Bitcoin Big Bang: l'improbable épopée de Mark Karpeles (2018) - full transcript

(electronic hum)

Police in Japan have arrested Mark Karpeles,

the CEO of a failed bitcoin company.

Mt. Gox was one of the world's largest

bitcoin exchanges until last year.

It lost millions worth of bitcoins,

leaving angry investors without their money.

(mysterious music)

I had no idea who he was, Mark Karpeles,

some guy who has the first bitcoin exchange

and he's sitting on top of, you know,



almost a billion dollars worth of money.

And where did it go?

(foreign language)

This whole burgeoning ecosystem and technology

was essentially entirely dependent on this 20-something

French guy sitting there in Tokyo with his cat.

(foreign language)

All of a sudden, this website just crashes

and burns, seemingly out of nowhere.

(foreign language)

They were up to one million accounts,

so it's a hell of a lot of people out there

who've got reason to be angry.

(foreign language)



This is almost more like a Wild West robbery.

(foreign language)

(electronic crackling)

(intriguing electronic music)

(bright music)

Just imagine, image a bank you can trust,

a bank that knows-- (shouting)

Imagine, above all, a world without banks or bankers,

a world in which the governments no longer

control their currencies or its value.

This new world is a currency.

Digital, free, universal, as easy to use

as a credit card but as discrete as cash.

And it's name is bitcoin.

(angelic music)

Are you ready to bypass the system?

In 2008 ...

this was a period of financial crisis.

The system almost failed again.

But the central banks came to the rescue,

printed trillions of dollars to bail out

the banking systems and all the large mortgage holders.

There were bailout all over the world.

It created this whole new desire

to have a financial system that existed

outside the bounds of Wall Street,

outside the bounds of central banks.

There was this desire to kind of

return money back to the people.

(gentle music)

At the time, there was as a small group of people

that were working on the idea of a new digital money

that would be entirely private, be not connected

with a government, be global and purely digital.

The immediate reaction to thinking about electronic cash

is that it can't be possible, 'cause if it's digital,

you could make a copy of it.

If I make a copy of it, then aren't there two of them now?

It just naturally wants to fit in your brain.

And it was 2008, when Satoshi Nakamoto,

which is a pseudonym for somebody else

or maybe several people, we still don't know,

but came up with this idea of a ledger,

a ledger that would belong to everybody,

that everybody could see.

And there would be a protocol to enter and exit the ledger.

And there would be a very carefully scripted algorithm,

that how many of this new unit called bitcoin

could be created.

When you start reading about the Blockchain

and distributed ledgers, it just clicks,

like, oh, wow, there really is this way to do this

decentralized authentication of transactions

where you really could have a digital cash system.

And then it sort of turns on another part of your mind

to this whole world of possibilities

that weren't possible before.

It was very apparent to me early on

that it was gonna be a big deal.

It's alive, it's alive!

The very first product that I bought was a pair of pliers.

(laughing)

I didn't need pliers, but that was the first thing,

and I was in a hurry.

So I click that, and they said, "Okay, now scan this code,

this QR code," so I scanned it and sent it some money.

So I sent it, and they said, "Your transaction is done."

And really, I had a sense like a breathless sense.

They didn't know my name.

They didn't have to know my identity.

It was based on a trust relationship.

They didn't have to access my credit history.

Nothing matters except that I owned something.

So you have to understand, it was like a cash transaction,

except the person I'm transacting with

is not in front of me.

The person is somewhere else,

could be anywhere in the world.

Nothing like that has every been possible

in the history of the world.

And when I realized this, I thought, "I can't believe this.

"I can't believe this just happened."

So I got up, and I remember just dancing

around my dining room table, just kind of

doing a little dance, going, "That's the future.

"I just saw the future."

And I realized at that moment, if this works,

the relationship between the individual and the state

and our whole public lives are going to change forever.

When?

I don't know, but it's going to happen.

Bitcoin was really fed by some of the same

philosophical impulses as the internet and also some of

the same technological concepts as the internet.

Both are really, on a technological level,

about taking power away from the center.

At the core, the internet and bitcoin

are really about decentralizing power.

(upbeat reggae music)

(foreign language)

If you study economics, you realize

the more economic freedom people have,

the higher their standard of living.

If you or I print a bunch of money in our basement

and go around town spending it,

we would go to jail for counterfeiting,

because it's economically destructive

and is stealing from everybody else.

When governments do the exact same thing,

when they print a bunch of money,

it doesn't change what it is:

it's stealing, and it's wrong for the exact same reason.

And as a Voluntarist and a Libertarian,

I have a huge, huge problem with that.

So the invention of bitcoin strips that power

away from every single government

in the entire planet to do that.

(foreign language)

Bitcoin could mean different things to different people.

One of bitcoin's strengths is that

it had all these different elements to it.

And somebody could be into it because of

the political aspect, and somebody could be into it

because of the technological advances that it made.

And everybody could kind of have their own connection.

(foreign language)

Certainly in the first few years,

the typical bitcoiner was a guy

who spent most of his life in front of his computer

and not a whole lot of time with other humans.

But these were people who kind of lived,

in one degree or another, sort of in their own world

and could inhabit this abstraction,

which was this new money.

There was no reason to think it would work,

and so you had to be a little weird

to devote any time to this.

(foreign language)

I got into economics because I realized

the quality of money has a lot to do

with the quality of our lives.

You get the money wrong, you get everything wrong.

With bitcoin we have a chance to get the money right.

And it can liberate the world.

At least a third of humanity is unbanked today.

This provides them financial power, access,

a chance for a better life for everybody,

equally, democratically, all over the world,

regardless of race, sex, religion, nationality.

That's awesome.

That's beautiful.

That's utopia to me.

(dynamic electronic music)

(commotion)

(shouting in a foreign language)

Goddammit, that shit itches.

Us Libertarians, we don't like uniforms too much.

Of course, when Mark bout Mt. Gox,

he didn't expect to end up, four years later,

handcuffed in the back of a cop car.

Did you, Mark?

Huh?

