Lawsuit halts US bitcoin exchange partnership

A partnership that sought to make it easy for Americans and Canadians to buy the virtual currency bitcoin has dissolved into a US$75 million lawsuit.

Bitcoin startup CoinLab alleges that the largest bitcoin exchange, Mt. Gox in Tokyo, breached a November 2012 agreement that would connect the companies’ IT systems for North American bitcoin purchases.

The suit, filed Thursday in U.S. District Court for the Western District of Washington, alleges Mt. Gox failed to transfer the account of North American users, including login and password information, to CoinLab. Gawker posted a copy of the lawsuit which was not yet available on online court records.

The suit also contends that despite an exclusivity agreement with CoinLab, Mt. Gox continued to court North American customers and accept new business.

CoinLab, based in Seattle, had been strangely quiet in recently weeks in regards to its Mt. Gox partnership. In late February, CoinLab said the cooperation with Mt. Gox would begin around March 22, but it didn’t appear to take off.

Mt. Gox runs the largest exchange for bitcoin, which allows people to purchase the currency on an open electronic market. Mt. Gox holds a large majority of the market for bitcoin exchange services, but according to the lawsuit, has no established banking relationships in the U.S. or Canada.

CoinLab CEO Peter Vessenes wrote on a company blog that the delays caused by Mt. Gox left him apologizing to customers.

“What tipped us into filing was our complete inability to get Mt. Gox to deliver on the few simple things left that were needed for customers to move over en-masse,” Vessenes wrote.

Mt. Gox spokesman Gonzague Gay-Bouchery said the company’s lawyers were checking into the lawsuit and did not have an immediate comment.

“We will update people shortly on this,” he wrote in an email.

Mt. Gox has suffered problems in recent weeks with distributed denial-of-service attacks that have disrupted trading and caused bitcoin’s price to wildly fluctuate. As of 3:20 AM UTC time on Friday, a bitcoin traded for around US$98.50.

The Bitcoin network was launched in 2009. It is the creation of Satoshi Nakamoto, a presumed pseudonym for an expert cryptographer who described the system in a nine-page white paper. The electronic currency can be transferred using one of the many software clients that implement its protocol.

It takes about an hour or less for a transaction to be confirmed anywhere in the world. Transfers incur either a very low fee or are free.

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