Mt. Gox Interviews: Jed McCaleb on the Creation of Mt. Gox

Audio interview transcription — WBD075

Note: the following is a transcription of my interview with Jed McCaleb, Cofounder of Stellar. I use Rev.com from translations and they remove ums, errs and half sentences. I have reviewed the transcription but if you find any mistakes, please feel free to email me. You can listen to the original recording here.

You can subscribe to the podcast and listen to all episodes here.

The first part of my series of interviews relating to Mt. Gox. I talk with Jed McCaleb from Stellar about the creation of Mt. Gox, the handover to Mark Karpelès and what responsibility he shares for its collapse.

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Interview Transcription

Interview Date: Wednesday 30th Jan, 2019

“A big part of the reason I handed it off to Mark is that the amount of effort that you need to put into security is something I didn’t want to do.”

— Jed McCaleb

Peter McCormack: Good afternoon Jed, how are you?

Jed McCaleb: Great. Yeah. Thanks for having me.

Peter McCormack: Thank you for coming on. Whenever I do an interview with somebody, I always ask them at the end who I should interview and I met with Jesse, obviously a great guy and he said I should come and interview you and obviously I’ve jumped at the chance, but I really want to talk to you about a lot of the background. What I’ve been doing with a lot of my interviews is trying to, cause I only became aware of Bitcoin properly in around 2016 there’s this whole load of stuff I don’t know about that I’m trying to piece together by meeting people. So it would really be good for me because you pretty much around pretty much from the start, right?

Jed McCaleb: Well the start of it becoming popular, I’d say I think when I heard about Bitcoin when their first slashdot article, which I think was in the summer of 2010 at that time before this last article, I think Bitcointalk, had like 200 people or something on it after it had like 2000. So I was in that first wave.

Peter McCormack: Right. See, I don’t, I don’t consider that when it became popular, I think almost like last year is when it became popular.

Jed McCaleb: Sure, yeah. I mean like the start of, it’s yeah, people coming I guess.

Peter McCormack: And you were already involved in software at the time?

Jed McCaleb: Oh, for sure. Yeah, I’ve been a programmer forever since I was a little kid, so I’ve been involved in the prior project was also kind of a distributed peer to peer system, like edonkey2000, which is a file sharing thing similar to Napster or a BitTorrent, stuff like that.

Peter McCormack: Yeah, I read about that. So what is it that grabbed you about Bitcoin?

Jed McCaleb: I was pretty immediately taken to it. I just didn’t really think it was possible to solve that problem before, to solve this double spend problem where you could have people that don’t know each other still transact without a party in the middle. I just thought that that was super powerful and awesome. I got super interested in how it was, how they, how it was done and like all the implications and just kind of wanting to, wanting to get involved essentially.

Peter McCormack: And now you work on Stellar.

Jed McCaleb: Yup.

Peter McCormack: So I usually have a couple of questions that I have in the start just to try and get a picture for me of someone’s mindset. It’s going to be quite interesting to ask you these because a lot of my previous interviews have been, we’re kind of maximum maximalist people, but what’s your kind of take on the whole crypto space right now? Like you were kind of summary of everything that’s going on.

Jed McCaleb: Let’s see. There’s obviously like a ton of stuff going on. I think the crypto space, in general, is just way overhyped. The amount of actual use it has is way lower than the amount of attention and money that’s going into it and I think that that’s generally bad. I mean, some of that has been correcting over, I mean, this is, you know, 2018 has been kind of correcting the whole year. So like I think that’s been pretty positive. But in general, I mean there’s a lot of innovation, a lot of cool things, but there’s just a lot of stuff that’s not technically, it doesn’t really have technical merit. And I think that’s kind of unfortunate. There’s a lot of misallocation of capital I’d say.

Peter McCormack: Am I right I read you say 90% is bullshit?

Jed McCaleb: Yeah, somewhere around there. Yeah, somewhere around. I don’t know, maybe, maybe that’s, I asked him. Hey, you know, I don’t, I don’t really follow a lot of the other projects because there’s just too much to like keep track of. But every time I kind of do a random sample, I’m like, this doesn’t really make any sense.

Peter McCormack: So what things do you keep an eye on and what are the things you are interested in?

Jed McCaleb: Well, I’m pretty focused on Stellar these days. You know, I think what we’re trying to do is make a sort of a universal payment network, linking all the different currencies and financial networks together. Whereas like, I think Bitcoin is, I view it as more of just here’s a new kind of internet level currency that, that anyone can use. And it’s kind of like free from government coercion or something like that. I think that’s kind of the driving force behind it, whereas Stellars slightly different than that. So that’s what I spend most of my time just trying to make Stellar a success.

Peter McCormack: But how’d you feel about Bitcoin right now? Do you maintain an interest?

Jed McCaleb: Yeah. I mean, I still, I still think Bitcoin is great. It’s not in the 90%. I would say it’s in the 10% of the projects that are quality. You know, I still own some Bitcoin and I still follow it to some degree. Like, I think, you know, I would be surprised in a hundred years if Bitcoin, wasn’t still around that kind of thing.

Peter McCormack: Right okay. I don’t intend to talk a lot about Stellar today cause there’s, I think there are other juicy things to talk about. But what can you do with Stellar that you can’t do, say with Bitcoin?

