Bitcoin Exchange US$500 Million Class Action Dismissed in Canada

About 100 Canadian citizens had launched the class action in a bid to recover their Bitcoin savings, which were pulverized when the Tokyo-based exchange folded following a cyber-theft of around 800,000 Bitcoins.

The company and its subsidiaries and partners, besides CEO Mark Karpeles and founder Jed Mccaleb, were requested to pay US$500 million in compensation by the plaintiffs. It had recently emerged that the maximum sum the action could actually yield was of about US$1 million only.

The dismissal was announced by lawyers Charney Lawyers PC on Wednesday (May 18). The plaintiffs will still be able to pursue the case individually. Another class action against the company's bank, Mizuho, is still ongoing in the US.

It is not yet clear why the Ontario judge dismissed the action, but according to Bitcoin news website CoinDesk, it probably has to do with the fact that the company had already been declared bankrupt in Japan last year.

The company, born initially as a website for exchanging collectible cards "Magic: The Gathering," was repurposed in July 2010 as a Bitcoin trading platform. It quickly skyrocketed to success, and by 2013 was handling 70 percent of global Bitcoin transactions.

But a security vulnerability-overlooked first by its founder Mccaleb and then by Karpeles — who took over in 2011 — eventually spelled Mt Gox's doom: a hacker managed to gradually siphon out large quantities of Bitcoin. Left insolvent, the exchange was shut down in February 2014, as hundreds of customers wondered where on earth their Bitcoins had gone.

The Mt Gox's imbroglio was the first major financial catastrophe for Bitcoin, following years in which the cryptocurrency has surged in popularity and value.

The dismissal of the Canadian class action is only confirming what should be an obvious truth: what makes Bitcoin so exciting — the fact that it can be used out of the mainstream banking system — is also what makes it risky.

Had a similar incident, for instance a robbery, happened to a bank trading in fiat currency, an insurance company would have likely footed the bill. That is not possible with Bitcoin. In fact, some legal systems are not even sure whether Bitcoins — which are effectively lines of code written on an internet ledger — can be considered as money.

In what looks like a turning-point year for Bitcoin — torn between helping big banks operate more effectively, and its libertarian ambitions — the Canadian decision could play a role in finally neutering the cryptocurrency's anti-establishment origins.