Bits N Dollars: Bitcoin Gets ‘Slashdotted’ and the Creation of Mt. Gox

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From DIGITAL GOLD by Nathaniel Popper

Headphones on and an oversize can of MadCroc energy drink by his side, Martti sat at his dorm room desk, giddy. Slashdot, a go-to news site for computer geeks the world over, was going to post an article about Martti’s pet project. Bitcoin, largely ignored over the last year, was on the verge of receiving global attention.

The campaign to get Bitcoin real press coverage had begun a few weeks earlier, not long after Martti finished his three-month internship at Siemens. A new version of Bitcoin, version 0.3, was being prepared for release by Satoshi, and the regulars on the forum saw a perfect opportunity to get the word out. Martti agreed with a handful of other users that Slashdot would be the best place to do this.

“Slashdot with its millions of tech-savvy readers would be awesome, perhaps the best imaginable!” Martti wrote on the forum. “I just hope the server can stand getting ‘slashdotted.’ ”

A small crew went back and forth about the right language to submit to the Slashdot editors. Satoshi got his hackles up when someone suggested Bitcoin be sold as “outside the reach of any government.”

“I am definitely not making any such taunt or assertion,” Satoshi wrote.

He quickly apologized for being a wet blanket: “Writing a description for this thing for general audiences is bloody hard. There’s nothing to relate it to.”

After Martti suggested his own changes, the final version made the more modest assertion that “the community is hopeful the currency will remain outside the reach of any government.”

When the item went online, shortly after midnight in Helsinki, it wasn’t anything more than the single paragraph the Bitcoin team had submitted.

“How’s this for a disruptive technology?” it began. “Bitcoin is a peer-to-peer, network-based digital currency with no central bank, and no transaction fees.”

Despite the modesty of the item, the Internet chat channel that Martti had established for the Bitcoin community quickly lit up. NewLibertyStandard wrote: “front page!!!”

Regulars like Laszlo made a point of being on the Bitcoin chat channel, to answer questions and serve as a tour guide of sorts for any newbies who checked in after reading the story. In his dorm room, Martti posted a message on Facebook: “If I was a smoker, I would have smoked two packs already.”

Martti watched as the counters, which tracked the number of users on the forum and the chat channel, ticked steadily upward. Messages crowded his forum in-box; and the Bitcoin website, running on servers that could not handle more than one hundred viewers at a time, began to slow. Within an hour, the limit was reached and the whole site went down. Martti scrambled to scale up the site’s capacity with the company that rented him space. But this, and the derogatory comments that showed up under the Slashdot item, did not dampen his enthusiasm. This was what he’d been waiting for for months.

Chapter 5

July 12, 2010

When he awoke late, the morning after the Slashdot posting, Martti Malmi saw that the attention was not a hit-and- run phenomenon. People weren’t just taking a look at the site and moving on. They were also downloading and running the Bitcoin software. The number of downloads would jump from around three thousand in June to over twenty thousand in July. The day after the Slashdot piece appeared, Gavin Andresen’s Bitcoin faucet gave away 5,000 Bitcoins and was running empty. As he begged for donations, he marveled at the strength of the network:

Over the last two days of Bitcoin being “slashdotted” I haven’t heard of ANY problems with Bitcoin transactions getting lost, or of the network crashing due to the load, or any problem at all with the core functionality.

But while the Bitcoin software itself was working well, new users quickly ran up against the limitations of the Bitcoin ecosystem. Those who immediately wanted to acquire more Bitcoins than were available from Gavin’s faucet were left with only a few meager options, one of them a creaky, unreliable service that Martti had set up a few months earlier.

