Mark Karpelès (Ungox): "I'm going to investigate Tether".

Mark Karpelès (Ungox): "I'm going to investigate Tether".

Ten years after the collapse of his MtGox trading platform, Frenchman Mark Karpelès is preparing to launch Ungox, a rating agency for crypto projects. While in Paris, he gave us an in-depth presentation of his project.

In one month's time, it will be exactly 10 years since MtGox closed in what remains to this day one of the biggest bankruptcies in the crypto universe. What's changed in the industry since then?

A lot has changed! We've just seen the arrival of Bitcoin ETFs in the United States, we'd been talking about them for years and personally, I no longer believed in them (laughs). This event is an opportunity for the crypto world to move forward, to take the next step by continuing its institutionalisation. The aim is for this ecosystem to be easier to access for users and investors.

You discovered bitcoin in 2010, is the initial philosophy still there?

For me, the biggest philosophical change occurred between 2011 and 2013. That's when Bitcoin evolved from a purely technological object into something financial. And in the end, it hasn't changed that much since then, because that's the direction that still dominates today. But I still think it's a fascinating technological project! Then there was the explosion in the number of tokens, the arrival of Ethereum, which turned the sector upside down with the democratisation of smart contracts, etc.

The MtGox affair had an incredible impact and made you a global star, sometimes for the wrong reasons. If you could go back in time, what would you do differently?

If I knew everything I know today, of course I would change a lot of things. Nevertheless, based on what I knew at the time, I think I did the best I could at the time.

Just what exactly would you change in the light of what you've learnt?

I would have added the right protections on the platform to avoid us being hacked by a Russian hacker, to block him from the start. From a regulatory point of view, perhaps I should have spent less time obtaining licences in several countries because not all of them were useful. In short, I could perhaps have concentrated my efforts on different aspects.

Can you describe the events that led to the bankruptcy of MtGox?

When we realised that the 550,000 bitcoins had disappeared (€21 billion at today's rate, around 400 million at the time, ed. note), at the beginning of 2014, we tried to find investors to save MtGox. The problem was that the crypto world was underdeveloped and there were far fewer potential candidates than there are today. So we resolved to put the company into bankruptcy as it was the only reasonable option. Then there was a huge investigation by the Japanese and American police, the liquidator and myself. By analysing the transactions on the blockchain, we eventually got our hands on Alexander Vinnik.

How did his arrest go?

We knew long before his arrest in 2017 that he was the recipient of the stolen bitcoins, but the problem was that he was a Russian citizen and based in Russia. It was impossible to do anything while he was there. So I had to be patient and wait without arousing his suspicions. This lasted for about a year, until he was arrested in Greece on holiday. I felt a huge sense of relief at that point.

What were the difficulties with his status as a Russian national?

It was really very complicated. The United States tried to have him extradited, which was the subject of much debate in Greece. It even went all the way to the Supreme Court. At the same time, Russia also tried to have him extradited. Greece's position was very complicated diplomatically. But fortunately, France asked for him to be tried on its soil and that broke the deadlock. Since his conviction, he has been returned to Greece, which then handed him over to the United States. His US trial is due to start in September 2024.

Are there any chances of recovering the 550,000 bitcoins stolen by Vinnik from MtGox?

I have no information on that. The trial should help clarify things.

You were convicted of data manipulation, but escaped charges of embezzlement and breach of trust. Did the verdict strike you as honest?

No, and I have appealed. The part concerning the manipulation of data - which in France is akin to "faux et usage de faux" in the electronic field - is unjustified. But I'm coming up against a more political problem. My case has received a lot of media coverage and I'm afraid that the Japanese justice system doesn't want to lose face.

If you had Alexander Vinnik in front of you, what would you say to him?

"You played, but you lost". Even though he managed to steal the bitcoins from MtGox, he left a lot of traces. It wasn't very difficult to trace him back.

And Jed McCaleb, from whom you bought MtGox with an initial bitcoin debt?

I don't wish to comment on that.

Is this because of a private agreement between you?

I really don't wish to comment on that.

How do you look back on your time in prison?

