The Situation

Things are looking bad at Mt.Gox, but in every disruption one should seek resolution through innovation and opportunity. With bitcoins locked away or lost and the exchange seeking bankruptcy protection, a timebomb has started ticking. It ends with years of legal wranglings before any possibility of recovery. It's a pretty terrible situation for anyone with bitcoin or fiat balances stuck in Mt.Gox.

As far as the Japanese legal system is concerned, bitcoins might as well be pencils, and Mt.Gox might as well be a pencil factory. If nobody insures pencils, and there is no claim process to recover pencils, the pencil value is reckoned into a dollar amount, which is then discounted and paid out as the recovery of missing or stolen funds, over a number of years.

For people with fiat in the system, that's not a great outcome. For people with bitcoins in the system this is a terrible outcome. Your should-be-deflationary bitcoin value has become anchored to a fiat price that reflects insolvency.

Our Proposal

We think there's a better way. Introducing Goxcoin.

We envision Goxcoin as a User Created Asset, issued using the Mastercoin Protocol and given to Mt.Gox customers to denote their Mt.Gox BTC account balance at the time the exchange went offline. Goxcoin would be issued on a one-to-one basis to trusted and verified accounts.

These digital tokens, representing Mt.Gox's Bitcoin obligation to the customer, would be transferable and limited in supply. There would be only one issuance of Goxcoins.

Using an on-blockchain token allows for trackable balances on a public ledger, enabling the pro-rata distribution of any BTC that may be recovered through foresensic investigation, law enforcement, and/or the liquidation of Mt.Gox as a corporate entity.

We believe the creation of these tradable tokens is the best way for Mt.Gox to address its current Bitcoin liabilities, and that the fiat recovery obligation should be separated from the bitcoin recovery obligation. While we know there is trouble at Mt.Gox, there are still many unknowns about exactly what happened to the more than 750,000BTC yet unaccounted for.

Why would owners of Mt.Gox BTC accept Goxcoin?

Goxcoins represent an enormous cache of value that will continue to grow as Bitcoin finds further success, and could truly become the great lost treasure of the Bitcoin age. Whether stolen or lost, the incentive to recover them is huge. Minus a finders fee, this value could be distributed via a dividend process enabled by the Mastercoin Protocol or a simple proof-of-burn redemption process should the recovery ever wind down.

Proof of Goxxed

Humint is working to establish a "Proof of Goxxed" protocol by which any holder of a verified claim against Mt.Gox can cause the creation of Goxcoins in the amount of their verified claim denominated in Bitcoin. We are working in conjunction with mtgoxrecovery.com to gather claims to be verified via the japanese legal process.

How would this work ?

Here's what we would need for this to happen

Obtain Gox's account database.
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Recover Gox account balances and verify to ensure that all malleable transaction "double withdrawals" are accounted for.
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Issue new User Created Asset using the Master Protocol.
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Create page where said asset can be verifiably claimed by Gox customers.
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A Mastercoin wallet that supports trading in the GOX/BTC pair.

The first sticking point is obtaining accurate records that allow individuals to claim their balance using some kind of verifiable non-public information. This could best be done with full cooperation from Mt.Gox

With Mt.Gox's cooperation and verification of user balances, the entire transition can be completed within a few weeks, giving customers much needed liquidity while Mt.Gox seeks to resolve its situation and engineer some sort of recovery for the holders of Goxcoin in the coming months.

Signed

David Johnston

Mastercoin Foundation

Adam B. Levine

Let's Talk Bitcoin! / Humint

Wendell Davis

Humint & Hive

Peter C. Earle

Humint & FINAGEM

Goxcoin