Jed McCaleb: So the main things are you can hold any kind of asset or token in it. So Stellar was designed to tokenize other things. So it’s designed to basically bridge different networks. So you can put dollars and you can your euros in it, you can put the Bitcoins and it’s got a built-in exchange there. So it’s got a built-in Dex, which they say now. So it’s pretty funny because Stellar came out, you know, probably five years ago and it had this concept of an index and it had this concept of what is now stable coins, which is now all the rage. But we, this is what kind of the vision we had been promoting for a long time and now I feel like the crypto space is finally getting it to some degree. So I don’t know, it’s kind of cool, but yeah, that those are kind of the main differences is like, you can just, Stellar isn’t some way a superset of Bitcoin. Like it doesn’t just have the native currency, it also has all these other kinds of features that are built around being able to move Fiat currencies around the world and linking these different payment networks together.

Peter McCormack: I haven’t paid a lot of attention to Stellar, not for any reason to have anything against it. I just, I’m quite focused on Bitcoin myself, but the only thing I tend to hear about it is that, oh, it’s just a copy of ripple. So is that a huge myth? Um, yeah, that’s pretty,

Jed McCaleb: Yeah that’s pretty much not accurate at this point. I mean, when we started, we use the ripple code base, but pretty quickly we realized to be needed to kind of rewrite everything. So, you know, we took a couple of years and did that and so now the code is completely different. The visions are sort of the same obviously, because, you know, I created both of them, so that makes sense. But the way we’re approaching the problem is very different and the code is all different. So it’s, I wouldn’t say it’s not really fair to say it’s a copy of ripple at this point.

Peter McCormack: Right. Okay. Well I really want to ask you about Mt. Gox and you know, one of the interesting things we found out recently, I was in a different interview and somebody told me, they’re like, do you know where the name came from? I was like, no, got no idea. And obviously, they told him it came from that card trading game, Magic the Gathering. And again, that must be another thing that’s missed me by. But apparently Magic the Gathering is still a huge thing.

Jed McCaleb: Yeah. It’s actually bigger than ever, I think. Yeah. Which is crazy.

Peter McCormack: So you actually built a trading platform for that first?

Jed McCaleb: Yeah. When, I think when edonkey kind of wound down, I was just kind of messing around and I decided to see kind of if people were still playing Magic, they had they had an online version, I just checked it out and I was like this is cool but there’s no way to trade these cards online, or not an easy way. And so I made this thing Mt. Gox or Magic the Gathering online exchange and got that URL. Yeah, so I made, but I only ran it for a little bit and then moved on to other things. Then I just reuse that domain when eventually I learned about Bitcoin because I didn’t, cause at that point Bitcoin was still so early. I didn’t want to go like think of another name, I’ll go buy one. It was just, I think people have a hard time realizing, contextualizing what it, what would it was like back then when you think of what Bitcoins 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 2000 people on this forum. So, you know, the amount of, you know, so that’s why I was just kind of, and the whole way I made Mt. Gox was just kind of on a lark almost just because I wanted to learn more about them, like how Bitcoin works and this is just a good way to learn about the system. So it wasn’t like it was ever intended to be like this massive business or anything like this.

Peter McCormack: So you didn’t foresee you having like a large percentage of Bitcoin on the exchange? It was more just having a play.

Jed McCaleb: That’s right. Yeah, I definitely didn’t think that we would ever have like a huge percentage of Bitcoin in the world on there. You know, so it was more just, yeah, 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. So all of these factors just kind of happened. I mean, I thought, I mean, there wasn’t really, there was some other kind of like almost peer to peer local Bitcoin-style exchange at the time, but there was no, there’s nothing like Mt. Gox where you could do like actual kind of trading with people the way that all the modern crypto exchanges are. So I, it was pretty clear to me that that would become the standard way people trade this stuff. But, that pool of people was only like, again, like only 2000 people. So it wasn’t clear to me that that would become like a big enterprise.

Peter McCormack: So Mt. Gox was the first proper trading platform then?

Jed McCaleb: Yeah.

Peter McCormack: Okay. So that’s quite a big endeavour to go under right, like how do you, what was kind of impetus to do it and do you remember what the price of Bitcoin was when you started work on it? Like, could you even get an accurate price?

Jed McCaleb: You couldn’t really get an accurate price. People were just trading on the forum and 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. So yeah, it was like I say, it’s like totally different worlds and now like it’s, yeah.

Peter McCormack: So how did you, how did you even plan to build an exchange? Did you look at other types of exchanges, like stock trading or forex exchanges?

Jed McCaleb: I mean, I’ve done, you know, I’ve always kind of been interested in that stuff a little bit. So I’d done some trading a little bit, like just kind of as a hobby I guess. So it was somewhat familiar with it. So, you know, obviously, I had made this like this card trading site. But yeah, I mean tradings pretty straight forward. There’s not, you know, you have bids and asks and they cross. And then the trade is done. Right. It’s not, it’s not rocket science, which is one of the reasons why I didn’t want to keep running it, is because it’s, I usually like to work on things that are pretty you know, kind of more on the cutting edge of technology. So it wasn’t like intellectually interesting to me.

Peter McCormack: So when you, when you first started work on it, what were the kind of key challenges you did have to go to the, what was the new things you were having to learn that you weren’t expecting?

Jed McCaleb: I mean honestly, yeah, honestly the main challenge with exchanges then and still today is just getting Fiat on and off the exchange. That is kind of like the roadblock for like how successful you can be and how much money people can put through there. It’s just all like how much fiat you can deposit and withdraw like that. That’s, that’s by far the main challenge and, and that’s not a very fun one cause you’re, you’re dealing with like Apis of banks that are old and crappy and you know, or just random innovations to different payment networks and stuff like that. It’s just not very fun work.

