Catching a Genius Hacker | The Mt. Gox Documentary

Summary

The documentary narrated by Crumb unveils the intriguing and harrowing story of the Mt. Gox crypto heist, the largest theft in the history of Bitcoin. Beginning with a seemingly innocuous arrest at a Greek beach resort, the narrative swiftly takes us through the rise and fall of Mt. Gox, once the world's leading Bitcoin exchange. The story intricately follows the exchanges' challenges, from handling explosive growth and security breaches to the shocking discovery of significant Bitcoin thefts. As the investigation unfolds, a global manhunt begins, exposing the key figures behind the audacious crime and the subsequent legal battles that ensue.

Highlights

• Greek secret agents arrested Alexander Vinnik in connection with the Mt. Gox theft while on vacation. 🏝️
• The Bitcoin community was rocked when 750,000 Bitcoins from Mt. Gox vanished, sparking global outrage. 😲
• BTC-e was a key player in laundering the stolen Bitcoins, resulting in an intricate cat-and-mouse game with law enforcement. 🕵️
• The investigation revealed the critical role of blockchain analysis in piecing together illicit transactions. 📊
• Vinnik faced extradition battles from multiple countries, underscoring the complexities of international law enforcement. ⚖️

Key Takeaways

• The Mt. Gox heist involved the theft of 850,000 Bitcoins, making it the biggest crypto theft in history. 💥
• An elaborate international investigation and manhunt were launched, leading to key arrests and surprising legal turnarounds. 🚔
• Despite massive setbacks, the story highlights the transparency of blockchain technology, which eventually helped identify the culprits. 🔍
• Mark Karpeles, the former head of Mt. Gox, was cleared as the mastermind behind the heist, a surprising outcome considering the evidence initially stacked against him. 🤔
• BTC-e, an exchange involved in laundering the stolen Bitcoins, operated under different disguises, complicating the investigation. 😱

Overview

In 2014, Mt. Gox, the leading Bitcoin exchange, experienced a catastrophic collapse after it was discovered that a staggering 850,000 Bitcoins were missing. This marked the beginning of a global thriller involving hackers, law enforcement agencies, and financial detectives all seeking to uncover the truth behind this monumental heist.

At the heart of the investigation was the mysterious BTC-e exchange and Alexander Vinnik, whose arrest set off a chain of international legal battles. Investigators used blockchain technology to follow the trail of missing coins, leading to breakthrough discoveries that eventually exposed key figures involved in the Mt. Gox debacle.

Despite the chaos that ensued, the Mt. Gox saga underscored the potential and vulnerabilities of digital currencies. It highlighted how blockchain's transparency can both aid criminal activities and serve as a powerful tool for justice. Mark Karpeles, once at the center of suspicion, was eventually acquitted, with efforts in place to recover and reimburse the stolen funds.

Chapters

• 00:00 - 01:00: Introduction and Arrest of the Hacker A group of Greek secret service agents, disguised as tourists, are closing in on a suspect at a luxury resort. They are there to arrest a man who is lounging on a sunbed with his family, suspecting him to be involved in a theft of nearly $50 billion. This arrest marks the culmination of a years-long investigation. The backdrop to these events ties back to the significant rise of Bitcoin, which had been making headlines three years earlier.
• 01:00 - 02:00: Bitcoin Hits $1000 and the Mystery Exchange Bitcoin reached the $1000 milestone for the second time within a few months, marking a significant event for investors. However, this achievement was overshadowed by a major scandal when it was revealed that 850,000 coins had been stolen from customers. Mark Karpeles, the quirky owner from France, was immediately under suspicion. Parallelly, a new and mysterious exchange, operated by anonymous leaders, was on the rise. This new platform drew the attention of both the FBI and the IRS, especially after an incident involving one of their own agents.
• 02:00 - 03:00: Mt. Gox's Early Troubles and Handover to Mark Karpeles The chapter details the early struggles of Mt. Gox, a major cryptocurrency exchange, and its transition in leadership to Mark Karpeles. The narrative begins with the intention behind the founding of Mt. Gox and how it initially benefited the Bitcoin ecosystem. However, it foreshadows the disaster that would later unfold, marking it as a significant chapter in the history of cryptocurrency. The introduction is provided by Jed McCaleb, who reflects on Mt. Gox as one of his creations that eventually led him into various legal challenges.
• 03:00 - 04:00: Mt. Gox's Decline and First Large Theft The chapter titled 'Mt. Gox's Decline and First Large Theft' discusses the decline of the once-thriving cryptocurrency exchange Mt. Gox and the initial major theft that marred its reputation. The narrative highlights how Jed McCaleb, the founder, only operated the company for seven months before entrusting it to others as it became hugely successful, employing dozens and renting luxurious office spaces in Japan. This quick rise in success, after McCaleb's departure, supposedly left him bitter, leading some to speculate that he might have had something to do with the subsequent theft of millions in cryptocurrencies from the company. The chapter hints at the fallout and suspicions that lingered in the years after Mt. Gox's eventual collapse.
• 04:00 - 05:00: Rapid Growth, Hacks, and PayPal Issues This chapter discusses the rapid rise in Bitcoin's value, which significantly increased the amount at stake from theft and intensified customer dissatisfaction. Mt. Gox, a major Bitcoin exchange, stopped trading in early 2014, an event foreshadowed by issues dating back to its launch in the summer of 2010 by Jed. The narrative suggests that what might now be seen as mismanagement in the early days was not apparent at the time, as Bitcoin was then viewed as an experimental novelty.
• 05:00 - 06:00: Liberty Reserve Vulnerability and Handover to Mark This chapter explores the early uncertain days of Bitcoin's development and adoption. Bitcoin's potential success was questionable, with interest primarily from a niche group of enthusiasts on a specific forum. The chapter highlights the launch of Mt. Gox, originally a small, side project by Jed who initially created it to better understand Bitcoin. Interestingly, the domain name for Mt. Gox was repurposed from a previous venture related to the card trading game 'Magic: The Gathering'.
• 06:00 - 07:00: The Major Heist Begins and Investigations The chapter titled 'The Major Heist Begins and Investigations' delves into the early days of Bitcoin and the critical development of a website that quickly became central to the Bitcoin community. Initially, there was no accurate way to determine Bitcoin's price as trades occurred informally, often on forums. The chapter describes how the website, despite its casual beginnings, gained immediate traction among Bitcoin enthusiasts by offering a straightforward platform for exchanging Bitcoin with fiat currency. The initial trades on Mt. Gox were around 6 cents, illustrating the nascent stage of Bitcoin trading. The website's model eventually set the foundation for future trading systems.
• 07:00 - 08:00: International Manhunt and Arrests This chapter details the rise of Bitcoin and the role that Mt. Gox played in making cryptocurrency easily accessible to the general public. Initially, acquiring Bitcoins was a challenge as people either had to mine them or find willing traders. Mt. Gox simplified this process, removing major barriers to entry. As Bitcoin's popularity grew, so did the number of users on the Mt. Gox exchange. Jed, a key figure, expresses surprise over the rapid expansion of the cryptocurrency community and the unexpected scale of growth experienced.