I spent just under a year locked up. The first part was in a police station with people around me, but I was placed in complete isolation for the last seven months. The room was 6.50 m2 and all I had with me were the documents my lawyer had sent me. I wasn't allowed any visitors. It really wasn't easy.

How did you spend your time?

I took the opportunity to study, write and above all analyse all of MtGox's accounts. But I didn't have very sophisticated equipment. For the first six months all I had was paper and pencil. At one point I considered buying an abacus to help me with my calculations, but in the end the prison allowed me to use a small calculator. This was possible because my case involved accounting. Without that aspect, only the abacus would have been allowed.

You still live in Japan, what attracts you to the country?

I've always been interested in its culture and then built my personal life there. Even if I wanted to, it would be difficult to leave Japan like that.

What was your final vision for MtGox?

In addition to the bitcoin exchange, I had a lot of projects in the purely financial area. I had started to work on acquiring licences that would have enabled us to do what Revolut does today. Each customer could have had their own account, and funds would have been protected. I also wanted bitcoin deposits to no longer be managed by MtGox, and for custody management to be shared between the company and customers so that they could make autonomous withdrawals in the event of a problem.

That sounds a lot like what's being done today, doesn't it?

On the surface yes, but in reality most exchanges don't push transparency far enough. That's a shame for users, because today it's virtually impossible to choose an exchange based on its level of security. It's all a big blur.

You had announced your intention to create a crypto exchange rating agency, how far along is this project?

We're getting closer to the launch! Initially, I had imagined launching it in the United States, but I finally chose France for this. It's my home country and Europe is a very relevant place to start up in cryptos.

What's the timetable for the launch?

It's still under discussion.

Is this a way of redeeming yourself or purely an entrepreneurial project?

I think the name I've chosen is pretty telling: Ungox. The idea is to ensure that the MtGox misadventure can't happen again. The aim is to create a healthier environment where investors and anyone interested in crypto have access to independent information.

Do you also intend to analyse crypto projects in addition to exchanges?

Yes, I aim to cover quite a broad spectrum.

Isn't there a risk of doing things by halves by trying to tackle such different targets? Studying the solvency of an exchange has nothing to do with analysing a smart contract...

Certainly, it's quite different, but many aspects come together. For example, many exchanges are decentralised, so their smart contracts need to be analysed. But more generally, the important points are often the same: you need to know the people behind the projects, how they were conceived, what country they come from, etc.

Are you planning to raise funds for Ungox?

We have some pretty big names joining me in the team, but perhaps also in financing. Unfortunately, I can't say any more at the moment.

What will the business model be?

We're still discussing it, but the aim will be to offer a minimum of free information. Individuals were the first victims of MtGox, so the aim is to give them something back. As for the rest, we're thinking about it.

Could you launch your own token?

No, because the aim is to remain neutral and independent. If we launched a token, we would be exposing ourselves too much to the influence of the market.

What will be the first projects analysed?

For the start-up, we are going to concentrate on the biggest exchanges, but also the most widely used crypto projects. The analysis will be technical, but we'll also be looking a lot at management. It's crucial to know how decisions are made in these projects. Some do so in a totally opaque way.

The Ungox company is registered in the United States in Delaware, why is that?

This was the first version of the project, but the headquarters will soon be moving to France.

You know very well how your project will be received by some: can I trust someone who has been at the head of one of the biggest bankruptcies in crypto...

I understand that point, but I don't think many other people in the world benefit from as much experience of exchange bankruptcy. And unlike companies like FTX, the aim has never been to create large-scale fraud.

Reputation is nevertheless something key to launching a project of this type. How do you intend to convince people of this?

I've been working on this since the first day of MtGox's collapse. I put a lot of effort into ensuring that creditors understood how the recovery process worked. I helped them one by one to register with the Japanese liquidator. I also played a part in the operation that led to the arrest of Alexander Vinnik. Finally, I made sure that the liquidation of MtGox's remaining assets benefited the victims as much as possible. You have to realise that bitcoin was so high in 2018 that I personally could have received a billion dollars, compared with around 500 million for the creditors. That was unthinkable for me. So I did everything I could to receive nothing.

Are you not interested in money?