Jed McCaleb was one of the people who encountered this weakness. A native of Arkansas, Jed had been raised by his single mother, who made a living as a journalist. From a young age, Jed had been something of a math and science prodigy, and this allowed him to make it to Berkeley for college. Jed, though, had trouble sticking with things, and he soon dropped out of Berkeley and moved to New York. There he and a partner set up what became one of the main successors to Napster. His software, eDonkey, made it possible for individuals to trade large files like movies and it proved so successful that the Recording Industry Association of America sued Jed and his business partner. They eventually paid $30 million to settle the case and shut eDonkey down, but they also earned a few million along the way.

Despite being a soft-spoke introvert, Jed had a cool way about him that helped him make friends and girlfriends. When one of his romantic flings ended up pregnant, he and the woman, MiSoon, decided somewhat spontaneously to keep the baby and make a go of it. They used some of Jed’s earnings to buy an estate with a pool an hour or so north of New York City, just as they were expecting a second baby. In the sprawling, mostly empty house, Jed threw himself into an online game he had created called The Far Wilds, which had attracted only a few aficionados. He spent endless hours in a first-floor bedroom, which he had turned into a den. Books about neuroscience and artificial intelligence piled up around him—as did old food, attracting bugs that MiSoon initially tried to get rid of, but later came to accept as one of the side effects of Jed’s brilliant mind.

When Jed came across the Slashdot post about Bitcoin he was immediately intrigued. It seemed to fulfill many of the ideals behind Napster and eDonkey—taking power from authorities and giving it to individuals. But when Jed tried to buy some actual Bitcoins, he ran into the limitations of the few existing sites that sold them.

MiSoon was nursing their newborn son when she wandered into Jed’s study one night and encountered his frustration.

“There’s this really cool thing called Bitcoin— it’s like this nerd, libertarian thing,” Jed told MiSoon, in his hushed, intense voice. “But it’s so lame. I can’t buy any at night.”

Jed said he wanted to build a site himself where he could buy coins at any hour. When MiSoon arose the next morning, it was done. With some experience in amateur foreign-currency trading, Jed knew the basics of what an exchange required. But he had never actually set up a website before, having previously worked more on the sophisticated back-end software. His new Bitcoin exchange was something of a fun experiment.

He and MiSoon discussed possible names for the site. He mentioned an old domain name that he owned and was not using—mtgox.com. Jed had bought the site in 2007, for use as an online exchange to buy and sell the cards used in the role-playing game Magic: The Gathering hence the acronym for Magic: The Gathering Online Exchange. It had operated for just a few months before Jed shut it down and the site had been vacant since.

“Yeah, you should use that,” MiSoon replied. “That’s kind of weird and easy to remember. Why not if you already have it registered?”

Seven days after the Slashdot post, Jed casually advertised his new site on the Bitcoin forum:

Hi Everyone,

I just put up a new Bitcoin exchange.

Please let me know what you think.

Mt. Gox was a significant departure from the exchanges that already existed, primarily because Jed offered to take money from customers into his PayPal account and thereby risk violating the PayPal prohibition on buying and selling currencies. This meant that Jed could receive funds from almost anywhere in the world. What’s more, customers didn’t have to send Jed money each time they wanted to do a trade. Instead, they could hold money—both dollars and Bitcoins— in Jed’s account and then trade in either direction at any time as long as they had sufficient funds, much as in a traditional brokerage account.

These advances made it significantly more convenient to buy and sell Bitcoins, but also brought new dangers that threatened to betray some of the currency’s basic principles. Satoshi had designed Bitcoin to eliminate the need for trusted central authorities. It was supposed to be a new money that people could hold on their own, without a bank, secured with a private key that only the user knew. Mt. Gox customers would be moving back to the old model in which a single institution—Jed’s company—held everyone’s money. If Jed offered good security measures, this might prove safer than holding coins on a home computer. But Jed was not a security expert, and if he did somehow lose the private keys to the exchange’s digital wallets, his customers had little recourse. Unlike the banks that Bitcoiners had bashed, Mt. Gox had no deposit insurance and no regulators overseeing the safety and soundness of Jed’s operation. The choice was between security and principles on one hand and convenience on the other.

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