• 08:00 - 09:00: BTC-e and Rogue Agents In 'BTC-e and Rogue Agents,' the chapter discusses the massive growth of Bitcoin and the challenges that accompanied it. To make Bitcoin more accessible, PayPal was initially implemented as the main payment system, despite the high risk of chargeback fraud. Jed, understanding these risks, considered the potential losses as a necessary cost for user acquisition and easier fiat onboarding. However, PayPal was not pleased with the situation.
• 09:00 - 10:00: Kraken's Role in the Investigation The chapter "Kraken's Role in the Investigation" discusses a significant security incident involving Mt. Gox, an early Bitcoin exchange. It details how Mt. Gox was left with Liberty Reserve as the primary payment option after getting banned from a service. The chapter highlights a major vulnerability in the API integration between Mt. Gox and Liberty Reserve, where hackers exploited the lack of validation checks, allowing them to manipulate withdrawal requests. This vulnerability was akin to altering a bank check after it's been written but before it's cashed.
• 10:00 - 11:00: Tracing the Stolen Coins This chapter covers a security breach at the cryptocurrency exchange Mt. Gox, where hackers exploited a vulnerability to fraudulently withdraw funds. The issue allowed them to extract more money than they actually had in their accounts. Jed, involved in the operation of the exchange, noticed the breach after a significant loss of $50,000 had occurred. Realizing the growing security challenges, Jed decided to pass the responsibility to Mark to address the security vulnerabilities more effectively.
• 11:00 - 12:00: Michael and Tigran's Investigation Michael and Tigran embark on an investigation that delves into complex scenarios. They encounter numerous obstacles, including death threats that jeopardize their safety and credibility, particularly impacting Mark Karpeles, who reflects on the loss of trust during his tenure at Mt. Gox. The chapter sets a gripping tone with the backdrop of Tokyo's cold January, as Mark, a French developer, receives a pivotal email from Jed, a past client. Jed confidentially reveals his plans to sell Mt. Gox, urging Mark to consider acquiring the company. This inquiry and decision-making process could potentially alter the landscape of cryptocurrency exchanges.
• 12:00 - 13:00: Connecting Vinnik to the Theft In this chapter, the focus is on establishing a connection between Vinnik and a theft involving Mt. Gox, a significant player in the Bitcoin community. The narrative centers around Mark, who was engaged in developing complex banking systems and had a longstanding interest in Bitcoin. Despite running a small web hosting company with limited financial resources, he became involved in a pivotal transaction with Jed. Initially, Mark was unable to afford the Mt. Gox platform due to its projected profitability, but Jed surprisingly offered an enticing deal. This unexpected development marked a significant turning point, indicating a deepening link between the key players and the financial ecosystem surrounding Mt. Gox.
• 13:00 - 14:00: Theories and Speculations about Vinnik The chapter titled 'Theories and Speculations about Vinnik' discusses a crucial period in the history of Mt. Gox. Jed, one of the involved parties, offers Mark a deal to take over Mt. Gox with no upfront costs but a 12% revenue share indefinitely, following a six-month shared revenue period. This enticing deal also comes with the burden of a $50,000 Liberty Reserve debt. As the handover completes in February 2011 and Mark takes full control, the site suffers its first significant incident with Bitcoin theft.
• 14:00 - 15:00: Vinnik's Legal Battles and Extradition The chapter details the legal challenges faced by Vinnik, focusing on a specific incident involving Mt. Gox. It describes a critical period when both Jed and Mark had access to the Mt. Gox site, allowing observation of its operations. During this time, a theft occurred, resulting in 80,000 Bitcoins being stolen from the Bitcoin client running on Mt. Gox's server. Jed was the first to detect the breach and informed Mark via Skype. The missing Bitcoins were noticed towards the end of the transition period, coinciding with Jed sending the server password to Mark. The chapter implies these events are part of the broader legal battles and extradition issues surrounding Vinnik.
• 15:00 - 16:00: Vinnik's Personal Struggles and Final Extradition to the US In this chapter, Vinnik discusses his personal struggles and the eventual extradition to the United States. It involves a narrative from Jed, who describes how he and another individual both had control over a situation during a business handover. Jed had already sold the site they were working on. This was complicated by the fact that stolen coins, representing nearly a third of all customer deposits and valued at approximately $68,000, were missing. The situation was worsened because the perpetrator had erased server logs, making it impossible to identify them. Despite the magnitude of this breach, the public was not informed. Jed proposed that Mark should repurchase the missing coins.
• 16:00 - 17:00: Conclusion and Aftermath of the Heists In this chapter, the focus is on the aftermath of the heists and their financial implications. There is a discussion on how the site's future transaction fee revenue is being used to take out an immediate loan, thereby converting Bitcoin debt into a more stable dollar debt. The narrator reflects on being trapped by a contract, with a full indemnification clause, preventing any concerns from being raised. Speculation arises that Jed may have set Mark up to take the coins because the indemnification clause shifted the liability away from Jed in situations like this.

Catching a Genius Hacker | The Mt. Gox Documentary Transcription

• 00:00 - 00:30 - [Narrator] On a hot summer morning, a group of over a dozen men in shorts, t-shirts, and sunglasses began to close in. They could be mistaken for beach goers at the luxury resort, but they were not out for a swim. These were Greek secret service agents, here to arrest a man lounging on a sunbed beside his wife and two young children. After a years long investigation into the theft of nearly $50 billion, this was the moment they were waiting for. They had their man. Three years earlier, Bitcoin had been making headlines,
• 00:30 - 01:00 touching the thousand-dollar mark for the second time in just a few months, but this good news took a dark turn when investors began to cash out. 850,000 coins belonging to their customers had been stolen. Mark Karpeles, the eccentric French owner, became an immediate suspect. However, at the same time, a mysterious new exchange ran by completely anonymous leadership began to flourish. This new platform had already caught the attention of FBI and IRS, but when one of their own agents was caught
• 01:00 - 01:30 selling stolen funds to it, an international manhunt was launched to find the people behind it. This is the story of the world's biggest crypto heist, and it all started with the founding of Mt. Gox. - [Jed] I thought it really benefited the Bitcoin ecosystem, and I think it did, you know, until the ultimate catastrophe, but. - [Narrator] That's Jed McCaleb, and he's talking about Mt. Gox, the worst creation of his life. Not just because it led to multiple lawsuits against him. He was used to that. His first company of peer-to-peer file sharing software
• 01:30 - 02:00 settled for $30 million out of court to big music. No, Mt. Gox was worse, because this time, it put his reputation on the line. See, Jed only ran it for seven months, giving away control before it took off and turned into a massive business with dozens of employees renting one of the most expensive offices in Japan. Some people think its rapid growth after his departure left him sour. Sour enough to make him one of the prime suspects to the theft of millions of dollars in missing coin. Worse, in the years following the collapse,
• 02:00 - 02:30 Bitcoin would skyrocket in value, bringing the amount stolen into the billions, intensifying the anger of the thousands of customers demanding answers. But when Mt. Gox halted trades in the early months of 2014, it was hardly a surprise. The signs of trouble had long been building since the summer of 2010 when Jed launched it. Sometimes, people blamed its ultimate downfall on Jed's incompetence in these early months, but back then, Bitcoin was nothing more than a toy. - [Jed] I think people have a hard time contextualizing what it was like back then
• 02:30 - 03:00 when you think of what Bitcoin's like now. I mean, it was just very unclear that Bitcoin would be a success at all, that anybody would ever care outside this small group of like 2,000 people on this forum. And the whole way I made Mt. Gox was just kind of on a lark, almost, just because I wanted to learn more about how Bitcoin worked. It wasn't like it was ever intending to be this massive business or anything like this, so. - [Narrator] It had started as a quirky side project. Jed had even reused the domain from one of his long defunct endeavors, an exchange for the card trading game "Magic: The Gathering".
