Popular Bitcoin Exchange Topic of Breach of Contract Lawsuit

The world’s top Bitcoin exchange, Mt. Gox, is facing a breach of contract lawsuit after allegedly failing to meet the contractual obligations of the partnership it signed with CoinLab. The partnership was designed to simplify Japan-based Mt. Gox’s business with Bitcoin traders in the United States and Canada in light of proposed regulations.

Bitcoins are a virtual currency generated by a complex hashing algorithm. A Bitcoin is generated when a computer solves the algorithm. The complexity of the hashing algorithm increases with every Bitcoin that is generated, meaning the next one will take longer to be discovered. The process of generating Bitcoins is called “mining” and people build powerful computers for the sole purpose of mining the anonymous currency. Over the past few months, the price of Bitcoins has fluctuated dramatically, reaching a high of $266 per Bitcoin in April, and then dropping to their current (as of writing) value of $90 apiece. Presently more than $23 million worth of Bitcoins have been mined around the world.

Mt. Gox is a business that exchanges Bitcoins for physical currency. Since Bitcoins are not yet a widely accepted form of payment, the service enables Bitcoin owners to increase the liquidity of their investment in the virtual cash. Mt. Gox entered a deal with CoinLab in February, allowing the smaller company to handle all of its U.S. and Canada transactions. However, CoinLab claims that Mt. Gox failed to share crucial information and server access it needed to carry on its duties as a Bitcoin exchange, resulting in a breach of contract.

In all, CoinLab claims Mt. Gox breached its contract in at least eight different ways. The lawsuit seeks $75 million in damages and is sure to keep business lawyers on both sides of it busy for months to come. Hopefully they can settle their dispute soon, and in a way that does not harm the people who have put their faith in both of these companies.