CoinLab Sues Mt.Gox Bitcoin Exchange For $75 Million

Max 'Beast from the East' Smolaks covers open source, public sector, startups and technology of the future at TechWeekEurope. If you find him looking lost on the streets of London, feed him coffee and sugar.

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Mt Gox was due to transfer ownership of US and Canada assets in March. Well, it didn’t.

Mt.Gox, the world’s biggest Bitcoin currency exchange, is being sued by its would-be partner CoinLab, which accuses it of breach of contract and demands $75 million (£48.1m) in damages.

In November, Tokyo-based Mt.Gox signed an agreement to sell its assets in the US and Canada to CoinLab, a rival trading platform which said its connections to local banks would allow it to offer a better, more streamlined service.

This week, CoinLab filed a lawsuit claiming that Mt.Gox ignored the agreement, kept trading in the US past the March deadline and failed to transfer ownership of its operations.

The cut-throat world of Bitcoin

Bitcoin (BTC) is a digital crypto currency based on an open-source, peer-to-peer Internet protocol. Introduced in 2009 by an anonymous developer known under the alias ‘Satoshi Nakamoto’, until recently it was mostly used by individuals interested in keeping their transactions secret.

mtgoxAs of April 2013, Mt Gox was handling 63 percent of all Bitcoin operations in the world. The site was established in 2010 as Magic: The Gathering Online Exchange – a platform for trading collectible game cards, but its focus soon shifted to transactions in alternative online currency.

The deal between two of the largest Bitcoin players was supposed to lend stability to the virtual currency. Now, it has transformed into the biggest Bitcoin-related lawsuit ever, and Bitcoin history is full of lawsuits.

“Mt.Gox has continued to market to customers in North America and has accepted business from customers there. Mt. Gox has also failed to provide CoinLab with account reconciliation data, server access, and other information promised in the agreement that is essential for CoinLab to market exchange services and service its customers as contemplated in the agreement. These breaches have caused CoinLab to lose customers and threaten to cause substantial damage to CoinLab’s business,” says the court filing.

In a post on CoinLab blog, CEO Peter Vessenes complained that Bitcoin owners have lost more money due to crashes, freezes, hacker attacks and human greed than any problems with Bitcoin as an economic concept.

“What tipped us into filing was our complete inability to get Mt.Gox to deliver on the few simple things left that were needed for customers to move over en-masse; we were often left just apologizing to our alpha customers while their own businesses suffered. I’m just not willing to put any of our customers in that position – if we can’t do a good job for you, I won’t promise that we can,” wrote Vessenes.

The contract signed between the companies specifies that in the event of a breach, either party would be liable for $50 million in damages. CoinLab is asking for even more: $75 million, which includes compensation for alleged loss of business.

At the start of the year, Bitcoin was trading at around $20. The increased media exposure fuelled rapid growth in February and March, and by April, as the price surged past $100, even staunch critics of the decentralised currency had to acknowledge its impact.

On 10 April, Bitcoin was trading at an all-time high of $266, but dropped to $105 following a “panic sale” caused by Mt.Gox servers being overloaded. The exchange claimed at the time that it became the victim of its own success, and the crash was caused by overwhelming demand. Later, some sources indicated that it was a massive DDoS attack that put Mt.Gox servers offline.

Meanwhile, the Canadian government has announced that it intends to tax bitcoins.

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