Peter McCormack: How did Mt. Gox handle fiat from day one?

Jed McCaleb: We used PayPal, liberty reserve. I’m trying to think if there’s another one. I think we would take bank wires. Yeah. I think those are the three ways I can never get a PayPal account again because of it.

Peter McCormack: Oh really?

Jed McCaleb: Yeah, they banned me for life.

Peter McCormack: They banned you because of using it for the exchange or because of what happened later on?

Jed McCaleb: No, using it for the exchange, yeah.

Peter McCormack: So how long did you get away with PayPal for?

Jed McCaleb: We got, it’s probably like a couple months, three months, maybe some of that four months. I don’t know. It was for a while.

Peter McCormack: Right. Okay. So do you think that’s, what terms were you going against with that?

Jed McCaleb: In what sense?

Peter McCormack: Like what rules had you broken with PayPal?

Jed McCaleb: Oh, with PayPal I think you weren’t allowed to use it. You weren’t allowed to use it for like e-money. There wasn’t really this concept of digital currency back then. But, but for like e-money, like things like, I don’t know, whatever that e-gold or liberty reserve, things like that you couldn’t use it for?

Peter McCormack: Liberty Reserve was the one that was eventually closed down.

Jed McCaleb: They eventually close it down. Yeah, I think, I think the US rated them or something. I don’t know what exactly happened but it was, it’s another thing sort of like e-gold. Where’s it, is it basically like a centralized Bitcoin? So, yeah.

Peter McCormack: Right. Okay. So you opened up trading day one. What was the first day like?

Jed McCaleb: I mean it was mellow. It was you know like I just made it, I think I’ve, I think I probably just made an announcement on the forum, the Bitcointalk form and you know, a few people like started testing it out. You know, I think it was at that point everyone would get pretty interested in all the new projects because there weren’t that many Bitcoin projects. So anytime you would build a site, people would come and like check it out and like poke it and things like that. So yeah, I mean I think people just started using, I don’t really remember anything that’s significant about it, but yeah, I mean I was excited about it.

Peter McCormack: So at what point did, the volume start to get a bit serious? Did you have any one of these kinds of spiky bull runs in that first year?

Jed McCaleb: Well, I only ran it for like less than maybe like six months or something like that. So like I didn’t run it that long before I handed it over to Mark, unfortunately. But so I think, I think there was, you know, it was just kind of starting to get interested, like more and more volume. It was growing the whole time that I ran it. I would never say it was huge. I think when he took it over, I think it was only like 2000, 3000 people. So was still pretty small. I think even at that time it was only on pace to make like a 100k a year or something like that. It really took off probably a couple of months after he took it over. That’s when Bitcoin went from, I don’t know, I don’t remember what it was, but it did this huge run of I think to 25 cents or something, which was huge, or maybe to a dollar, but it was, it was, I remember being pretty crazy.

Peter McCormack: Okay. So you’re running for six months and during that time, bearing in mind, I’ve been about two years, heavily involved in Bitcoin and one of the things you first taught about is security straight away. What was the kind of security backend, kind of 2010, were hacks happening, were weird things happening.

Jed McCaleb: There were definitely weird things happening. I can’t remember now, no, that was after. I mean it was, it was definitely, it wasn’t anywhere near to the degree it is now where, you know, I think if you’re going to run an exchange now that you really, really have to get on top of it. You know, I think again, like no one, there was just a small pool of people that even cared about this, you know, like 2000, 3000 people that even like cared about Bitcoin at all. So if anyone wants to hack your side, it’s from this group of people. So you definitely, you know, but at the same time, it does have a value on the internet. So people were, were like poking around at the site, like looking for it, you know, you could see them trying to like login with lots of different things and things like that. You could see them kind of like probing the site. But, and there were a few, you know we had an incident with some liberty reserve exploit that someone found, which was pretty annoying.

Like there, I don’t know, whatever. That’s probably too in the weeds, but there their API was really not well documented/well made. So it’s easy to do this exploit. But anyway. What else? Yeah, I mean there’s like minor things like that. There’s a lot of PayPal fraud. There’s a ton, that’s really the reason why Paypal shut it down. It’s because there’s just too much, too many chargebacks on PayPal, 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 like I was just going to cover the Paypal losses. It’s worth it. It’s almost like, I don’t know, like advertising in a way. Like you just get people to be able to use it, which is more important than, than limited, like eliminating all fraud basically.

Peter McCormack: Were you having to, was like the security part of your planning? Did, is there something you have to think a lot about you have to build in at the time?

Jed McCaleb: I mean, yeah, I mean it’s a website, so you have to be somewhat conscious of security. I mean another reason, a big part of the reason why I handed it off to Mark is because I realized that this is starting to take, the amount of effort that you need to put into security was like something I didn’t really want to do and I needed to find, I needed to either build a team to do it or I needed to find somebody else to run it because it was like it was going beyond hobby scale at that point. So I thought about like raising money to like go build a team to do it but ultimately decided this isn’t really the kind business I would want to run again.

Like it’s not, I, you know, it’s not as intellectually challenging as I would like. But I didn’t want it to go away because I thought it really benefited the bitcoin ecosystem. And I think, you know, I think it did, you know, until the ultimate catastrophe. But, it really introduced a lot of, it was the really, cause like when I first started with Bitcoin, it was very hard to get to get actual Bitcoin unless you ran a miner. There really wasn’t a very good way other than like messing around on the form. Right. So Mt. Gox just provided this much easier way to get onboard. Right, so, it’s actually pretty beneficial to the ecosystem, I think. But yeah, it was clear that that security, there was increasing attention on the site and like security was becoming more of an issue and we needed more people to look at that and that’s, that’s one of the reasons why I handed off to Mark.