• 03:00 - 03:30 - [Jed] You know, 'cause at that point, Bitcoin was still so early. I didn't want to go think of another name or go buy one. - [Narrator] But despite its whimsical start, the website was an immediate hit within the small community of Bitcoiners. It provided a central, easy place to trade the coin for fiat currency. - [Peter] Do you remember what the price of Bitcoin was when you started work on it? Like, could you even get an accurate price? - [Jed] You couldn't really get an accurate price, people were just trading on the forum in random places. It first opened on Mt. Gox, I think, around like 6 cents or something like that, that's like where the first trades were clearing. - [Narrator] Its model laid the groundwork
• 03:30 - 04:00 for what is the modern crypto exchanges of today. Beforehand, Bitcoins were hard to get. You either had to mine them, or find someone willing to trade them and then, worse, communicate with them. Mt. Gox made it easy, took away the barrier of entry, but as the months went on, Bitcoin kept growing in popularity, and, likewise, more and more people were signing up for the exchange. - [Jed] I mean, I did think that the exchange would take off in that small community. I didn't know that that small community would grow orders of magnitude over the next year or whatever, right? I definitely didn't think that we would ever have
• 04:00 - 04:30 a huge percentage of Bitcoin in the world on there. - [Narrator] But this rapid growth brought its own set of problems. Jed initially added PayPal to the site as the premier payment system, but there was a rampant amount of chargeback fraud. - [Jed] Which I knew would happen, but mainly I just thought that it was worth it to have, again, the easy on-ramp for fiat, and then I was just gonna cover the PayPal losses. Like, it's worth it, it's almost like advertising in a way. Like, you just get people to be able to use it. It's more important than eliminating all fraud. - [Narrator] PayPal naturally didn't like this.
• 04:30 - 05:00 After just a few months, they permanently banned Mt. Gox from using their service. This left Liberty Reserve as a primary payment option for buying and selling Bitcoin on the site, except there was a problem with the setup. Hackers found, when making a withdraw request, they could manipulate the data being sent to Liberty Reserve by exploiting a vulnerability in the way Mt. Gox set up their API integration. The code on Mt. Gox was making no validation checks. Like changing the amount on a bank check after it's been written but before it's been cashed,
• 05:00 - 05:30 hackers could inject fraudulent withdrawal amounts, and the system then blindly trusted and executed these, allowing the hackers to withdraw more money than they ever had in their balance. By the time Jed caught and fixed this, Mt. Gox had already been taken for $50,000, and this is when he knew he needed help. - [Jed] Well, I only ran it for less than maybe like six months or something like that before I handed it over to to Mark, unfortunately. But yeah, it was clear that security was becoming more of an issue, and we needed more people to look at that, and that's one of the reasons why I handed off to Mark, so.
• 05:30 - 06:00 (gentle dramatic music) - I did receive a lot of death threats. I lost basically any ounce of credibility I had while running Mt. Gox. - [Narrator] On a cold January morning in Tokyo, Mark Karpeles, a French developer, woke up to an email from a past client. Jed asked him to keep the content secret. He was contemplating selling Mt. Gox, and didn't want the news to cause a panic. He asked if Mark was interested in buying the company, considering he had previously done contracting work
• 06:00 - 06:30 implementing complex banking APIs and was long involved with the Bitcoin community. Mark wrote back, although intrigued by the proposition, he was only running a small web hosting company. He didn't have a huge budget. At the time, Mt. Gox was projected to do around a hundred thousand dollars a year in profit. If sold, it would've been worth some multiple of this, and Mark couldn't afford it. He expected this would be the end of the interaction, but to his surprise, just days later, Jed wrote back, this time with a sweetheart deal that would change both of their lives:
• 06:30 - 07:00 Mt. Gox for zero upfront cost. They would share revenue for six months, and afterwards, Jed would retain a 12% revenue share indefinitely. Mark was taken aback, but part of the reason for such a good deal was because he was to inherit the site with the $50,000 Liberty Reserve debt. The two agreed to start the handover in February, 2011, but just at the end of that process, right when Mark took full control, disaster strikes. The first Bitcoins are stolen from the website.
• 07:00 - 07:30 - [Jed] There was, I think, a two-week period where we both had access to the box, so like the actual site where Mt. Gox was running, so I could show him what was going on, and during that time is when someone broke in and stole Bitcoins. - [Narrator] 80,000 Bitcoins from the Bitcoin client running on the Mt. Gox server had been transferred to an outside address. Jed was the first to notice, sent Mark a message on Skype, letting him know of the bad news. - It went missing mostly at the end of the handover period, around the same time Jed sent me the password to the server.
• 07:30 - 08:00 - [Jed] So we both had control. It was during the handover, but I had already, like, the site already belonged to him, like, I had already sold it to him. - [Narrator] The stolen coins represented nearly a third of all customer deposits. At the time, they had a value of roughly $68,000. This was a significant blow, and the worst part, they couldn't determine the culprit. Whoever it was had meticulously erased the server logs. The news of this hack was not made public. Jed suggested that Mark repurchase the missing coins
• 08:00 - 08:30 using the site's future transaction fee revenue, taking out an immediate loan, essentially converting the Bitcoin debt into a more stable dollar debt. - Because I already signed a contract with him and there was a full indemnification for any kind of issues, I couldn't really bring this up anywhere, so my best shot at this was just to listen to his advice. - [Narrator] Some have speculated Jed set Mark up, took these coins after the contract had been signed, because, well, that indemnification clause meant he was completely liable for an incident like this,
• 08:30 - 09:00 but looking at their chat logs from the day this was discovered, it doesn't seem so. At this point, Jed still had full control over the rest of the customer deposits, about 160,000 coins. If the heist was staged for personal gain, this would've been a much more tempting pile. Furthermore, the stolen coins have never been touched. Their resting place is now the seventh largest Bitcoin address globally, which, at Bitcoin's peak in 2021, were worth a staggering $5.2 billion.