Eh, whatever.

Beginning in 2011, Mt. Gox became the first

credible internet site to exchange dollars into bitcoins.

The thing is, at the time, well, a bitcoin wasn't worth

a buck, so, let's be honest, nobody really gave a fuck.

But just a few short months later,

the media dragged bitcoin out of the shadows,

and Mt. Gox went from 3,000 to 60,000 clients

in just a matter of weeks.

And that, that was the beginning of the glory days.

(foreign language), Mark?

Isn't that right?

Mark!

(intriguing electronic music)

Mt. Gox was the first place where you could

turn your fiat currency into bitcoin.

It was the exchange.

There wasn't really an alternative.

This was, Mt. Gox was the bank of bitcoin, essentially.

He had like 98% of the world's market share.

If you think of bitcoin as being an island,

at that time Mr. Gox was the only bridge

to the rest of the economic world.

(bouncy electronic music)

The growth of Mt. Gox was very quick,

as we saw a very large increase in users.

The first few months after I joined,

we started changing and we were getting

a lot more structure and actually overseeing

a lot of the business side of the company.

As time went on, bitcoins became more valuable.

People would leave larger deposits

for a longer amount of time at Mt. Gox.

So someone might have $10,000 or $15,000 in their account

at Mt. Gox over two or three months while they were waiting

for a good time to trade for bitcoins.

So, Mt. Gox became very popular very quickly,

became very successful very quickly.

Mark was always a believer in bitcoin.

He really thought that this could do something,

and he really wanted to make the company work.

He was always in front of computer late at night,

early in the morning, and he he would be

in the office for a long time.

Just seemed like he was always busy and stressed out

but that he was always doing something

and trying to actually make bitcoin into something

very useful in the future, because he really believed in it,

and he did talk a lot about it.

So Mt. Gox is like his ...

I would would want to say like his baby.

(foreign language)

Mt. Gox, I think, was trusted as the place

that people could manage their bitcoins,

could manage their money.

It was the website where everybody

wanted to store their bitcoin.

It was the most popular place.

Once you become the central bank of bitcoin, basically,

you become a target.

Any bitcoin company was a target for hackers.

I mean, this was just digitally money

that was just sitting there.

This was kind of the simplest bounty system in the world

where, you got the password, you had the money.

Certainly Mt. Gox was the biggest of them all,

so it was the biggest target.

(foreign language)

Started using something called cold wallet,

which means that the bitcoins in the wallet

can only be accessed using physical means.

(foreign language)

That prevented hackers from every being able

to access the cold wallet, because they would have had

to have access to the physical piece of paper that had

the secrete written on to be able to get that wallet.

So bitcoins would initially go into the hot wallet,

or the main wallet, be kept there for a little while,

and it would be eventually sent to the cold wallet.

(clapping)

Bravo!

Really, that was rich.

What fat Mark forgot to tell you

was a lot of that money he made

was off guys like himself,

too stoned to go to their dealers.

Hey!

Talking about me?

Why should I freeze my ass off in the streets?

With a couple of clicks on Silk Road,

I can have my shit delivered to my door.

Silk Road was this website that was sort of incredibly,

you could order drugs as easily as

you could order a book from Amazon.

The only way that they would purchase drugs

and other items on Silk Road was by using bitcoin.

That was the only currency that was accepted.

You couldn't pay in dollars, you couldn't pay in euros,

you couldn't pay using a Visa card.

You had to pay in bitcoin.

No credit card, no trace.

He pays in bitcoin.

It's like he was a ghost.

(chuckling)

(doorbell ringing)

(spacey music)

(foreign language)

No thanks.

Without Mt. Gox, I don't know

if Silk Road could have been what it was.

This was the way that people

turned their dollars into cocaine.

This was the central mechanism that made that possible.

The Silk Road was probably the most successful

startup company ever in the entire history of the world.

It went from absolutely nothing

to probably a billion plus dollars in sales

over the lifetime of the Silk Road.

Wow, congratulations!

I don't think that Mark Karpeles

tried to become the bank, the only bank to drug lords

or anything, but that was certainly what it became.

(foreign language)

All of that popularity and success

went towards making Mark feel he was important.

He was originally interested in a Lamborghini for himself.

He also bought himself a large house and a penthouse.

And all of these things seemed to say that

he wanted to show everyone that he was making money

and his status in the world was rising.

As that sort of thing started happening more and more,

many of us started becoming uncomfortable,

and Mark replied that his grandmother

owns a castle in Austria, and said that

if we can't trust him, then there's nothing more

for him to talk with us about.

There was no way to tell how much money

the company was making, how large his expenses were

or where the money was going in the company,

because Mark was the only one with access to the accounts,

and he refused to share that information with anyone else.

He always thought that bitcoin,

because it wasn't a real currency,

none of the laws really applied to it.

(intense rock music)

(police siren wailing)

My name is Tigran Gambaryan.

I'm a special agent with IRS Investigation.

It would have been around for almost a hundred years,

and we go back to the days of organized crime.

You know, Al Capone, of course I have to put that out there.

That was a famous IRS case.

We're always on the lookout for emerging currencies

or methods of payment that could be used

to facilitate crime.

When bitcoin came out, at least in the early days,

that was kind of, it's like, "How do we even track this?"

I mean, it's just numbers floating around in bitcoin world.

To us, that was kind of ...

It was a hurdle.

Well, government was just starting

to take notice of bitcoin.

And like with a lot of new technology,

it's unclear how the law applies to it.

No one really cared that much until the Silk Road,

because you had people selling drugs

and telling Chuck Schumer, "You can't do anything about it."

All he can do is cry about it on the Senate floor.

So they started looking for ways to regulate it

and how to make a statement.

(crunchy electronic music)

Heroin, opium, cannabis, ecstasy,

psychedelics, stimulants.

They're all listed.

And then, in the lion's den.

It's unbelievable.

And it's all hidden, because they don't use dollars.

They use this surrogate currency.

I think it was in the spring of 2013

that the Financial Crimes Enforcement Network

put out a one-page regulation, just one page,

and then faxed it to everybody.