Peter McCormack: I mean, I guess you probably didn’t foresee a 20k Bitcoin and it was still just, I think people don’t realize it back then. A lot of people didn’t think it would succeed a lot.

Jed McCaleb: Oh yeah. Well, yeah, I mean definitely not in the timeframe that it had or to the degree, I mean, I think people were so, yeah, I think what happened is when I gave it to Mark, I think it was trading at 25 cents. Like a few months later it went to a dollar. And at that point, people were ecstatic cause it reached parity with the dollar. We’d never thought it would even do that. Right, so that was this huge pinnacle. Right and so obviously that’s nothing compared to what it’s done since then. So it’s just, it’s just a totally different mindset.

Peter McCormack: Ok, so you make a decision, you don’t want to run it anymore. Does Mark approach. You do you approach Mark, how does that relationship come about?

Jed McCaleb: So I had asked him to do one of these bank integrations. I had met him on IRC or something, that the community was pretty small back then. So there wasn’t that many, there wasn’t a big pool of people to choose from and he was, you know, he reported himself to be like this awesome programmer and I had him do this, this integration with a bank in Europe, so people could deposit euros and whatnot. And you know, I think, you know, he was running some other hosting business so it kind of seemed like he kind of maybe knew what he was doing and yeah, just let him take it over.

Peter McCormack: How does like a handover like that happen?

Jed McCaleb: So, yeah, I mean it was kind of done in kind of stages. I first went, I don’t remember how exactly it went down, but you know, you kind of give, I gave him part of it first. I think he early on got access to the actual server, so that implied access to the hot wallet of Bitcoins, the cold wallet, I didn’t hand over to him until some time later and the actual domain, not until later still. So just kind of like slowly transition this stuff as I got more comfortable with it.

Peter McCormack: Did he buy it from you?

Jed McCaleb: Well, I don’t know. Yeah, I, yeah, I guess essentially he bought it from me. I mean for, for future revenue, but yeah.

Peter McCormack: Did you ever see that future revenue?

Jed McCaleb: Yeah. I mean, he did. Yeah, he did eventually pay me some, I mean, not, not as much as I think he should have paid me. I anyway, it’s like it’ll get too much in the weeds. I had lost some money and I was expecting him to cover that too, which is one of the reasons why it was essentially free, although not free. It’s kind of you to know, because he had come out with debt plus the future. So yeah. Obviously, in retrospect, it is quite cheap for him, but again, nobody knew what they’re going to be doing at that point and it was very hard to deal.

Peter McCormack: Was it a smooth handover and did you get on with him during the process or?

Jed McCaleb: The header itself was fine and that, that was fine. I mean, the problems started to happen. There was some, there was some hack on to Mt. Gox four months later or something like that and that’s when it became very clear to me that Mark didn’t know what he was doing and basically the site was hacked. It was, you had to like shut down the whole thing and it was shut down I think for like a week and everyone was like freaking out because it was the only place to trade Bitcoin that time. Tons of people have their money there. This is actually, this is before I met Jesse and Roger, they both flew over to Japan to try to help him. They, I remember they told me some story about how, you know that the site was down and then it was, it was Friday and the site was down and he said, okay, Hey, what time are showing up tomorrow and I’ll get this going or whatever. And Mark was like, oh, it’s the weekend. I’m not, I’m not coming, you know, like What? Everyone forgets there’s literally nothing on mtgox.com and people’s money stuck there and just stuff like that when he just does not have the right mentality to run this kind of thing, which is fine, but he should be aware of that and try to get the right people, which is what I was trying to encourage him over the years. It’s just, it’s like Mark, you need to get someone that actually knows how to run a company or do something like getting, get somebody in that can help you out because this isn’t your strong suit. Right. But he just does not listen.

Peter McCormack: So you maintain some kind of relationship for quite some time?

Jed McCaleb: I mean, relationship is a strong word.

Peter McCormack: I say relationship in terms of communication.

Jed McCaleb: I would send him emails being like, Hey, you know, everyone saw.. and these became less frequent as I kind of realize it doesn’t matter because of the email. That was like the first time there’s an incident. And so like I, you know, I’m trying to give them advice and help him out and he just kind of wasn’t listening to anything I said. And then later on as the site was kind of doing its thing and Mt. Gox has had a stream of problems. It’s like he took it over and you know, I would try and again, let’s say this kind of stuff like, hey, you really need to get somebody else in here to help you, but he just doesn’t, it’s like talking to a wall. It was very frustrating.

Peter McCormack: Did you hold any responsibility? Are there any parts where you self reflect and think there are things that you did that may have contributed to it?

Jed McCaleb: I mean, I definitely could have found someone other than Mark to take it over. I think that’s like the number one thing. But, I mean I had zero control over what he was doing after he took it over. So there wasn’t that much way I could have influenced how things went down. You know, I mean like ultimately the way the ultimate disaster there was surprising even to me like as much as everyone else that he basically had this cold wallet that was drained over a couple of years in the lost like 600,000 Bitcoin.

Like that is insane that he was just never checking this cold wallet for that to have an accurate balance like that, that’s like mind-blowing to me. I never expected it to die that way. I thought that he would run into the ground because he’s incompetent but like you would do like he was renting the most expensive office in Tokyo or something like that. He does like crazy stuff. Right. So I thought that’s what kind of did would break down the site is that it will just run out of money and like one of these others who’s taking over. But the fact that he actually just lost all the Bitcoins, is just crazy.