• 09:00 - 09:30 Either the thief has permanently lost access to that address or fears that spending any will lead to their capture. But this theft was not the one that led to the collapse of Mt. Gox. No, that theft would be significantly bigger. Mark was just getting started. After these coins went missing, Mt. Gox, with its 3,000 users, was already teetering on the brink of insolvency, meaning if everyone attempted to withdraw their deposits, the site would come up short. Talk about a bad start, but despite these early setbacks,
• 09:30 - 10:00 Mark pressed on, Mt. Gox now fully under his control. But to Jed, one thing was becoming glaringly obvious: Mark wasn't the right person for the job after all, and this is when things started to really take off. Just three months later, Bitcoin's value surged from under $1 all the way up to 16, and the user base swelled to 60,000 people. And this is when the platform suffered its first publicly known breach. 25,000 Bitcoins, then value at $400,000,
• 10:00 - 10:30 had been stolen from just shy of 500 accounts. Four days later, disaster strikes again. The Mt. Gox database containing email addresses, usernames, and encrypted passwords leaked for sale on Pastebin. While still fighting the fire from those hacks, a hacker managed to access Jed's admin account, which still existed for him to audit and verify his revenue share percentage. With the permissions of the account, the hacker was able to assign themselves an enormous amount of Bitcoin, but they encountered a roadblock.
• 10:30 - 11:00 Mt. Gox had a daily withdrawal cap, no more than a thousand dollars worth of Bitcoin, so, unable to transfer the entire sum worth millions, they had an idea. If they could crash the price of Bitcoin, they would be able to withdraw more from the site, and so they orchestrated a gigantic sell order. Hundreds of thousands of coins flooded the market, dropping its value from $17.50 all the way down to a mere 1 cent within the span of 30 minutes. - [BitcoinChannel Host] We're down to 10 cents, we're down to 9 cents, 6 cents.
• 11:00 - 11:30 Wow. Mt. Gox shows the crash at -1.8. - [Narrator] With the price so low, the thief was able to make a larger withdrawal, getting away with roughly 2,000 coins. - [BitcoinChannel Host] I may end up pulling my Bitcoins off of here, my 6.16 Bitcoins. We may be looking at some kind of scam going on. It may not have to do with Bitcoins, it may actually have to do with the Mt. Gox site. - [Narrator] This was massive news. Everyone in the community had heard of this.
• 11:30 - 12:00 This led to the site being offline for a number of days while they rolled back the damage done by the sell order. Mark wrote on the announcement that they intended to cover these missing coins, but no user balances were affected, so not to worry. He goes on to criticize the thief, essentially calls them amateur, and, you know what, he's kind of right. Whoever it was got greedy. Had they just taken small withdrawals daily, how long would it have taken for someone to notice? At the very end, he gave an apology for the chaos that had taken place over this past week.
• 12:00 - 12:30 Quote, "The truth is that Mt. Gox was unprepared for Bitcoin's explosive growth. Our dated system was built as a hobby when Bitcoins were worth pennies a piece. It was not built to be a Fort Knox capable of securely handling millions of dollars in transactions each day." You'd think that all of these together would have ruined the reputation of Mt. Gox, but it really didn't. Two years later, Bitcoins had hit the thousand-dollar mark, and the exchange had grown to 2 million users. (ominous music)
• 12:30 - 13:00 - [Jed] The site was hacked. They said, okay, hey, what time are we showing up tomorrow? Like, get this going or whatever. And Mark was like, oh, it's the weekend, I'm not coming. And they're like, what? (laughs) And everybody's freaking out, there's literally just nothing if you go to MtGox.com, and people's money's stuck there. It's just stuff like that, like, he just does not have the right mentality to run this kind of thing. - [Narrator] 2013, Mt. Gox dominated. On an average day, people used the platform to trade a staggering 150,000 coins, equivalent at the time to nearly $40 million a day.
• 13:00 - 13:30 They were now handling 70% of all Bitcoin transactions in the world, but it was set to be the worst year yet in the company's history. Mt. Gox wanted desperately to expand into the US, but the notorious dark net market Silk Road was tainting the opinion for government regulators. It was the currency of criminals, and being based in Japan only made the legal hurdles harder, so when CoinLab, a US-based company, approached Mark with a deal to handle all North American transactions, it was too good to resist.
• 13:30 - 14:00 Mt. Gox gave them 5 million big ones to jumpstart their operations, however, a wrench was thrown into that plan just months after signing the contracts. The FinCEN finally announced official guidelines, classifying Bitcoin exchanges as money transmitter businesses. Here's the thing, you've gotta get this license if you run any type of financial business, because the FinCEN is worried about things like money laundering, fraud, and other sorts of financial crimes. It's a notoriously rigorous license to get, let alone for a Bitcoin exchange in 2013.
• 14:00 - 14:30 It wasn't gonna happen. - Our first thing was to contact CoinLab and to ask them what they thought about this and what was their plan to comply. Their initial response that, well, licensing is not required for startups. Well, the guidance was quite clear on this, and our lawyers were not convinced, but whatever CoinLab said, we offered them to continue working with them, and we needed them to provide us a timeline on how they planned to comply, and a few months later, I don't remember exactly when, they just filed a lawsuit against Mt. Gox.
• 14:30 - 15:00 - [Narrator] Mt. Gox wouldn't let them go live without the license, rightfully so, that was a big risk, but CoinLab didn't like that. They decided to file a lawsuit against Mt. Gox, claiming a breach of contract, seeking $75 million while pocketing the initial 5 million. Then, throughout summer, the site started facing liquidity challenges. Users were hit with significant delays when trying to withdraw funds in dollars, fueling speculation regarding the exchange's financial stability. But Mt. Gox users were used to the abuse, so they remained hopeful, attributing these delays
• 15:00 - 15:30 to complications with US banking relations, because the Department of Homeland Security had just seized an additional $5 million from Mt. Gox, accusing them of submitting false information on a regulatory form. In the middle of this chaos, insiders were beginning to leak stories of inept management, claiming the inner workings of the company, including the code running Mt. Gox, were a complete mess. While his company was going up in flames, Mark was purportedly engrossed in establishing a Bitcoin cafe, drawing inspiration from a classic French bistro.
• 15:30 - 16:00 An insider reported that Mark had already invested $1 million into the project, but given the state of Mt. Gox at the time, this seemed more of a distraction than a viable business. The cafe was set to open in March of 2014, but this would never happen. - It is my opinion that you should abandon Mt. Gox. If you have any accounts and money, Bitcoins there, that you move it out. Do not leave money there.