They said, "If you're going to be exchanging

"dollars for bitcoin and back again,"

you have to have license.

Getting these licenses costs more than $100,000,

'cause you have to get a license in every single state.

It's a terrible regulation.

There's lots of people in government that just,

they get furious inside when they think,

"People are doing stuff without my permission!

"People are engaged in free trade with each other

"without my permission!

"People are smoking or growing plants

"without my permission!"

They get angry, and they want to steal money

from other people in the form of taxes

and then use that stolen money

to lock those people that are going plants

without their permission and lock them in a cage.

Or people that have a white powder that makes them

feel happy, they have to lock those people in a cage.

This is madness, this is craziness!

Just because it's a new, emerging technology

doesn't change the fact that

you're still dealing with money,

and there's still potential for

criminals to use your services.

The reason that there are these laws is to prevent that.

So even if you have a new company,

if you have this new idea, great, do it,

but you're still bound by the same laws

that are in place for these types of businesses,

which are money service business or financial institutions.

The major points of the FinCEN ruling was is that,

before that ...

you had a lot of people who still wouldn't agree

that there was any value to bitcoin, right?

It was just software.

Software really can't be money, right?

And then this financial crimes ruling comes out,

and it says, no, really, this is money.

It was just a different world after that.

At that time there's sort of a cottage industry

of day traders, people who were trying to make money

for themselves on the side by buying and selling bitcoin.

At one point I did a story where I was talking

with some people in a chat room who were doing this,

and it really sort of surprised me

the kind of range of people that were doing it.

There was a business student.

There was also a biology doctoral student.

There was a bunch of different kinds of people

who decided it was worth their while

to buy and sell bitcoin.

That's when real Silicon Valley firms,

Andreessen Horowitz, Union Square Ventures in New York,

started to make their first investments in this space.

(bouncy electronic music)

There was a lot of hype in the media

amongst journalists, trying to figure out what bitcoin was.

So I thought this is definitely exciting,

this is definitely something I want to be part of.

And since Mt. Gox was the largest player in the world,

I thought, what a great opportunity to get involved

with that bitcoin movement at the time.

For creatives, this is a dream come true.

You have a company that's ostensibly flush with money,

who has a huge customer base in a market

that's just beginning to explode.

It has no brand, really.

Everything needs to be updated.

I mean, this is a dream come true.

It was just heaven.

It was actually quite exciting to be a part of this.

When I spoke to people in Japan and abroad

that we were working on the Gox account

and working with bitcoin, everyone was just fascinated.

It was really amazing how much interest there was

from outside, from these major VCs and the hedge fund guys

and high net worth individuals in New York, China,

all around the world interested in doing business with us,

not necessarily investing in the company

but buying a shit ton of bitcoin.

It was, "Let's make something that's fucking amazing,

"that everyone is gonna look at and say,

"'This is the exchange that we're

"'going to put our faith in.'"

The first thing that we did,

we decided that any press communications that came in

should go through me.

We all agreed on that.

I come in, second day, 9:00 a.m., first thing,

walk in the door, and there is Mark,

sitting on that blue ball, being interviewed by

I think it was Reuters, and I just walked in and said,

(laughing) "What the fuck is going on?

"What's going on in here?

"What are you doing?"

And he said, "Oh, Mark is being interviewed by Reuters."

Like, we just discussed this (laughing)

not even 24 hours ago.

And of course that ended up backfiring spectacularly.

That was the first time I'd seen Mark,

was the picture of him on the ball.

And immediately I looked at ...

the whole aesthetic of this larger gentleman

sitting on this ball, and thinking,

"This is not putting forth a message of 'trust in us.'"

We would try to explain to him,

"Look, don't bring your pizza into this meeting

"with this important customer.

"Mark, stop playing with the robot now.

"It's time to do some work."

And he would just ignore you and keep playing with his toy.

There was no CTO, there was no COO.

It was just Mark at the top and then

pretty much everyone else.

It was like the widest, shortest pyramid ever. (laughing)

(foreign language)

My first official, full-time day at Mt. Gox

was (chuckles) quite interesting as well.

I remember arriving, and then it was one of the executives

just plonked a bunch of paper son my desk and said,

"Okay, we're involved in several legal issues right now.

"Can you read these documents and summarize them for us?"

And at the time, I remember thinking, "Hm, legal issues?"

number one, and number two, like,

"Shouldn't this be given to the lawyer?"

People crying, people not knowing what's going on,

people backstabbing in there, people who would come and go.

The guy with the big, swirly scarf round.

These stories about ...

Nils.

Nils Throwing stuff at the walls and shouting matches,

and all of the stuff that was going on there.

Every day is like, you walk in there

and you're like, "I can't believe this place exists."

We banned that phrase.

We just thought, "This is the cream on the top."

That chaos, we just thought,

"No one's gonna keep their job here."

I felt eventually we'll just be replaced.

They'll grow so big, they'll need a global agency

to handle everything that they're doing,

but this will be a great story.

Ignorance is bliss, a bliss so complete

it makes you forget your obligations,

obligations like, you know, compliance

with U.S. government regulations.

I need that chair, buddy, excuse me.

Just a few weeks after the new laws

were passed in the states, the government

seized $5 million from Mt. Gox's accounts.

Now, in and of itself, not a big deal

for a company this size, but little did they know,

shit was about to get a whole lot worse.

(intriguing music)

(foreign language)

Mt. Gox, they weren't doing this from the start.

They were supposed to take two forms of ID,

bank account information, all these things

to verify who the users are.

It makes a good strategy for law enforcement.

If you can get everyone roped into

this one central database, then you just

take that database and go after the criminals.

(foreign language)

(bizarre music)

Following the Department of Homeland Security

investigation and the seizure of our accounts in the U.S.,

Japanese banking partners freaked out.

I remember seeing the executives from the banks

visiting our office more and more frequently.

And then, over time, they impose limits

in terms of the amount of transactions

we could do with them per day,

in terms of the currencies that we could actually

be dealing with, which eventually enabled us

to survive as a business only on enabling

transfers in Japanese yen domestically.