Peter McCormack: When did you first hear about the hack?

Jed McCaleb: Which one?

Peter McCormack: The major hack, the thing that brought it all down. Obviously, it was over a period of time with the cold wallet, but there were a few incidents together right?

Jed McCaleb: So, the big one, was so basically I think they stopped Bitcoin withdrawals and then, then it came up that the Bitcoins weren’t even there. I heard about it like everybody else. At that point that you know, he’s been, he had been running it on own for like four years. So I’m like, I was barely ever talking to him at that point. I mean I even had money on Mt. Gox for that.

Peter McCormack: You had some on there as well? It’s funny in doing this, everybody I meet had some on there.

Jed McCaleb: Yeah. But that’s the crazy part was, I don’t know what people are still keeping mine, but even I want seven.

Peter McCormack: So the hack happens obviously. For someone like myself, Mt. Gox has this kind of shadow over Bitcoin, but when you come in this like so much, you don’t know. I didn’t fully, I can’t still fully appreciate what that was like at the time, but a lot of people talk about that could have been the end of Bitcoin.

Jed McCaleb: People say that but I never got that feeling right. It’s like, it was very clear that this is just an exchange. Obviously a very big one and an important one, but it never seemed like an existential threat to me that, that whatever happened at Mt. Gox was a real threat to Bitcoin. It would maybe have some dampening effect, but like ultimately it wouldn’t really matter and I think that’s what’s happened and ultimately it hasn’t mattered. That’s the cool thing with Bitcoin, is that you can wrap around all these things. It’s the whole thing about Bitcoin is you shouldn’t be trusting the central third party. Right. So, you know, it is what it is.

Peter McCormack: What do you make of the whole rehabilitation process?

Jed McCaleb: Oh, I haven’t really been following that closely, honestly, but it’s, it’s funny that it’s not funny, but it’s cool that it’s that, that, that the big point that they do have is now having enough money to like pay them back with that in dollar terms I guess. But I think that’s it. I don’t know. That’s good for all the people actually did have money there.

Peter McCormack: So you’re due a payback?

Jed McCaleb: I guess. I haven’t filed the claim.

Peter McCormack: Did you see the Kim Nilsson reports? [Inaudible]

Jed McCaleb: Yeah, I think I read the one after when it was like detailing out all the coins were lost.

Peter McCormack: Did you rate the report? Did you think it was good? Did you agree with it?

Jed McCaleb: I have no basis to agree or disagree. It just seemed like he was this analysis of how these coins move around or whatever and the fact that like all this money was being taken over years. But yeah, it was definitely interesting.

Peter McCormack: That’s the only thing that I’ve found that make it a kind of a claim against you in there

Jed McCaleb: He does have some stuff at the beginning that is just definitely wrong, how I was using customer funds or whatever to trade or something like this. I don’t know if that’s an outlier or some other the stuff that he said, but that’s definitely not true.

Peter McCormack: The one I read was he said it was insolvent at the point you handed it over.

Jed McCaleb: I don’t know what his definition of insolvent is, but it wasn’t insolvent. I mean there was somebody running it that had funds to keep it alive and pay people if they needed to. Like that’s not insolvent.

Peter McCormack: No, I guess the point was more that it was possibly operating in a Fractional reserve at that point because it didn’t have all the Bitcoins for all the customers.

Jed McCaleb: Yeah. That’s just like, I mean, I don’t know, that doesn’t seem like given the scale of the thing. Like basically when, when he took it over, it was short, maybe like I think $50,000 or something like that. It was on pace to make $100,000. It was, it was like two months later I was on pace to make like $1 million. Like that amount of loss. This is totally irrelevant to the actual business and that’s normal operating for any kind of startup like you, you’re always operating at a loss. That’s not a big deal. Like you, you’re not expecting to breakeven in day one, right? So I don’t know. It wasn’t, it shouldn’t have been impactful to the Mt. Gox business is what I mean or any visibility should get the bitcoin back.

Peter McCormack: I understand losses, I’ve run businesses into the ground and I’ve lost businesses. I’ve been through it all, but the $50,000 lost, that’s the first I’ve heard of that. So thinking off the top of my head, but is that $50,000 in loss say, is that because there was Bitcoin that was missing. So that added up to…

Jed McCaleb: When I gave it to him, there was no Bitcoin missing. There was just, there was just a little in reserve. That wasn’t saying, I think that was roughly a few thousand dollars. Shortly after he took it over, there was, there was a hack where someone stole some Bitcoin and that’s probably what the WizSec guys were talking about and but even that was just, I think it was like $30,000 something like that, somewhere around there.

Peter McCormack: Yeah, the WizSec things said there was a hot wallet stolen, but that happened while you were still in control.

Jed McCaleb: But he’s wrong. I wasn’t still in control, well we both had control. It was during the handover, so there’s basically shortly after I gave Mark access.

Peter McCormack: So it was that period where you were during the handover?

Jed McCaleb: Right, but the site already belonged to him, I had already sold it to him.

Peter McCormack: So you had already sold it to him, but you said it handed it over in 3 parts?

Jed McCaleb: So basically we came to an agreement and I think it was around very early February, that we started handing over the site and there was I think a two week period where we both had access to Mt. Gox. So I can show him what was going on the actual site when it was up and running. During that time is when someone broke in, stole the coins. Yeah. So that is what it is. But again, like it wasn’t, you know, it sounds like a lot now because it was a lot of Bitcoins, but it wasn’t a lot back then. It wasn’t, you know, it was like $30,000.