• 16:00 - 16:30 - [Narrator] February 7th, 2014 was the perfect day for any crypto enthusiast. Bitcoin had recently hit the thousand-dollar mark and was already on the uptrend again. Even the most devoted Bitcoin supporters couldn't resist the temptation to log into Mt. Gox and sell some of those coins and get a taste of their profits. Except there was a problem, they couldn't. Mt. Gox had, out of nowheres, frozen all withdrawals. A news post claimed that this was to, quote, obtain a clear technical view of the currency's processes,
• 16:30 - 17:00 stating that Bitcoin malleability had affected their operations. Quote, "A bug in the Bitcoin software makes it possible for someone to use the Bitcoin network to alter transaction details to make it seem like a sending of Bitcoins to a Bitcoin wallet did not occur when in fact it did occur." But many of Bitcoin's most knowledgeable users were not buying this narrative. One person wrote on Twitter, "It's a bug in their handling of payments, not in Bitcoin." Another wrote, "It means they lost a lot of money." 10 days on, and, with withdrawals still frozen,
• 17:00 - 17:30 Mt. Gox puts out another statement. They're supposedly working to address security issues, but they're tight-lipped about when or even if withdrawals would be back up. Meanwhile, Bitcoin's value is plummeting drastically. For many, Mt. Gox was the face of Bitcoin. Their trust was shaken. The very idea of Bitcoin as real money was under fire. News outlets were buzzing, the spotlight was firmly on Mt. Gox, with its questionable history of security finally under the microscope. But then, February 23rd rolled around,
• 17:30 - 18:00 and the events took an even weirder twist. Mark abruptly stepped down from his role in the Bitcoin foundation, and then the company's entire Twitter history is erased. But these were nothing compared to the bombshell that was about to drop. An internal document gets leaked, revealing that almost 750,000 Bitcoins belonging to customers, and an additional 100,000 of the company's personal coins were gone. Almost 7% of the total Bitcoins in circulation at the time had vanished from the company's accounts,
• 18:00 - 18:30 and nobody knew who took them. The missing crypto at the time was worth $450 million. In today's value, a staggering 50 billion. This is by far the largest amount of Bitcoins ever stolen. Things couldn't get any worse for Mt. Gox. Not only was it insolvent, but due to the recent bull run, there were now hundreds of users who were crypto millionaires, all desperate to get their money back from the platform. The first person to take the fall for the theft would be Mark, and he was going to need an entire army
• 18:30 - 19:00 to fight off his angry creditors, so it's a good thing the sponsor of today's video is "War Thunder", the most comprehensive vehicle combat game ever made. "War Thunder" offers a realm of complexities and strategies through dynamic, combined arms PVP battles. With more than 2,000 accurately detailed tanks, planes, helicopters and ships, you won't find any missing assets here. Instead, you get to enjoy one of the most dynamic and detailed damage models in gaming. Vehicles suffer actual damage to the components and crew, and the x-ray shows you exactly how that takes place.
• 19:00 - 19:30 A little hint, aim for the fuel tank. And imagine if Mark, with all the suspicion surrounding him, had the clarity of "War Thunder's" 4K graphics to either plot his moves or clear his name. With "War Thunder", not only do you get these crystal clear visuals, but they're paired with authentic soundtracks and effects that pull you right into the battlefield. You're always in control, no matter how chaotic it gets, unlike Marky boy. And me personally, just like many were caught off guard with the collapse of Mt. Gox, in "War Thunder", I've perfected the art of surprise after sinking over 100 hours into the game.
• 19:30 - 20:00 I play as this tiny Italian tank and completely cover it in bushes. They never see me coming. Play "War Thunder" now for free on PC, PlayStation or Xbox by using my link in the description to get a ton of bonuses, including multiple premium vehicles, a premium account, boosters, and much more. Claim it now, because it's for a limited time only. Thank you, "War Thunder". (mysterious music) Back on the cold streets of Tokyo, Kolin Burges flew from London to find out face-to-face if he could withdraw his Bitcoins from Mt. Gox.
• 20:00 - 20:30 - Well, they haven't answered anybody's support requests. They've seemed to have just taken people's money, they've taken my money. I'm pretty annoyed about that, so I thought I'd come here, try and find out what's going on, hopefully speak to the CEO or speak to someone who knows what they're doing. - [Narrator] This video quickly went viral. Kolin became the face for a swelling tide of online outrage, with people accusing Karpeles of everything from embezzling funds to sheer incompetence, some of them even going as far as to threaten his life.
• 20:30 - 21:00 But despite the noise, no one truly knew what had happened or who now possessed the near half a billion dollars in missing coin. As March rolled in and the cherry blossoms prepared to bloom, hinting at new beginnings in Japanese culture, Mt. Gox was in the news again, this time making headlines by filing for bankruptcy protection in both Japan and the US. The Tokyo Court appointed lawyer Nobuaki Kobayashi as the trustee of the Mt. Gox bankruptcy estate. The first thing that Kobayashi did was
• 21:00 - 21:30 launch an investigation into the lost Bitcoin. Little did he realize, he was about to kick off a global manhunt that would span several years. Meanwhile, this was a golden opportunity for the competitors of Mt. Gox. There was now a surplus of users looking for a new exchange to call home. Many surged to BTC-e, an exchange nearly as old as Mt. Gox itself. However, this spelled issues for law enforcement around the world. Unlike other platforms, BTC-e was known for not following anti money laundering measures
• 21:30 - 22:00 that were standard to the industry, providing a haven for those keen on skirting the edges of the law. Numerous illicit funds from dark web drug deals to ransomware payments often flowed through this exchange. Even the location of the company's management was a complete mystery. The website alluded to Chinese origins, but listed a Russian telephone number. The domains traced back to shell companies in France, New Zealand and Singapore, to name a few. For law enforcement, Mt. Gox had always been the cash-in and cash-out point that linked crypto
• 22:00 - 22:30 with its pseudo-anonymous properties to real people, but unlike Mt. Gox, BTC-e didn't comply with subpoena requests for user information. It was a black hole. This is a problem the FBI knew intimately, because in October of 2013, just after taking down Silk Road, it came to light that two of the agents involved had used their position to steal Bitcoin. Shaun Bridges transferred nearly 2,000 coins to BTC-e, then valued at $350,000.
• 22:30 - 23:00 Carl Force had pocketed coins worth over $700,000, with portions of that cashed out via this mysterious exchange. But being unable to subpoena any information about these transactions was making it hard for the FBI to build a case against their rogue agents. The situation helped spur an investigation directly into who was behind BTC-e, but the results of that were going to take some time. Meanwhile, another exchange was hoping to make a more legitimate name in the industry.
• 23:00 - 23:30 - [Mental Outlaw Host] So many criminals choose Bitcoin, because for some reason, they think that it's this super private, super anonymous thing, but despite what so many people mistakenly assume about Bitcoin, it's actually one of the most open and transparent currencies in existence. Literally every single transaction that has ever been made is on the blockchain for anybody to see. - [Narrator] The founding duo of Kraken, Jesse Powell and Michael Gronager, believed that aiding in the Mt. Gox investigation
• 23:30 - 24:00 could be their ticket to earning public trust, ultimately emerging as the new leading exchange. So in late November, 2014, they found themselves in a meeting with the Japanese law firm now responsible for Mt. Gox, committing to track down the half a billion dollars in missing coins. But Michael Gronager was actually no longer part of the Kraken team. A month earlier, he had stepped down from his role of COO to pioneer a first-of-its-kind forensic analyst tool for the blockchain. See, because of Bitcoin's negative association with Silk Road and now the Mt. Gox hack,
• 24:00 - 24:30 Kraken had been struggling to find banks to partner with. They wanted transaction monitoring that Kraken just couldn't offer. Many of the banks believed that Bitcoin's anonymity made it inherently risky, but Michael saw this as an opportunity. He knew that the underlying architecture of Bitcoin actually presented an unparalleled transparency, because every Bitcoin transaction is publicly recorded on the blockchain. By connecting on-chain activities with off-chain data and behaviors,
• 24:30 - 25:00 Michael knew it became feasible to de-anonymize and understand the true actors behind Bitcoin transactions in certain situations. Michael intended Mt. Gox to be his software's first case, to trace the stolen coins pro bono to find out exactly who had taken them. Following this commitment, he received a thumb drive from the Japanese lawyers, holding all of Mt. Gox's financial records, including every trade made on the exchange during its four-year run. However, upon inspecting the data, Michael found some troubling inconsistencies.
