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In a groundbreaking development, nine years after the monumental Mt. Gox Bitcoin hack, the United States Department of Justice has finally announced charges against two Russian nationals allegedly involved in the cybercrime. The suspects, Alexey Bilyuchenko and Aleksandr Verner are accused of laundering 647,000 Bitcoins, a haul worth approximately $400 million at the time of the hack.
The Mt. Gox saga has been one of the defining stories in the cryptocurrency world. At the start of 2014, the Japan-based exchange was the largest of its kind, handling over 70% of all Bitcoin transactions worldwide. However, by the end of February, it was bankrupt, and thousands of investors lost access to their assets. The collapse was the result of a massive hack in which about 740,000 Bitcoins were stolen, equivalent to €460 million at the time and over $3 billion at October 2017 prices. An additional $27 million was also missing from the company’s bank accounts.
Bilyuchenko and Verner stand accused of launching a significant attack on the exchange that ultimately led to its downfall. Starting in 2011, the pair allegedly stole a massive amount of cryptocurrency from Mt. Gox. The stolen Bitcoins were then used to set up the BTC-e virtual currency exchange, which went on to launder funds for cybercriminals worldwide.
Moreover, Bilyuchenko is separately charged for working with Alexander Vinnik, who was previously indicted by the DOJ in 2017 for operating BTC-e. The now-defunct crypto exchange was one of the primary ways cybercriminals worldwide transferred, laundered, and stored the illegal proceeds of their activities.
In the aftermath of the Mt. Gox hack, authorities have been left with a complex web of transactions and conspiracies to untangle. The government alleges that Bilyuchenko, Verner, and other co-conspirators laundered over 300,000 Bitcoins that had been stolen from Mt. Gox1. If convicted, Bilyuchenko faces charges with conspiracy to commit money laundering and operating an unlicensed money services business with a potential sentence of over 20 years, while Verner is charged with conspiracy to commit money laundering with a maximum penalty of 20 years in prison.
The Mt. Gox hack and its aftermath have had a profound impact on the cryptocurrency market and the regulatory landscape. Regulatory authorities across the globe became increasingly vigilant, scrutinizing cryptocurrency exchanges to prevent similar incidents. However, the long-term impact of the Mt. Gox hack on the broader regulatory landscape for cryptocurrencies remains a complex and multifaceted topic, warranting further exploration.
While this indictment provides a significant step towards justice, it is important to remember the victims of the Mt. Gox hack who lost access to their assets. The full impact of this saga on the future of cryptocurrencies and their regulation remains to be seen, but it will undoubtedly serve as a stark reminder of the importance of security in the digital age.
What was Mt. Gox?
Mt. Gox was a Japan-based Bitcoin exchange that was handling over 70% of all Bitcoin transactions worldwide at the beginning of 2014. It was the victim of a major hack that resulted in a loss of about 740,000 Bitcoins, valued at over €460 million at the time, and over $3 billion at October 2017 prices. An additional $27 million was also missing from the company's bank accounts. The exchange went bankrupt by the end of February 2014, and anyone who was using Mt. Gox lost access to their assets.
Before this, Mt. Gox had been experiencing a series of issues. There had been a previous hack in June 2011 where an estimated 2,000 Bitcoins were stolen from customer accounts on the exchange. As a result, Mt. Gox took several security measures, including moving a substantial amount of its Bitcoin to be held offline in cold storage1. Despite these issues, by 2013, Mt. Gox had established itself as the largest Bitcoin exchange in the world due to increased interest in Bitcoin.
However, the organization was struggling internally. Employees have spoken about poor security procedures, serious issues with the source code of the website, and other operational issues. Additionally, Mt. Gox was sued by a former business partner, Coinlab, for $75 million for breaching a contract. The US Department of Homeland Security also investigated claims that a subsidiary of Mt. Gox was operating as an unregistered money transmitter in the US, which resulted in more than $5 million being seized from the company's bank accounts.
On February 7, 2014, Mt. Gox stopped all Bitcoin withdrawals, claiming that it was merely pausing withdrawal requests to obtain a clear technical view of the currency process. But by February 24, 2014, the exchange suspended all trading and the website went offline. It was later revealed that hackers had stolen 744,408 Bitcoins belonging to Mt. Gox customers, as well as an additional 100,000 Bitcoins belonging to the company, resulting in the exchange being declared insolvent. Mt. Gox filed for bankruptcy protection in Japan on February 28, and in the US two weeks later. Investigations have shown that the massive hack of Mt. Gox had begun as early as September 2011.
Fast forward to 2023, the US Department of Justice announced that it had charged two Russian nationals, Alexey Bilyuchenko and Aleksandr Verner, in connection with the series of hacks that brought down Mt. Gox in 2014. The pair are accused of laundering 647,000 stolen Bitcoins, which was worth around $400 million at the time of the theft.
It's also alleged that the stolen funds from Mt. Gox passed through BTC-e, a now-defunct crypto exchange, and wallets associated with another individual, Alexander Vinnik, who was indicted in 2017. Bilyuchenko is also charged with operating BTC-e, which was one of the main ways cybercriminals around the world transferred, laundered, and stored the criminal proceeds of their illegal activities. If found guilty, both Bilyuchenko and Verner could face up to 20 years in prison.