Peter McCormack: 80,000 Bitcoin?

Jed McCaleb: Yeah, which I think was around $30,000 then. Or maybe even less than five or something.

Peter McCormack: So what happens at that point, that’s down at March 1st 2011, so that’s in that period. Who realised? You realised, or Mark realised?

Jed McCaleb: Who realised that the coins were gone?

Peter McCormack: Yeah

Jed McCaleb: I think I was the first to realise. But yeah.

Peter McCormack: So what, did you ever find out where that hack, how that hack happened?

Jed McCaleb: I didn’t, but he may have I don’t know.

Peter McCormack: So what kind of discussions are you two having at that point?

Jed McCaleb: I mean it’s more just about, hey, what do we do now, we need to obviously move the site somewhere else cause this machine has been compromised and get it somewhere and that we can lock down again and you know, what do we, how do we make up this loss? Things like that. So I mean, the easiest thing to do was that the site is making fees on these trades. It can usually cover this loss and like a few months, let’s just like, let’s just divert that revenue.

Peter McCormack: So that’s what you two agreed?

Jed McCaleb: Well that’s what I advised him to do. Again, like he’s running the site, like I, I can’t tell him what to do anymore.

Peter McCormack: I guess what happened, I’m just piecing pieces together there because you said there shortly after you sold it, it went on a big run.

Jed McCaleb: It did yeah.

Peter McCormack: So if 80,000 Bitcoin are missing at $30,000 value then the price goes up 10x then $300,000 are missing?

Jed McCaleb: Well, so it was the big one was to a dollar. So it went to like, this isn’t a loss became like $80,000, so that’s…

Peter McCormack: I guess that’s the start of the fractional reserve Bitcoin right?

Jed McCaleb: Well I mean that run also made a bunch of fees. I don’t know how much he made in fees in that. I mean he should have made $8,000 a piece of that as well. Right.

Peter McCormack: If it’s 80,000 I mean, I guess we would have to know the price it started at and went to and what he’s doing with the fees and where he is putting the fees, but also fees aren’t Bitcoins.

Jed McCaleb: Well, half of the fees were Bitcoin, half were dollars. So I what I advised him to do was obviously put the Bitcoin fees in there and then take the dollars and sell it for Bitcoin to cover that. So that’s what I advised him to do and I think that’s, that’s the whole like Gox spot thing somehow become various, when really what it’s doing is it’s taking the fees, the money that Mt. Gox is owed and converting it to dollars to Bitcoin depending on what Mark needs.

Peter McCormack: Another thing he has in there is that there was like a public hack via compromise accounts and then the hacker gained access to your admin account.

Jed McCaleb: That’s right, yeah.

Peter McCormack: What happened there?

Jed McCaleb: I think it was, I think there was an exploit on the forgot password form something like that, where they were able to like get it and then they got my account, which had admin rights and like it literally had balances to accounts and things. It’s that and a bunch of balances to the wallet accounts.

Peter McCormack: See, the one thing that’s interesting is that if you go through they total up the losses as you go because then you’ve got the, is it pronounced Bitomat debts. At that point, it’s 102,000 Bitcoins, $50,000 and then.

Jed McCaleb: But see, that was some exchange that Mark bought.

Peter McCormack: Oh yeah, of course. I’m not attributing it to anyone

Jed McCaleb: Like why do that? Why buy that day if you’re not at all financially able to buy it? Do you know what I mean? That was like a decision of his.

Peter McCormack: I mean he was possibly out of his depth. The thing is about this, I guess when you reflect back, you reflect back with the knowledge that a Bitcoin is now worth $20,000 or has been at $20,000, and it’s now worth $3,500 and you’re not taking into consideration that it was 20 cents, but whatever. I’m just trying to picture in my head what’s, what’s going on? Do you know it almost feels like? Have you watched that Fyre festival documentary?

Jed McCaleb: I haven’t watched it yet.

Peter McCormack: Oh, you’ve got to watch. It almost feels like a similar scenario once something just keeps getting out of hand. Because there’s another one here. There’s a compromised database in September 2011 another 77,000 Bitcoins taken and then a hot wallet stolen again in October and that was 630,000 Bitcoin. So it seems to be like a thing that just got further and further, and got more and more out of his depth.

Jed McCaleb: Yeah.

Peter McCormack: When did you last talk to Mark?

Jed McCaleb: I mean, it’s been years. Yeah, I think I only talked to him on Skype a couple of times. It’s probably 2011/12.

Peter McCormack: See I read a thing about it that some people are going to be given back dollars and he could end up becoming a billionaire out of this. Did you read about it?

Jed McCaleb: I heard that. Yeah. That would be pretty unfortunate.

Peter McCormack: Yeah, it’s probably more than unfortunate. Do you think there’s a better way of handling it?

Jed McCaleb: Oh yeah, for sure. I mean that’s definitely not the way it should be. I mean, I don’t think that’s in the cards now just because Bitcoin has come down a lot. But, yeah, that would just be kind of a travesty of justice I guess. If he ended up walking away with that much money.

Peter McCormack: Do you 100% trust him?

Jed McCaleb: Mark? No, I don’t trust him at all.

Peter McCormack: I guess there are two types of trust here. There’s whether he tells the truth. Yeah, I mean whether he’s just incompetent. You can trust somebody as a human, but know they are incompetent. Or you can also not trust them because they are a liar.