• 25:00 - 25:30 Many transactions were incomplete or seemed to have been erased completely. Just a few months into the investigation, he scheduled a face-to-face meeting with Mark to get to the bottom of this, but Mark's response was less than convincing. He claimed that, during the 2014 hack, an unidentified individual had broken into the server room, possibly erasing this essential data while making off with the coins. Michael sensed that Mark might not have been telling the full truth. Japanese police had already announced
• 25:30 - 26:00 that they believed the theft was an inside job, yet Michael wasn't convinced that Mark had outright stolen the coins. However, he was aware of rumors that Mt. Gox had been using bots to fake high-volume trades, ultimately bolstering the price of Bitcoin. Such fake trades, if proven, would likely be illegal, and some speculated about their possible links to the lost funds. But by the time of this meeting, Mark had taken a step that few would expect from a thief. He had found an old format wallet that contained 200,000 Bitcoins
• 26:00 - 26:30 originally thought to be lost, claiming he had overlooked this wallet because it was not used by the exchange and was stored on a different server. That's a lot of coins to forget about, and some found it questionable. To give some context, if you and everyone else watching this video subscribe to my channel, I still wouldn't even have close to that many subscribers. Either way, this discovery reduced the total missing Bitcoins from Mt. Gox down to 650,000, but this wouldn't be enough to clear Mark's name with the Japanese police, and now, more than ever, Mark's fate was in Michael's hands,
• 26:30 - 27:00 because come August 1st, boasting a 99.8% conviction rate, they had locked him up. If he was going to get out, Michael was going to have to prove his innocence through the blockchain's ground truth. (mysterious music) Michael began to use his software to chart two graphs. The first, using the exchange's own records, showed a growing number of coins over time. The second, based on the blockchain's undeniable data,
• 27:00 - 27:30 painted a far more concerning picture. Beginning in October of 2011 after the minor hacks that occurred during Mark's takeover, the blockchain-based graph seemed to fall due to mysterious outflows of money, while the records provided by Mt. Gox never seemed to take them into account. Michael could see clear as day on the blockchain that the thefts appeared to be automated. As new coins landed in Mt. Gox addresses, they were instantly diverted to the hackers' wallets. There was an ever increasing deficit growing until the summer of 2013.
• 27:30 - 28:00 Astoundingly, the difference tallied up to 650,000 Bitcoins. - [Jed] The ultimate disaster there was surprising, even to me, that he basically had this cold wallet that was drained over a couple years and he lost like 600,000 Bitcoin. Like, that is like insane, that he was just never checking this cold wallet, for it to have the accurate balance, that's, like, mind blowing to me. I never expected it to die that way. I thought that he would run it into the ground just because he's incompetent, but. - [Narrator] Mark had placed full faith on his in-house-built reporting, solely relying on the figures from his exchange's database,
• 28:00 - 28:30 never making an effort to crosscheck with the actual Bitcoin wallets to verify the numbers. Mt. Gox, nearly since its inception, had been trading phantom Bitcoin. Numbers that only existed in their database moved between user account to user account, backed by no actual coins. Michael noticed that, at regular intervals, the hackers manually tapped into their wallets, shifting them around from various addresses, preparing them for sale. At the beginning of the hack, the stolen funds were immediately routed to the American crypto exchange TradeHill.
• 28:30 - 29:00 In fact, the Bitcoin passing through the exchange was so much that eventually, it accounted for more than a quarter of all the money traded there. However, halfway through the operation, in 2012, TradeHill was shut down, leaving the hackers to find a new option to cash out their stolen Bitcoins. Looking at the money flow, Michael noticed that the stolen coins began to reenter Mt. Gox, and for someone trying to cash out stolen Bitcoins, it made sense. Why not sell them at the world's largest exchange? But then a new trend started to appear inside the money flows.
• 29:00 - 29:30 The Bitcoin started to pass through BTC-e. His software had worked, but he still had no idea who was behind the attack. Determined to approximate the location of the culprits, Michael analyzed the times during which the hackers initiated their transactions, and if his calculations were correct, the Mt. Gox hacker was from Russia, the only nation impenetrable to Western law enforcement, and a safe haven for cyber crime. It was time for Michael to call in the big boys. (ominous music)
• 29:30 - 30:00 In the case of Force and Bridges, IRS criminal investigator Tigran Gambaryan had meticulously traced the rogue agents' stolen funds to exchanges by analyzing the blockchain manually, a tedious process conducted entirely by hand. During Michael's first visit with US law enforcement ever to talk about his blockchain tracing software, he ended up in a room with Tigran. To verify his software's capabilities, Tigran had Michael crosscheck his manual tracing. Even in its prototype stage, his tool confirmed Tigran's results in a matter of seconds.
• 30:00 - 30:30 Force and Bridges were guilty. This marked the start of Michael forging a close relationship with US law enforcement. Likewise, the topic of BTC-e and the problems it was causing for follow-the-money investigations had since been a hot topic between the two, but at the time of this meeting, neither were officially working on cracking who was behind it. This, however, was about to change. Nearly at the same time that Michael had begun working on his investigation into the missing coins, Tigran was tasked with investigating foreign exchanges,
• 30:30 - 31:00 such as BTC-e, that were subject to US money laundering laws. For Tigran, the first step in unmasking BTC-e was pinpointing the location of the server hosting it. Surprisingly, the sole barrier concealing this was CloudFlare, a US-based security service that shielded the exchange's IP from prying eyes. This was a big mistake. Given CloudFlare's American origins, it wasn't long before they cooperated with Tigran's legal request. What he got back was contrary to what BTC-e tried to promote.