And when you consider that more than 95%

of our customers at the time weren't based in Japan

and weren't transacting in Japanese yen,

this was a major, major blow to how we could operate.

The only way to send people money

was from the post office.

That was it.

(foreign language)

Mark, to his credit, busted his ass

trying to send money to people.

People did get withdrawals, just real slow.

We wanted to communicate and say

the banks are screwing us, but we couldn't say that, right?

Because then the bank could easily just shut down

all of our accounts, and we would be screwed.

We wouldn't have any banking partner in Japan.

Our hands were kind of tied in many situations

where we wanted to communicate.

I was concerned when there started

being fiat withdraw delays at Mt. Gox.

So I agreed to make a video for them,

and I wrote the words myself.

I read my own script and I chose

my words very, very carefully.

And even to this day, everything I said

in that video was true.

I regret having made it for them.

I'm Roger Ver, longtime bitcoin advocate and investor.

Today I'm at the Mt. Gox world headquarters in Tokyo, Japan.

I had a nice chat with Mt. Gox CEO Mark Karpeles

about their current situation.

I saw that he had over 100 million

U.S. dollars in their bank account.

That's a lot of money.

And then he showed me a letter from the same bank

that all that money was held in, and that letter

from the same bank told them that they're allowed to send

10 international wires per day, and they're allowed to send

about the equivalent of a million U.S. dollars

domestically per day.

Obviously that's not enough for a business of Mt. Gox's size

to keep up with demands of their customers.

I'm sure that all the current withdrawal problems

at Mt. Gox are being caused by

the traditional banking system,

not because of a lack of liquidity at Mt. Gox.

For now, I hope everyone will continue

working on bitcoin projects that will help make

the world a better place.

I discovered bitcoin in 2013.

In April, 2013, the market for bitcoin just went crazy.

It went from $20 to $240 within the space of two weeks,

and the price was jumping up and down

by 50% or double every day.

At that point, I realized, okay,

trading is what I want to do.

So I gave up my freelance work,

and I started trading full-time.

March, 2013, there were bank runs in Cyprus.

And that's when the price of bitcoin first spiked.

It went to about $160.

And I was really kicking myself.

If I had just made a simple investment at $10,

I could have made a ton of money.

And that's when I said, "That's it.

"I'm gonna find a good time to buy,

"and I'm not gonna look back."

I wired Mt. Gox some money, and then I was in the game.

So there was a period of amazing excitement

towards to second half of 2013.

bitcoin was going up from, it was hanging

around $100, $140 for a while.

Then it stayed around $200 for a bit.

And then it just started shooting up.

Nobody was really sure why.

And then the Silk Road bust happened.

That's when I got kinda nervous.

There was a lot of speculation in the forums by people

about, well, is the price going to collapse?

What's gonna happen to the volume on the exchange?

And I think some people started selling.

This was, I believe, the end of October.

And I just held.

And sure enough, when November happened,

when November 1st hit, the price started to go up.

And that whole month of November, it didn't stop.

And I had held the whole time and I just kept holding.

I put my money on Mt. Gox, do some trading,

quickly realized that I had no idea the market was doing;

I shouldn't be trading.

I just held and watched it go up.

It was just rising like crazy.

So, went from $120, $240, and it just kept going

up and up and up, and suddenly it was at $1,000.

I'd be in front of my computer

just kinda cheering on the price.

It was great. (laughs)

I'd go to the gym to work out, and I couldn't stop

looking at my phone, tracking what was happening.

It was a wild ride.

And so, at the end of that month, November,

I think the price was around $1,200 or something.

I didn't really want to sell my bitcoins yet,

but I wanted to get them back off Mt. Gox after trading.

I asked for the coins back, and it was a slow response.

It was actually my birthday.

I remember it very clearly.

I was in Paris in a hotel.

I don't know why, but I was thinking

I really should withdraw my bitcoins from Mt. Gox.

I went to my computer and quick started a withdrawal.

And I checked an hour later, and they hadn't come out.

They told me I needed to verify my account,

which they'd never asked for before

when just dealing in bitcoin,

to receive a bank wire they'd wanted.

And that's when things started to go downhill.

Customers being angry and angrier.

Sometimes, even myself, I would be given transferred calls

from people who would just shout and insult me on the phone.

And that's when I started to look for an exit or a way out,

because I realized that things were going to get ...

crazy.

(shouting)

Up until early 2014, Mark had been able to say,

"I can't get dollars or yen through to you

"because of these limits that they're imposing on me."

But once people couldn't take their bitcoins out,

that pointed to a much more fundamental problem.

Because if he had the bitcoins,

he could have sent them immediately.

A couple of days later, I woke up

and I already knew I had to go there.

I think my mind had decided while I was asleep,

"You must go to Japan."

There was a snow storm that day in Tokyo.

There was literally an igloo on the street of Mt. Gox.

It was freezing.

I went down there.

The street was almost empty.

I pulled out my sign, and I felt monumentally stupid.

And then Karpeles suddenly starts walking up the street.

The journalists start scrambling

to get their video cameras out.

And then I try to stop Karpeles to talk to him.

He has clearly no interest in talking to me.

Okay, I came all the way from London,

all the way from London to try and get my bitcoins from you,

to find out what's happening.

No problem, we can't do anything right now.

He started launching into the standard response:

"Ah, sorry, that is not possible.

"There are technical problems."

But of course, as a techie I knew that

a technical problem wouldn't stop them giving bitcoins back.

Do you still have the bitcoins?

Do you still have everyone's bitcoins?

He was pretty concerned with that question.

Eventually, he pushed past, got into the building

and said don't come inside.

That was Mark Karpeles.

I don't expect their company's gonna last much longer.

I think it's about to collapse,

and I expect that no one's gonna get their money back,

but we'll see.

By that time, I'd just left Tokyo, actually,

and had relocated back to Hong Kong.

This was in early February, 2014.

