Karpeles in cuffs: what really went wrong at Gox

Tuesday 04 August 2015

Mark Karpeles, CEO of the dysfunctional Gox, has been arrested - but not for theft.

There’s a saying that you should never attribute to malice what can adequately be explained by incompetence, and that was never more true than for Mt Gox, the world’s first and most spectacularly failed bitcoin exchange.

Karpeles, Gox’s CEO, always maintained that hackers were responsible for the missing 850,000 bitcoins, later revised down to 650,000 when 200,000 were ‘found’ behind the exchange’s sofa (actually in a so-called ‘old format’ wallet). Now Ashley Barr, also known as Adam Turner, the exchange’s first employee, has revealed what really went on at Gox in a Reddit AMA (ask me anything). And far from being a criminal mastermind, he paints Karpeles as, in the words of one redditor, ‘a classic neckbeard who just got lucky and won a lottery’, but who was hopelessly out of his depth when it came to running a real business - or even living in the real world.

Barr has spoken out now because, he says, after Karpeles arrest for manipulating figures at the exchange, he is no longer scared of what will happen if he breaks his NDA. The conviction rate in Japan is extremely high, so he is confident that Karpeles will end up in jail.

Read also: Do you speak bitcoin?


Better than any movie but too weird for fiction, the popcorn-worthy Gox saga shows no sign of stopping

Barr, who was known as Adam Turner to protect his anonymity, describes the scenes of total incompetence and waste that happened at Gox, and the way that Karpeles buried his head in the sand when confronted with various problems, from threats by hackers (who started out simply by making vulnerabilities known) to the fact that the exchange’s outgoings vastly exceeded its income. Many of these things had to be inferred, because Karpeles kept his cards close to his chest and didn’t part with information easily. One example of many: asked whether anyone had access to the exchange’s cold wallets, he answers,

‘As far as I know, no one else at Mt.Gox ever had access to the backend of Mt.Gox, nor the cold wallets. At my time there, only Mark had access to the Database… Mark said that if he died there would be hints that one of his best friends could follow to find and unlock the cold-wallets. When I asked said friend, he said he had no idea what Mark was talking about.’

Customer deposits of fiat weren’t separated from the exchange’s own accounts; money was spent they simply didn’t have; changes were made to the live codebase without testing. Adam sums him up as follows: ‘My personal anecdote is that Mark is somewhere on the autism spectrum... but when you read up about that, it doesn't quite match. He had(has) the ego of someone wanting to prove themselves, some anti-social behaviours, some social behaviours, and everything in between. He's still a mystery to me, and absolutely unpredictable. He's a mindfuck, and that's coming from someone who knows people (in my own opinion) pretty well.’

Of course, all this is Turner’s word alone, but the picture he gives is consistent with what was known about Gox all along. And it may be that Karpeles gives enough evidence for the Japanese police to pick up Turner too.

The saga continues, and it’s popcorn-worthy to say the least.

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