• 31:00 - 31:30 Their servers were located in Northern Virginia, strikingly close to Tigran's Washington office. Yet this didn't surprise him. For BTC-e to provide high-speed services to its American clientele, it was almost a given that they'd have servers within the US. After carefully maneuvering through the complex legal processes to secure discrete access from its hosting company, he was able to secretly copy off the server's data. Upon analyzing it, he identified three administrators and the respective IPs which they used to access the server via a white list
• 31:30 - 32:00 to perform maintenance on the regular. However, when these IPs were investigated, they only pointed to proxy machines. The administrators had taken precautions to hide their actual locations, ensuring that they remained anonymous even to those with server access. They were sophisticated. This was more or less a dead end, but when Tigran's work started to overlap with investigations into Mt. Gox, things would get a little clearer. A New York-based team of FBI and IRS agents were looking into Mt. Gox's missing money
• 32:00 - 32:30 at the same time as Michael and Tigran. They had consulted with Kim Nilsson, a Tokyo-based investigator who had come up with the same conclusion as Michael. The 650,000 stolen Bitcoins mostly flowed into BTC-e. The New York agents learned of Tigran's access to BTC-e's backend and asked for assistance. They wanted to know the user information of the person selling those coins. What they found, none of them could have imagined. The IP address for the account trading the stolen coins matched one of the administrator's IPs.
• 32:30 - 33:00 A realization dawned upon the investigators. Could there be a more ingenious method to launder an enormous quantity of Bitcoins than by starting your own Bitcoin exchange? The hypothesis seemed outlandish. To verify this, that night, Tigran called Michael. Michael had previously sent him data showing that some of the stolen coins sold back to Mt. Gox listed Russian IP addresses for the traders' user information. Tigran asked Michael to double check this, and, upon learning they were absolutely correct, Tigran revealed what this confirmed.
• 33:00 - 33:30 Michael, from his time co-founding Kraken, knew that having hundreds of thousands of Bitcoin would make launching a new exchange all the easier. They now had a compelling reason to suspect that the person liquidating Mt. Gox's vast wealth was in fact a BTC-e administrator, but the only details known about this individual was that he went by the username WME. Three letters on a screen with the potential to be hiding the face of the biggest crypto thief in history. But despite how sophisticated this person first seemed,
• 33:30 - 34:00 they found an odd discovery for someone who might have stolen half a billion dollars. WME was registered and active on the forum Bitcoin Talk since October, 2011, just a month after funds started being drained secretly from Mt. Gox. His username stood for Web Money Exchanger, the name of an exchange business he had started in the early 2000s. His first posts were advertising this business. Curiously enough, on one of his websites,
• 34:00 - 34:30 he seems to have a large amount of Liberty Reserve funds to sell. Maybe something to do with the 50K stolen while Jed was still in control, but that's just my own speculation. The investigators were concerned with the bigger scam now anyways. His posts quickly took a shift. He had a large amount of Bitcoin and he wanted to sell them. Digging through his post history, the investigators found exactly the type of slip-up they could only dream of. In 2012, he made this post, claiming that an Australian-based exchange had scammed him
• 34:30 - 35:00 for over a hundred thousand dollars worth of coin. He posted dozens and dozens of screenshots showing the Skype record of the deal gone sour. At one point, the BTC-e account even chimes in, saying he's a big trader, a show of trust that CryptoXchange was in the wrong here. Then, over a month later, he posted an update. He uploaded two photos of a letter from his attorney, requesting the release of the funds, but, upset that his apparently stolen coins got stolen, WME had now made a mistake
• 35:00 - 35:30 that would put his freedom on the line. While he remembered to black out the banking details, he overlooked redacting his name. Just like that, the investigators were now confident that Alexander Vinnik was the man behind the alias. Upon diving deeper into Vinnik's background, they found that he had previously been investigated for carding, a form of credit card fraud often associated with hacker groups. This discovery made them almost certain that he was the brain behind the world's most criminal-friendly Bitcoin exchange. However, as a Russian national,
• 35:30 - 36:00 the task of indicting, let alone arresting, him, would be almost impossible without more information. For months on end, the entire Virtual Currency Investigations group led by Tigran was scouring the web for any shreds of personal information they could tie to him. Problem was, he left little to no chance. Not a single photograph, no social media, and any digital footprints were cleverly masked using VPNs and proxies. After six months, they finally found a single login to one of his known accounts
• 36:00 - 36:30 where he didn't have a VPN enabled masking the actual IP address. This connection was immediately traced back to an international luxury hotel from which they obtained a copy of his passport through a subpoena. They now had a face to the 36-year-old mastermind. But even with that, Vinnik was still a Russian citizen living in Russia. If the investigators wanted to arrest him, they needed him to feel like he was in the clear, hoping he would eventually travel abroad to a country that was more complicit
• 36:30 - 37:00 with US law enforcement. But for that to happen, all the information the team found had to remain completely under wraps. Michael even agreed to hide the discovery from the Mt. Gox liquidation trustees who had given him the case to investigate in the first place. Tigran and Michael thought they had solved the biggest mystery in the crypto world, yet they had to keep it a secret. (mysterious music) More than three years since the collapse of Mt. Gox, and the investigators finally got a signal
• 37:00 - 37:30 that Vinnik had set foot outside of Russia. He had booked a luxury villa in Halkidiki for him, his wife and two young children, complete with a Mediterranean garden, private beach, and optional yacht tours. But while Vinnik was enjoying his vacation, the US authorities in a joint operation were working hard to plan his arrest. On a hot summer morning, Greek agents dressed as tourist in swimsuits discreetly positioned themselves around the beach where Vinnik and his family relaxed. At the same time, on the other side of the globe,
• 37:30 - 38:00 the feds were taking the BTC-e website offline. The operation went off without a hitch. Vinnik was now under the custody of Greek authorities. As the headlines broke, the whole crypto world finally had a face to the mastermind behind the billion-dollar theft. This was great news for Mark. He had recently been released on bail after spending his 31st birthday in jail, and now this was going to greatly affect the outcome of his trial in Japan. But for Vinnik, things were just getting started. He was now facing extradition requests
• 38:00 - 38:30 from the US, Russia, and, unexpectedly, even France, each one of them attributing different charges related to his involvement with BTC-e. But Vinnik was claiming to be innocent. He demanded extradition back to Russia, insisting that his involvement was only as a technician working for the website, which included handling wallets and servers. Furthermore, to explain why the USA was so adamant on arresting him, he claimed that he was the victim of a political conspiracy. Questions about the United States' true motives were raised.
• 38:30 - 39:00 Were they really after him for illegal money services, or was he a valuable pawn to be be used against Russia? With such an important case involving new technologies and potentially useful government intelligence, his defense demanded not just a prominent lawyer, but also someone with political influence. In this case, his defense in Greece would be handled by, among others, Zoe Konstantopoulou, a prominent Greek lawyer and politician, yet even with her expertise and influence, she couldn't shield Vinnik from the pitfalls of the Greek justice system.
• 39:00 - 39:30 As weeks turned into months and months into years, Vinnik remained in limbo, neither tried nor extradited, trapped without official charges, awaiting a decision on his extradition request. Worse, not long after his arrest, attempts started being made on his life, one after another, some by fellow inmates, and others the details of which Greek authorities have kept secret. The news of these fueled speculation about the crucial intelligence Vinnik might possess, and who might not want it getting out. As if things couldn't get any worse, in November, 2018,
• 39:30 - 40:00 he got an unexpected video call from his wife. She looked frail and weak, but gave a smile when he came on camera. She had been diagnosed with brain cancer. Feeling desperate, Vinnik decided to protest his detention by going on a hunger strike, hoping to be extradited back to Russia on compassionate grounds. Three months after starting, he became so malnourished that he had to be hospitalized. This was making headlines across Greece, this time with a video from the man himself.