And I remember a friend of mine

who was aware of what was going on with Mt. Gox

called me directly and said, "Remove any mention

"of Mt. Gox from your LinkedIn profile."

And then I asked him, "Okay, why?"

He said, "Just don't ask any questions.

"Just do it."

Mt. Gox unexpectedly shut down today.

One of the world's biggest bitcoin exchanges

has filed for bankruptcy.

(foreign language)

The scale of it, it was just so absurd.

Mt. Gox.
Mt. Gox.

Mt. Gox.

Hundreds of millions of pounds

and prompting the sharp fall in the value of the currency.

I felt like I had been punched in the stomach.

I couldn't believe that.

(foreign language)

What the fuck? (chuckling)

What do you mean there's no bitcoin?

What do you mean we're missing this many bitcoin?

How could you lose 800,000 bitcoin?

(foreign language)

You can't lose all of them before you notice.

That just seemed absolutely insane.

If he said said, like,

"Oh, we lost a few million dollars."

You lost a few million dollars?!

Are you kidding me?!

Now, tell someone that you just lost

like $800 million. (laughing)

A billion dollars.

At the peak, it was a billion, well over it now.

And see how they react.

This is the problem with this whole thing in general,

is that people really got fucked on this, right?

Really badly.

I think people lost their life-savings.

People lost loads and loads of money.

And I don't want to be seen as making light

of this in any way, but it's ...

It's just so absurd.

I had just over 300 bitcoins in my Gox,

which, before they crashed the price,

would have been worth about $300,000.

Of course, after they crashed the price,

it was worth less than half that.

At the time that the bankruptcy announcement was made,

I'd been traveling around with some journalists,

and we stopped around the Bangkok office,

and they heard word from some of their fellow journalists

that there was a big announcement about to be made.

At his press conference in Japan,

I think he was wearing a dark suit,

and I remember there being a lot of microphones.

And the thing that I took away from it was

him bowing a lot, which I guess is customary

in Japanese business culture if you make a mistake,

that you make a big public showing

of saying you're sorry and apologizing.

(shutters clicking)

(foreign language)

People really want to know what happened,

like what was the real story behind it.

Well, we will work on it, but anyway,

in the meantime we are sorry for the ...

troubles caused by this.

After the crash,

the bitcoin, I'd say,

entire system took a major hit

in terms of respectability, public perception.

Even for me, personally I thought bitcoin is dead.

There's no way that any governments or banks

will tolerate something like this happening again.

There's no insurance in bitcoin.

There's no government backing for bitcoin.

And obviously, early on that was the whole allure

of this thing, was there's no government meddling in this.

But as soon as there were losses, people realized,

oh, there's also no government to back this up.

When I get my bitcoins stolen, they're gone.

That's it, that's the end.

(delicate electronic music)

(jazz percussion)

During the first half of 2014,

a lot of people started investigating this

and seeing if there was anything that could be done.

Well, there are probably two reasons

why it can be really hard to trace bitcoin,

despite it being inherently traceable.

First, in the case of Mt. Gox: purely scale.

Mt. Gox had an immense number of bitcoin addresses.

It's too large for a human to easily see,

because there's just so much information to take in.

The other problem is that, if you deposit a bitcoin

to a service like Mt. Gox, and if you withdraw

that bitcoin later, it's not necessarily the same bitcoin.

You might have gotten a different bitcoin

deposited by some other customer.

As a result, when a bitcoin is deposited

to one of these places, you can't follow

the trail of that particular bitcoin.

I think a lot of people at that point

just suspected that someone in Mt. Gox had stolen it,

simply because there was no way to know

one way or the other.

I think the best clue of what happened to those bitcoins

is that Mark was able to find 200,000 of them

after it was reported that they were missing.

How many people in the history of this world

could actually claim that they had accidentally

misplaced $200 million?

It doesn't chime.

(intriguing music)

What is wrong with this guy?

You found it under your mattress?

What are you doing?

You're a person who is supposed to be running a company.

You're a person who's supposed to have

experience in security.

You're a person who's supposed to be

very knowledgeable about bitcoin.

It was baffling to understand how you could just

lose that much money and then just find it again,

magically, after the fact.

Is this PG-13 language I can only use here?

People were really pissed at him, and people hated him.

I always felt that he didn't really get

the gravity of the situation.

It was just terrifying to read what was going on.

(foreign language)

The question everyone wanted to know is,

where are the bitcoins?

What happened to them?

And at some point he went onto Twitter,

and he started tweeting about things like,

oh, the sunrise in Tokyo is nice today.

Everyone was still in limbo waiting for him to say

what happened to this half billion dollars,

and he's talking about the weather in Tokyo.

(foreign language)

I had been working at the law firm.

This guy came to us who was a former Mt. Gox employee,

Nils, Nils Ardestag.

He had a lot of information about Mt. Gox,

so he was very interesting to us,

because he could give us a lot of insight.

And if Mark had done something criminal,

he was gonna be a good source

to help us learn about it and help us prove it.

And so he had this story about Mark

giving him a death threat.

I went with him.

I walked with him back to the Mt. Gox office.

I kinda looked around with him.

And I believed his story.

I did.

And he seemed credible.

There was some woman from some bitcoin company

who died in Singapore.

I think she fell off a building.

There was rumors online that maybe that

was somehow connected.

I went and had my hotel room moved from the 10th floor

to the second floor, in case I had to get out easy.

I was kinda scary.

But yeah, most people speculated

that he was a total thief or a crook.

Actually, it was really hard to escape that thought.

Someone with that amount of money has a lot to protect.

And you hear a story like this, it's believable,

and of course a lot of people speculate.

(energetic electronic music)

(singing in a foreign language)

(foreign language)

To protect your anonymity,

we will reenact this interview,

so do you prefer to be a woman or a man.

A man would be fine.

(foreign language)

I have been in contact with Mark Karpeles a few times,

but our conversations have been very brief.

Sometimes when I've asked him direct questions,

he hasn't responded at all

or has responded in a very elusive way.

We were able to reach his mother.

She herself said that she had no information from him.