I naturally need money to live, but MtGox is a failure in my eyes. I couldn't accept money from MtGox and look at myself in the mirror. In the end, 42,000 people will receive at least five times their initial stake in fiat currency (euros, dollars, etc.). That's not very common in liquidations (laughs).

What have you been living on between 2014 and today?

I've kept working! I'm a technician and developer, it's still a very buoyant profession today.

You've been under a huge amount of media pressure between 2014 and 2019, what makes you want to dive back in?

I think I can give more to the community. Hence the idea of helping to create a healthier and more transparent ecosystem. After that, I'm simply passionate about technology and constantly want to invent new things.

How do you view the FTX affair?

At first glance, I felt empathy for Sam Bankman-Fried. I had the impression that he was going through the same thing as me. Then the veil was lifted on the management of his company, the embezzlement of funds, the role of Alameda, and so on. I realised then that we were dealing with a huge fraud.

Didn't you see anything coming?

Some elements had tipped me off, I had classified FTX in the "suspect" category, but I hadn't imagined the scale of the damage. What caught my attention was the large number of companies linked to FTX. Some of them deliberately concealed their link with the platform and their activities were very nebulous. If Ungox had existed at that time, the score would probably have been very bad.

Sam Bankman-Fried could be sentenced to a hundred years in prison, is that fair in your opinion?

In my opinion, he will escape the maximum sentence. In the end, he should receive a sentence of five to ten years, which could be reduced for good behaviour.

Will he ever be entitled to redemption or must he leave the ecosystem forever?

I see that many crooks still have a lot of influence with large communities in crypto, but for me, he no longer has a place in the ecosystem. This can be seen in his behaviour on Twitter, where the FTX adventure seemed to be a game, even in the final days. Now, people have lost a lot of money in this fraud. I think he lost his sense of reality at some point.

Did you feel this way during the boom years of MtGox? At one point you were dubbed the "Bitcoin Baron", that must have been exhilarating...

We've forgotten about it a bit, but MtGox has never been a smooth ride. In 2013, we suffered a $5 million seizure from the US government as part of the Silk Road affair. This was linked to two intelligence agents who were trying to launder money. I'd really have to write a book, because the whole story is rocky.

Binance is an exchange platform with an unclear global structure, what's your take on it?

A lot of revelations are expected to come out now that a deal has been struck with the US government. They're going to be forced to follow a number of rules. A lot of its organisation is going to be cleared up and that's very good news for the company and its customers.

Would Binance get a good grade on Ungox?

Since its inception, Binance would probably have received a grade between 'D' and 'E' on its transparency. That means there is a risk, but it's not the worst grade either. You can't talk about fraud like FTX.

What do you think of its founder Changpeng Zhao?

He's a character! But unlike many exchange bosses, he put himself forward publicly and agreed to go to the United States to sort out all the problems. And even if he gets a few months in prison, it's a small price to pay for all the money he's amassed over the years. It was in his best interests to settle with the US.

What are the big areas in crypto today? What needs transparency?

We can talk about Tether, of course, but if we focus on the 100 biggest exchanges on the planet, we know almost nothing about the leaders. Most are in China or Russia and attract significant volumes. This means that there is a demand for these platforms, which don't even require ID to use them. I think there's quite a lot of work to be done on that front.

So you're announcing that you're going to investigate Tether?

Yes, I'm obviously going to investigate Tether. I know a lot about this issue because I was there at the very beginning and I know how things went when it was set up. I wasn't asked to take part, but Brock Pierce, one of the instigators of Tether, offered to take all the MtGox bitcoins and tokenise them. Of course, I immediately refused because that would have threatened MtGox's customers.

Which personality do you think is the most relevant in the crypto ecosystem?

It may be a bit obvious, but I feel like mentioning Satoshi Nakamoto. He's the only personality in the ecosystem with a flawless track record. Everyone else has made mistakes, but he managed to pull out in time. That must have taken a lot of courage. Bitcoin had become too important and it was the only thing to do to ensure the project's survival. As for the engineers, I also have great respect for Vitalik Buterin, because Ethereum represents a considerable technical challenge. We can also talk about Brian Armstrong, who created something huge with Coinbase.

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