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Despite Mt. Gox fiasco, Karpeles still has Bitcoin plans

Tim Hornyak | Nov. 12, 2014
On hindsight, Bitcoin needs physical security measures that are used to protect gold, and could benefit from a kind of central bank established by merchant accepting Bitcoin, says Karpeles.

But Karpeles admits Mt. Gox got more than it could handle when it began taking in millions of dollars worth of bitcoin and tens of thousands of new customers per month, peaking at about 1.2 million customers in total.

They were all eager to jump on the soaring rocket that was Bitcoin in 2013 as its value climbed to over $1,100. But these days the cryptocurrency has been trading between $300 and $400, according to Coindesk, a Bitcoin exchange tracking site. Karpeles still watches the price of Bitcoin and believes it can rise again barring major incidents like hacking attacks against it or government shutdowns of exchanges.

If Mt. Gox had been a U.S. company, it would have had access to investment funds more readily than in Japan, which would have allowed it to add resources and security to deal with the influx of money and customers, the French-born CEO said. Japan's vague regulations on digital currencies didn't help, he added.

Investigators are likely to have been focusing on what happened with Mt. Gox's cold wallets, essentially an offline storage system for keeping bitcoin on paper with QR codes. A document posted online in late February and purporting to be a leaked business plan said the cold storage was "wiped out due to a leak in the hot wallet."

Karpeles would only say that the cold wallets were implemented in 2011 and that auditing their contents was risky since it involved scanning the QR code for a wallet and checking whether its private key matched the public key on the Internet.

"Each time you want to check the balance of a cold wallet, you're making it less cold," he said, adding that Mt. Gox took immediate steps to address any security problem it discovered.

Karpeles now thinks Bitcoin needs the kind of physical security measures that are used to protect gold. Bitcoin exchanges should have 24-hour operation centers manned by guards and accessed only through hardware tokens, and with staff who have undergone extensive background checks, he said.

The cryptocurrency could also benefit from a kind of central bank established by merchants accepting Bitcoin, he said, that would act as a clearing house for transactions and implement secure storage of coins. Karpeles is also trying to draft a best practices document for Bitcoin security that he said he would share with anyone willing to consider his ideas.

Without major investments in security infrastructure, Karpeles said, "most likely we're going to see more companies getting hacked, or bitcoin being stolen."

That's little consolation to Mt. Gox clients who lost significant sums in the company's meltdown, including the protesters who staged sit-ins in front of the company's offices in February.


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