It's a bit strange that he doesn't seem to have anybody

who he really trusts or who he communicates with.

He doesn't communicate with his family.

He's divorced from his wife.

He doesn't seem to have any allies, as far as I can tell.

He lived in this world of hackers,

where you proved your worth through your code.

You didn't prove it through what you wore or what you said.

You did it by what you typed into a computer.

(foreign language)

Three or four times his wife came to the office crying

and and begging Mark to spend time with his son.

And he just ignored her until she left.

Mark is a very strange, strange person.

It's easy to believe that maybe he has

some sort of mental illness, Asperger's

or some other social disability.

He is not like most people,

and he doesn't sort of have the human emotional range

that you expect of most people.

He's kind of a still character,

and so I think it's easy to kind of imagine him

as sort of non-human form, because he just doesn't have

a lot of the human traits that you expect.

(foreign language)

He moved to Japan seemingly because

he was just interested in the Japanese culture.

For some reason he just fell down this rabbit hole

of being interested in Japan and wanting to live

in Japan and really took to that.

(serene music)

(anime sound effects)

(foreign language)

I think Mark loved Japan,

but I think Mark was still in the,

everything is sparkly and shiny and Japan is wonderful

phase of his life.

(anime sound effects)

I mean, this is a guy who used to leave his computer

on a park bench and was amazed that people in Japan

would bring it back.

Not everyone is so kind.

But I don't think he saw what was coming.

I think that one of the factors is that

'cause he's not Japanese, and he doesn't have

a lot of street sense.

I don't think he actually anticipated

that I'm gonna be grabbed for

the failure of this company and be put in jail.

And that's a hell of a wake-up call.

(atmospheric electronic music)

(foreign language)

Authorities in Tokyo arrested Mark Karpeles

for allegedly falsifying financial records

in the Mt. Gox computer system

by one million dollars in 2013.

(foreign language)

Yes, indeed, there's strong evidence

that this was a bot running at Mt. Gox

and doing these trades.

And furthermore, he was running

without any real money backing it, so definitely fraudulent.

This was clearly a very interesting phenomenon,

a very suspicious phenomenon, and a strong candidate

for what could have have happened to the bitcoins.

But if you look at the later parts of Willy, in 2014,

it suddenly flips around, and instead of fraudulently

buying lots and lots of bitcoins, it seems to be

just selling them back to the same bitcoin market

at roughly the same amount that it initially bought.

It would sort of cancel each other out,

or at the very least it made us think that

maybe this isn't the whole answer.

Maybe there's something else.

(foreign language)

I think he makes for a very

gratifying villain, in this case.

He's slightly odd and quirky.

He seems out of place, as here's this normal,

socially-awkward geek that runs

one of the biggest bitcoin companies ever

should be swimming in money.

And of course it makes for a great story

if he is also some sort of a master villain

that steals all the bitcoin

and makes everyone think someone else did it.

So, yeah, I think he just makes sense

from a narrative point of view

to paint him as the villain.

It makes perfect sense for a detective story,

but maybe not in reality.

(ethereal electronic music)

(foreign language)

You know, Japan is a wonderful place.

The Japanese justice system is fucked up.

Japanese prosecutors are not interested in a fair trial.

They're not interested in justice.

So Karpeles's mistake may have been

that he believed the system is about justice.

No, it's about finding someone to take the blame

and getting them convicted, and then moving on.

The police thought that, if they arrest him

on some charges, that he would confess.

But he didn't confess.

And thus, they kept rearresting him and rearresting him.

He still didn't confess.

And I think by the time this trial has gone over,

you still won't know what happened to the missing bitcoins,

and that's what really everybody cares about.

(foreign language)

Unjustly, Mark Karpeles has been arrested

from one charge, and for one another, and for one another.

Is it something common in Japanese system?

(foreign language)

If bitcoins had not disappeared,

Mark wouldn't have been arrested, right?

(foreign language)

To me, it looked like the authorities

just wanted to get rid of this thing, right?

And in Japan, there's something like

a 99.7% conviction rate, because they arrest you,

and you'll go to jail, and then you'll plea bargain, right?

You'll just accept it.

And that's what happened to Mark.

He was pretrial detainee for months.

(foreign language)

Can you imagine when the police interrogated him?

They probably wanted to go home

and commit suicide. (laughing)

It'd be the most frustrating interrogation ever.

You know, it's like 23 days detainment in Japan,

without even having a lawyer,

without a phone call or anything.

They hold you like 23 days.

And so, by the time 23 days comes up,

they've deprived you of sleep,

they've slapped you around.

23 days is way long enough for bruises to heal, for example.

They could have made him a punching bag every day,

and he just would have been stone cold,

'cause he just wouldn't have reacted to it.

Did they charge him with something else

so that they could keep him for another 23 days after that?

Now, Mark said, actually, they said,

his lawyer said before, "Well, when you walk out,

"they're just going to arrest you again."

So he just like walked ...

He was released, he walked into the lobby,

they arrested him again and brought him back inside.

(laughing)

(foreign language)

I Think it's a very big and complicated case.

It has many parts.

It's not something where you even instantly grasp

what the entire case is about.

To some extent, it might be the same for the police,

in that the case is so big and complicated

that you'd forgive them for going for something

that looks a bit easier first.

Like, Mark Karpeles is being accused

of embezzlement and misappropriation.

And to the police, these are probably the first things

that you would find that you might actually

be able to prosecute him for,

because other parts of the case, like the missing bitcoins,

are so big and huge that you will have to invest

large resources into investigating them,

and you might never find a crime.

It might not be who you thought it was, for example,

and then that amount of time would be wasted.

So, from their point of view,

you go for the low-hanging fruit first.

(foreign language)

I was really concerned that it would be a real risk

that this might not be investigated thoroughly,

because there might not be the necessary expertise

in the correct place in the police,

or they might not be able to find the right people,

because it might require some on-the-street skills,

and you might need to know the right people

to hear this or that rumor,

or just purely a question of technical expertise.

(upbeat jazz percussion)

That's when we sort of decided that

now we have to look at the blockchain.