• 40:00 - 40:30 Looking visibly weak, speaking softly and kindly to the camera, he talks about the unfairness of his detainment. - I not know what to, what to say. - [Videographer] How many days are you on a hunger strike? - 88 today. - [Videographer] 88 today. And and still no answer? - Still no answer, I still wait answer my petitions, and still no answer from this 88 days.
• 40:30 - 41:00 Nobody answer. - [Narrator] In an attempt to raise further awareness about Vinnik's hardships, Zoe even held a press conference regarding Vinnik's extradition, in which she stated this was the first time in history for any person to be extradited to three countries. She argued this was less about justice, rather a political move by the Minister of Justice to gain favor with Greece's creditors, particularly the US. After three years behind bars, Vinnik had still maintained his innocence,
• 41:00 - 41:30 and now, being held for an unconstitutionally long period of time, even the prosecutors started slamming the Greek government over their handling of the case. Vinnik's lawyers even argued that his detention violated human rights. So, come January, 2020, the pressure was on. Greece had to make a decision. (pensive music) In an effort to navigate the demands of both the US and Russia, authorities extradited Vinnik to France. The French wanted him for trial on multiple charges related to the distribution of a ransomware software called Locky.
• 41:30 - 42:00 Given that much of the illicit earnings from this software were processed through BTC-e, they suspected he had some involvement in the group behind it. That summer, while still awaiting trial, the New Zealand police announced the seizure of $90 million from WME Capital Management, a company registered to Vinnik. Still, Vinnik's French attorney, Frederic Belot, disputed the accusations, describing Vinnik as merely a low-ranking employee at BTC-e, clueless about the true identities of top level administrators in the theft of Mt. Gox.
• 42:00 - 42:30 Belot portrayed him as an innocent Russian citizen, stating, quote, "He is not the big fish they make him out to be." The trial was scheduled for December, and if found guilty, Vinnik, now 41 years old, could serve up to 55 years in a French prison, a term Belot equated to a life sentence. But tragedy struck a month before the trial. Vinnik's wife had passed away at the age of 34. Though Vinnik pleaded with the French authorities for permission to attend his wife's funeral in Russia, his request was denied.
• 42:30 - 43:00 Perhaps one of the saddest snippets of this story is how Vinnik, guilty or not, was unable to say his last goodbyes, and now his two young children are growing up without either of their parents. On December 7th, the court delivered its verdict. To quote the judge, "Mr. Vinnik, the court has acquitted you of the offenses relating to the cyber attacks linked to Locky, but finds you guilty of organized money laundering." He was sentenced to five years, but they had not tried him for the hack of Mt. Gox, and the US still wanted him. Come July, 2022, Vinnik was set to be released.
• 43:00 - 43:30 Taking into account his pretrial detention, the French considered his sentence served in full. Technically, Vinnik could now return to Russia, especially since Russian authorities had their own set of charges for him. However, France had other plans. Greek authorities had approved an extradition request to send him to the US, and, instead of Russia, the French intended to send him back to Greece. Despite efforts from Vinnik's legal team, the decision stood firm. After a draining legal battle spanning over five years,
• 43:30 - 44:00 on August 4th, 2022, Alexander Vinnik's worst fear came true. He was extradited to America to stand trial for operating BTC-e. Now in the US, Vinnik is facing 21 charges, not just for profiting from the Mt. Gox hack, but also for running BTC-e. They alleged that his platform saw transactions exceeding $4 billion in Bitcoin, the majority of which was from criminals laundering funds acquired from ransomware, hacking, fraud, drug trades,
• 44:00 - 44:30 and much, much more. But surely, Vinnik wasn't running this whole operation by himself. After nearly a year-long stint at Santa Rita Jail, the Department of Justice makes an announcement, two new names, Alexey Bilyuchenko and Aleksandr Verner, both accused of stealing and laundering around 647,000 Bitcoins from Mt. Gox. This is the Mastermind trio behind the hack, but unlike Vinnik, these two appear to have been indicted in absence.
• 44:30 - 45:00 According to the BBC, Alexey was with Vinnik in Greece, but staying at a different resort. Upon hearing of Vinnik's arrest, he smashed his laptop, threw it into the ocean, and hastily boarded a plane back to Moscow. Back in Russia, with BTC-e shut down by US authorities, he tried to bring it back under a new name, WEX, promising users their lost BTC-e wallet balances would carry over, but within a year, it was shut down, and the new exchange's crypto holdings
• 45:00 - 45:30 of $450 million vanished without a trace. According to Coinbase, Alexey is currently being held in a Moscow prison, but the source on this isn't super reliable. As for Aleksandr Verner, his whereabouts are unknown. As of recording, Vinnik is still waiting in Santa Rita jail with no trial date set. His request for bail was rejected, and the Department of Justice has objected to a prisoner swap. He faces up to 55 years in prison, but the trial will likely continue to be extremely lengthy,
• 45:30 - 46:00 and we may not see the final sentence for years to come. As for the missing fortune stolen from Mt. Gox, almost all the funds were sold off as quickly as they were taken, largely before Bitcoin ever appreciated to any substantial value. It's estimated that they only pocketed around $20 million, a mere drop in the bucket compared to the staggering 50 billion these coins could have fetched at their peak. Luckily, for the tens of thousands of people who lost money in the collapse of Mt. Gox, the 200,000 coins Mark found in an old wallet skyrocketed
• 46:00 - 46:30 to be worth more than the dollar value of all the coins lost at the time of the hack. This meant Mark could, in theory, pay everyone back the dollar value of what they lost in 2014 and keep the rest, walking away having made billions. - [Interviewer] So it could have been paid back to you. - It could have been paid back to me, however, based on my, well, discussion with the trustee and the court, well, I helped make sure it wouldn't happen.
• 46:30 - 47:00 - Okay. - He opted not to do this, instead planning to reimburse the coins, keeping no profit for himself. The trustees are set to finally repay the exchange's creditors their deserve share by the end of October, 2023, though creditors are not confident, as this date has been pushed back many times in the past. The work of US investigators helped clear Mark as the mastermind behind the theft. In 2019, he was acquitted of most charges, an amazing feat considering Japan's 99.8% conviction rate.
• 47:00 - 47:30 Today, he runs a small IT service business, keeping far away from the crypto industry. In the wake of Mt. Gox, I wish I could say that exchanges have tightened up their security, but they haven't, and those are stories for another day. Once again, I would like to give a big thank you to this video's partner, "War Thunder". Make sure to click my link in the description now to take advantage of that amazing bonus offer before it goes away forever. You can play now on PC, PlayStation or Xbox. Finally, I was inspired to cover this story
• 47:30 - 48:00 after first reading about it in Andy Greenberg's book, "Tracers in the Dark", which tells not only this story, but many others, in the captivating detail only a book can do. I've included a link to it in the description.