users' losses in 2013.

In March 2020, Mentougou issued a draft for liquidation compensation, which mainly contains three points:

1. Creditors can choose to receive compensation in two ways: fiat currency or cryptocurrency (BTC or BCH);

2. Other forked coins such as BSV will be sold for legal tender;

3. Priority will be given to the payment of small creditors with amounts less than 200,000 yen (approximately 13,000 yuan).

According to official data from 2019, Mentougou’s current assets include approximately US$630 million in cash, 142,000 BTC and 143,000 BCH.

However, Mentougou said that it would not compensate users with zero account balances, and users who pretended to be victims of Mentougou and submitted claims to the trustee would be denied compensation. For those whose Bitcoin balances were lower than the amount claimed by the claimant, their requests would also be rejected, but they could file a secondary claim.

However, one day before the originally agreed date for submitting the liquidation compensation plan on July 1, 2020, the official announced that the deadline would be postponed for three and a half months - the latest date was set to October 15. On October 15, it was pushed back to December 15 again.

In fact, if Mentougou compensated according to the amount of legal currency at the time of the theft, then 142,000 bitcoins would not only be able to compensate for the loss of 650,000 bitcoins (worth 260 million U.S. dollars at a price of 400 U.S. dollars), but it would also be able to make a fortune later, because 142,000 bitcoins are worth about 4.1 billion U.S. dollars at the current price of 11,700 U.S. dollars.

Of course, users will definitely not buy it. How can they accept the legal currency price of that year? A new round of appeals and rights protection will begin, and the Mentougou case will never be settled.

It is difficult to come up with a one-time solution to this historical problem in Mentougou, and the repeated postponements are also an effort to find a better solution to this issue.

At present, as long as this matter is not completely resolved and there is controversy, it will cause negative impact on the market. This is mainly due to the potential impact of Bitcoin in the compensation plan.

If the compensation is cryptocurrency, users will dump the market because of the high returns. This kind of dumping will be more dispersed and will not have such a big impact on the market.

However, if the compensation is in fiat currency, it will be difficult for Mentougou to sell a large amount of Bitcoin through over-the-counter transactions, so it can only enter the exchange to dump the market. The huge selling pressure in a short period of time is difficult for the market to bear, and the price of Bitcoin will naturally fall sharply.

However, from a long-term development perspective, due to various coin loss incidents and the total upper limit of 21 million, the liquidity of Bitcoin is average. If the huge amount of Bitcoin in Mentougou can flow into the market, it may bring fresh blood and keep Bitcoin vibrant.

On October 8, according to Whale Alert data, 95 BTC were transferred from the Mentougou cold wallet to an unknown wallet address.

The unusual movement of the Mentougou cold wallet also conveys a message that the Mentougou incident is still an industry event that deserves our long-term attention.

It remains a mystery as to when the compensation will be truly resolved. However, it is certain that no matter which solution is adopted on the day of compensation, it will be the biggest negative for the cryptocurrency field in the short term, but in the long run, it may be beneficial to the development of Bitcoin.

References:

《The submission date of Mt Gox liquidation compensation plan has been postponed again! 》

"Mentougou Incident 5 Years Ago"