We have to try and match it,

even though it's a huge amount of data.

We have to try to attack it somehow.

If indeed all the money had been stolen at once,

it should have been very easy to discover

the transactions through which it moved.

The problem was that there was no such single transaction.

It seemed to have been that, between autumn of 2011

and towards the middle or even the end of 2013,

there were bitcoins stolen in chunks over time,

almost continuously throughout that entire period.

We have no idea exactly how they

would have gotten into the systems.

Maybe some combination of social engineering

or just plain hacking or compromised code or something.

But first and foremost, to do this particular theft,

you'd need patience, because they'd been doing it

over years, and quite slowly and deliberately,

and been quite careful in how to move

the bitcoins out afterwards.

(foreign language)

Mt. Gox, at several times in the past,

distinctly suggested that they had

a very strong security system.

They had very properly designed cold storage,

and this suggested that their security would have been good

and they thought very deeply about these things.

But you don't need to steal the cold storage, necessarily,

if you just keep draining the hot wallet.

And this works only as long as no one at Mt. Gox

is actually monitoring how much money

is in the cold storage, how much goes in, how much goes out.

(foreign language)

(upbeat electronic music)

If these people are to be caught,

then it'll be because they made some mistake

of how they used bitcoin or who they sent it to

or something like that.

If they did it flawlessly, then there's a good chance

they might never be found.

Even if they find the persons responsible

for the collapse of Mt. Gox and all of the missing funds

and the bankruptcy, that doesn't necessarily mean

that Mark will go free.

The system doesn't want to lose face.

They see something clearly went wrong.

Someone has to pay some kind of price.

So I think right now they're at this point

where they're trying to figure out,

"What are we gonna do about this?"

They're buying time.

I think they're still trying to build their case.

(foreign language)

There's a lot of suspects in the collapse of Mt. Gox.

And of course, Mark is a great suspect himself.

However, if you're trying to figure out

what happened to his company, where did the money go,

where are the missing bitcoins, I'm just suggesting that

there's a lot of people that we would look at.

I don't think the police have contacted them, honestly,

because it's a pain in the ass.

We got a giant envelope full of papers,

looked like it had been sent from

close to where the police headquarters were,

of all these documents relating to Mt. Gox

and the buyout and the takeover.

And amongst those documents, which there's probably

like 400 pages, was this back and fort between Mark and Jed,

the original owner of Mt. Gox, in which basically

Jeb is saying, "Oh, you know, I forgot to tell you

"that we're missing about 80,000 bitcoins.

"There's a whole bunch of different ways

"you could sort of make up the difference.

"Good luck."

Mark is just thinking he's getting

a wonderful deal on a solid gold horse,

but he doesn't know that it's basically

a Trojan horse that's painted gold.

(foreign language)

In English we usually say a fall guy,

someone to take the heat, someone to take the wrap.

A fall guy, a sacrificial lamb,

there's many ways you could say it.

It's like, "Oh, I got this company.

"It's really indebted.

"If I don't get myself out of this hole,

"it could be a real problem."

Oh, but here's this guy who wants it,

so if he signs up and takes it on,

he takes on all the debt too.

So it's all marks' problem.

We have tried to reach Jed McCaleb several times.

Nobody seems to be able to find Jed.

We know that he's alive, hopefully.

(trolley bell ringing)

Running a business is a lot of responsibility, right?

And that's just one of the things that I did not,

explicitly did not want to have here, right?

Because there is a lot of risk in this kind of business.

There's regulatory risk, there's people are always

gonna try to be hacking you and stuff like this.

It's a kind of headache that I didn't want to have.

So I explicitly looked for somebody else

to assume this responsibility.

Mark purported himself to be this security expert,

so he seemed like, he'd done lots of banks before.

It just seemed like he would actually be

a good person to run Mt. Gox.

I don't think Jed just wanted a fall guy.

I think he wanted Mt. Gox to actually work.

That's why he kept 18%, or, sorry, 12%.

If you just wanted a fall guy, you sold the whole thing off.

Jed wanted some benefit without all the risk.

That's what it was.

The bitcoin loss actually happened after he took over.

Basically, I gave him access to all the servers.

And then, like a week later or something like that,

there was someone compromised them

and was able to steal from our hot wallet, essentially.

80,000 bitcoins sounds like a tremendous amount now,

and it is a tremendous amount right now,

but back then it wasn't a big deal.

Right, so.

When Mark bought the company, or got the company,

those 80,000 bitcoins were worth maybe $20,000.

That's a doable debt.

But two months later, when the price of bitcoin

surged up, that is an $800,000 debt.

And that is not something that Mark had.

That may have been the birth of Willy Bot.

(foreign language)

Buyer agrees to indemnify seller

against any legal action taken against buyer or seller

under this agreement.

Okay, well, it just says that Mark's going to indemnify Jed

if any action is taken against ...

against Jed regarding Mt. Gox.

It's not non-disclosure.

He can talk about whatever he wants to talk about.

It's pretty standard legal clause where,

as a seller of something, the buyer indemnifies you

to make sure that they're not gonna come back to you

later and be like, sure you for something

that you no longer have control over, right?

(emotional music)

Jed had some real experience in the technology world,

running things, building things,

and I think that gave him a sense of his own limitations.

Run by anyone competent, it would be

a billion dollar business.

He totally just screwed it up.

Mark had done projects, he'd done real work,

but I don't think he had come up

against his own limitations.

Probably with bitcoin he was forced to become

at least somewhat aware of them quite quickly.

But I think Mark also had an ability to blame others

rather than to accept his own role, his own shortcomings.

Some people are good at running a business,

some people are good at coding,

some people are good at writing.

People have different strengths, right?

It's unfair to expect someone to be able to do all of it,

but it's not unfair to realize where your weaknesses are

and try to find people that can help you fill in the gaps.

And I think that's part of being successful,

is knowing where you need help

and you should get people to come help you with.

Mark new, he learned, I think, pretty quickly

in the first few months that it was a lemon,

and what the problems were, and that his passengers

in the car, the customers, he didn't tell them

about those problems, and they ended up getting hurt.