Jed McCaleb: Yeah, I mean, I don’t know Mark super well. You know, you probably know as well as I do honestly. I only talked to him a couple of times on Skype a little bit and stuff. Right. So, I don’t trust his competence at all and I don’t really trust him not to lie, but I don’t really have that much information. It’s just kind of like the vibe I’m getting from what’s happened. It just seems shady to some degree.

Peter McCormack: You have lawsuits against yourself right?

Jed McCaleb: Yeah, sure.

Peter McCormack: Are they still ongoing?

Jed McCaleb: There’s one ongoing.

Peter McCormack: What is that? Can you talk to me about that?

Jed McCaleb: I really don’t want to talk about that.

Peter McCormack: Rather than ask the details about it, but that it relates to Mt. Gox sites?

Jed McCaleb: Yeah, but I really don’t want to talk about this at all.

Peter McCormack: Okay, well we can skip that. What is your kind of whole, the summary of your feelings about Mt. Gox?

Jed McCaleb: It’s a little complicated. I think it was an interesting thing to do and I really do think it really benefited the Bitcoin ecosystem at the time. But, it’s really, really frustrating the way it shook out and like the way when it became that run by anyone competent, it could have become like easy, like a billion dollar business. It could’ve maintained, it had 80% of the liquidity at the time and they couldn’t maintain that position for a long time because liquidity begets liquidity. So it’s, what was this huge cash cow and then it just all kind of fell apart and obviously part of that was just very painful for a lot of people, which is super tragic.

None of that had to happen. And I think that stuff, it really bothers me. Then also just, it just has this ongoing, like people, drag me into that I think kind of pretty unfairly, that they blame you for a lot of the problems there, but even Mark has tried to put this on my shoulders being like, well, this site was short, like, you know, $50,000 when it started, so, therefore, I lost 600,000 Bitcoins. It doesn’t even make sense. Right. That, that is not why the site died. There’s nothing to do with it. It’s totally irrelevant. So having to kind of constantly fighting that PR battle or something is a little bit irritating to me, but I don’t know, it is what it is. I think, in general, I don’t dwell that much in the past so I don’t worry about it too much. But, you know, it is just, it’s a little tragic count mentality. It could have just said, well you could have done it. They can have a much better outcome than when it did for me and everyone else.

Peter McCormack: It must have been some quite stressful times for you as well.

Jed McCaleb: But, that’s, that’s the first I think it was, it wasn’t, it wasn’t necessary, it was frustrating for sure. It’s like super, super frustrating and it wasn’t necessarily stressful cause there was no way that I can affect the situation. So when I would see Mark making a decision that it was just like clearly wrong, there was nothing, there’s no way I could step in and do it. To the extent, I would try and just, he would ignore, you know, or you know, not really respond to me. So, I basically had to ignore it.

Peter McCormack: Say the handover had been two weeks later, would that hot wallet still have been compromised?

Jed McCaleb: But maybe, I don’t know how they got, I don’t know how to get access to that. The timing is a little weird, but again, I don’t think, I don’t think that that compromise, that particular compromise is really material to the outcome of Mt. Gox, I mean it is some amount of money, but like again, the site was easily making that much revenue it could have like kind of like covered. Right. So, you know, it sounds like a lot now, but ultimately I thought it was just not a big deal.

Peter McCormack: It’s more like a big chain of events right?

Jed McCaleb: Yeah. I guess, I mean really it seems like the fundamental thing is this, this compromise I didn’t know about until what’s that article? Where someone was like slowly draining the cold wallet over a year. Like it, literally over the course of two years, I think someone stole 600,000 bitcoin from him. Like that is the nail in the coffin. That’s the thing. Not these other like smaller things, right. And I think the smaller things are indicative of the security story there, but, they’re not the things that actually led to its downfall

Peter McCormack: And we still have exchange hacks today. I mean Cryptopia has been hacked twice in a month. Are you still amazed that exchanges get hacked? Or do you think it’s an issue we’ll always have?

Jed McCaleb: It’s a hard problem. I mean it’s like Bitcoin is the ultimate thing to hack, right? Like, that’s someone holding Bitcoin, it’s a prime target. Right? Like I’m almost, I’m almost surprised it doesn’t happen more, to be honest, you know? So I mean there’s, these exchanges are holding like really a lot of money. So it’s something that they could easily, someone even that works in the exchange could move away.

Peter McCormack: A couple of things to finish on. You’ve been in the crypto industry for 10 years, right?

Jed McCaleb: Yeah something like that.

Peter McCormack: So you’ve seen a lot, pretty much more than anybody else. You see the first exchange, you’ve been involved in ripple, in Stellar, in a lot of things. What do you think is the most important things that need to happen to take the crypto industry forward in a positive way?

Jed McCaleb: The most important thing is this stuff really has to start being used by real people for real things. I mean, it’s still, you know, it’s been 10 plus years now and still, there’s just not really good use cases, not really people really using this in the real world. And that’s 100% what we’re focused on at Stellar, InterStellar that we’re trying to make it real. You know, this, it’s like I said in the beginning, like crypto kind of suffers from its own height and that just needs people to kind of like making all these like, BS claims and BS projects just to raise a bunch of money and take it and run basically. You know, this can only last for so long and until people stop believing in essentially, but yeah, it’s just super important that we find a way, we as a collective industry find a way that this stuff is used in real life. So, and I think we’re getting closer, but it’s taken much longer than I think anyone wanted.

