Catching a Genius Hacker | The Mt. Gox Documentary
Estimated read time: 1:20
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
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19:00 - 19:30 A little hint, aim for the fuel tank. And imagine if Mark, with all
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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.