(foreign language)

How are you?

Pretty good, pretty good.

How are you?

I'm good.

Good to see you again.

Come on in.

Nice to see you.

Over there.

(upbeat percussion)

Mt. Gox may have been the most high profile

and devastating incident of its kind

when it came crashing down in early 2014,

declaring the hundreds of thousands of customer bitcoins,

worth nearly half a billion dollars, had gone missing.

Now, it's finally time to find out

how deep the rabbit hole goes.

At least 865,000 bitcoins were lost on the bitcoin site

due to the numerous thefts and incidents over the years.

The single by far most damaging act

occurred on September 11th, 2011,

when hackers who had penetrated the main server

silently made a copy of the hot wallet private keys.

At least 630,000 bitcoins were taken out

through these private keys.

If you imagine making a small hole in the wall

of the bank vault, and it's enough to get your arm in,

you can grab any coins that you can reach.

What happened was that, throughout Mt. Gox's history

over the next few years, enough funds passed through

this hole, or within reach of the hackers,

that they were able to take all of it,

until there was literally nothing left.

The typical pattern is that the coins

are sent from the compromised private keys,

and they are sent from those addresses

into a new address controlled by the thief.

A big majority of all the funds goes to the BTC-e exchange.

Not only is it funded with coins stolen from Mt. Gox

but also coins stolen from other exchanges.

As seen in the corner of the graph,

other thefts flow into the same network of money laundering.

There's stolen coins from Bitcoinica,

there's stolen coins from Bitfloor,

all moving into the same group.

It's possible to connect a lot of this activity to accounts,

but whereas the hard part would be to then connect that

to an actual real-life person and, more to the point,

being able to do something with that information.

That's not the job of an independent analyst like me.

All I can do is dig up the forensic evidence that I can,

and then I pass that information along to people

who might be able to make a difference with it.

Did your investigation

had been related to the Mt. Gox case?

I can't really talk about that right now.

It's a hacker group with that connected money laundering.

What is your personal view

on the Mt. Gox case and especially the potential theft

of 650,000 bitcoins?

I can't talk about that.

And all signs point to Russia, as far as I'm concerned.

Do you think we'll ever find

the guys who've done this?

I can't talk about that. (laughter)

So what do you know that you didn't tell us?

We shot JFK. (chuckling)

(dynamic music)

Arrested Alexander Vinnik

accused in Bitcoin billions of dollars fraud,

according to BBC.

A 38-year-old co-owner of the BTC-e exchange

was arrested in Greece.

Vinnik is accused of more than $4 billion laundering.

It is known that he had been charged with 21 counts,

including laundering, stolen funds from Mt. Gox.

No public comments have been received

from Alexander Vinnik.

Experts believe that, in general,

this situation isn't a positive for bitcoin.

Too many people were naive, you know?

You have to remember that the early people

in the bitcoin space, they were not sophisticated investors,

monetary economists, high-flying financial guys, whatever.

They're just really naive, code monkeys, really,

just nerds and geeks, nice people playing.

So they didn't know they got robbed.

They got robbed.

(dynamic electronic music)

There are companies that do business in bitcoin.

They have conferences, they have meetings, they wear suits.

They exist, I think, in the way that

any other tech startup exists.

And lots of companies are trying to figure out

how to integrate bitcoin into their operations.

It has now become pretty much kind of

almost background noise to Silicon Valley.

In the earliest days when I got involved in bitcoin,

99.9% of the people that were on the first bitcoin forum,

they all saw the world so similarly to myself

and were excited for the same reasons.

But this is the next step for bitcoin.

If bitcoin's gonna grow to influence

and change and improve the entire planet,

then everybody has to be using it,

not just the early Libertarians or early computer nerds.

We need the businessmen and the bankers,

and everybody else has to be involved.

We need everybody all together.

So, change is sad, but it's part of life too.

There are few utopian schemes

that manage to survive the real world,

and bitcoin was no different.

Even if it doesn't fulfill somebody's

philosophical beliefs, it works.

Is bitcoin inherently a bad thing, is it an evil thing?

No.

But it can be used for bad things,

everything from terrorist financing to ransomware, hacking,

public corruption, drugs, drug traffic organizations.

That's the thing, it's money now.

Like, as a monetary economist,

and even as a technological enthusiast,

what you would really like is for something

as wonderful as bitcoin to be handed to humanity

like on a cloud, you know?

Just coming in, here is your gift,

and everybody will start using it, you know?

But that's not the way it happens. (laughing)

It has to enter in through financial markets

and become economically viable,

meaning that it has to pass through this weird stage

where people are testing things

and buying it and selling it.

Every technology does this.

It was the same with railroads, you know,

back in the 19th century.

There were all kinds of scams,

bankruptcies, injuries, accidents.

Terrible things happened.

But at the end of the day, we got railroads,

and that's awesome.

You know, Mark Karpeles, who is almost like

a theoretical physicist put in charge of

landing a man on the moon.

Probably not the right man for the job.

I mean, it must be frustrating to be Mark

and have once been one of the most influential people

in the world of bitcoin, have access to a huge amount

of money, and now be here in Japan in limbo,

accused of crimes he didn't really commit,

his reputation destroyed, no money,

certainly not the missing 500,000 bitcoins,

lots of people angry with him.

He's just a guy who got in a little bit over his head.

At first, I wanted to find him and punch him in the face

for losing the money, like everyone.

And then, I talked to him and ...

I realized he didn't steal the money.

And I said, okay, well, let's just ...

not be so angry at him.

It'd be very difficult to be Mark Karpeles

and have to face the press after losing everyone's money.

I probably would just never go online again if it were me.

(gentle music)

(foreign language)

(gentle music)

What's the moral of the story, Greg?

Yeah, look, I'm not sure what the moral is here

apart from ...

if you're selling a product, make sure

you've got that product (laughter)

before you tell everybody, "We're open for business."

(energetic electronic music)

(foreign language)

(emotional country music)