Peter McCormack: Do you have any sympathy with the more maximalist view or things that are very difficult to create lots of different coins and people don’t want to have lots of different coins and lots of different tokens. It doesn’t make sense for user experience and for, and it doesn’t make sense in monetary terms.

Jed McCaleb: Most like, again, like this goes back to my earlier comment, 90% of these things are garbage. It’s just because you know like you don’t, you don’t really need a specific form of value to buy like, you know, if you have somebody that wants to buy pet food, you don’t need a pet food coin. You can use Bitcoin, you can use dollars, can use like discount standard currencies. You’re not even like a specific currency for this one use case. It doesn’t make any sense. It defies what is good about currency, that you can use it in multiple places. It’s just barter at that point. Right. So, a lot of products are along those lines, and I think I definitely agree with that point. I don’t think that there should just be Bitcoin or just the Ethereum, you know, I think there’ll be lots of these things and they’re all kind of solving like different use cases and different, they field different issues in the world. Just like there’s not one kind of database. There are lots of different kinds, right? Or one kind of programming, you need multiple to solve different problems. I think that there will be, you know, one standard one that’s solving each of these problems. But there are lots of problems based on the, yeah.

Peter McCormack: What are the problems that the, is it the Lumens token?

Jed McCaleb: Yeah we call the token lumens.

Peter McCormack: What is the problem, that that solves?

Jed McCaleb: So, I mean, well, the Stellar work, in general, solves this problem of making moving money around the world a lot more like email where you can have, you know, you can have your account at the bank and want to send to someone’s mobile money wallet. You can just go seamlessly. We don’t really have to think about what people are storing their money or what currency they’re using. All these things just becoming inoperable. So this is just a way to, again, just bring payments into the Internet age and so that’s what Stellar solves and lumens is a piece of that.

Peter McCormack: Did I see about $120 million of lumens being given away.

Jed McCaleb: Yeah, we announced something with fortune.com. We’re doing a big distribution with those guys.

Peter McCormack: So I wasn’t aware until you announced that, that a lot of people have quite big criticisms of blockchain.com

Jed McCaleb: I don’t know, do they?

Peter McCormack: You are not aware of any of their bad press?

Jed McCaleb: Not really.

Peter McCormack: Yeah, that’s surprising. Why give away $120million, who should be claiming that? Does that potentially risk a dump on the price on Stellar because people just take it then sell it?

Jed McCaleb: Well, I mean, the hope is that if you do it thoughtfully right, then what you’re really doing is increasing awareness of the network. You’re getting in the hands of a lot of people that, that could potentially become users and it’s sort of similar to the way Paypal grew a little bit earlier where they would give out $10. It’s like a way to get people to try your system and start using it. If you do it in such a way that you’re actually gaining more adoption, then you’re increasing the supply, then it shouldn’t. But I mean really the purpose is to get, is to make, again, to make star of this usable system. And to do that it needs to be in the hands of lots of lots of people. So our main driver for this whole thing is to do just that, is to get it in the hands of millions of people and then they can start building stuff. They can start transactions with each other, they can start actually using the currency and again, to make these things real. I think that’s all we need to focus on more than the price. If the price is sort of secondary, in my view the main goal is to make the network useful.

Peter McCormack: I put a tweet out the other day, I kind of feel like most of these projects now in hindsight unless these tokens would be probably better as a stable coin because the volatility isn’t really helpful to anyone.

Jed McCaleb: Sure. Yeah. I mean, it depends on what you want to do with it. But yeah.

Peter McCormack: All right. So before we close out, just a couple more questions. How do people keep an eye on what you are doing? How do people stay in touch and what are your closing comments about Stellar that people should be aware of?

Jed McCaleb: If you go to the website, Stellar.org you can sign up for the newsletter and that’s probably the best way to stay informed. You can join our Reddit r/Stellar, good activity there. And yeah, we’re super excited about 2019, is that there’s a lot of projects in the works and you know, we’re going to the team a lot making, we’re working a lot on scalability. I’m working on this project called starlight, which is kind of our payments channel on our version of lightning essentially, that will interoperate with the rest of the payment channel efforts out there in the world and also bring that kind of technology to start itself. It should be pretty cool. What else is happening, lots of things.

Peter McCormack: Have you reserved the seat on Richard Branson’s Galactic?

Jed McCaleb: Does that just go up to space and come back?

Peter McCormack: Yeah

Jed McCaleb: I’m only interested to go to another planet. So when he, when he has that going, I’ll sign up. Maybe some sort of generation ship or something that not just a quick trip.

Peter McCormack: You’ve never been tempted to be one of these people who pay to go up on the International Space Station?

Jed McCaleb: That would be kind of cool. But again, like it’s just, it’s not as enticing as like going to see a whole new world.

Peter McCormack: Did you watch First Man?

Jed McCaleb: I did yeah.

Peter McCormack: I assume you saw it at the cinema?

Jed McCaleb: Yeah.

Peter McCormack: I mean, the moment where, I don’t know about you, but that moment where they’re on the moon was pretty epic.

Jed McCaleb: Yes, it’s pretty cool. First Man had pretty great reviews.

Peter McCormack: I think it was, for me, it’s probably the best film of the year.

Jed McCaleb: I think it is just amazing how much, I think how much mileage the United States got out of doing that. Like I could feel like it gives them so much like social capital in the world for years because they were the first to do that. I think that’s pretty cool.

Peter McCormack: Well listen, thanks for your time. It’s great to meet you. It’s great to hear about some of the history and it would be good to meet you again sometime.

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