Mt. Gox Shuts Down: Collapse Should Come As No Surprise

New submitter Dan541 writes in with word that Mt. Gox has halted all operations indefinitely. A statement from the CEO: "As there is a lot of speculation regarding MtGox and its future, I would like to use this opportunity to reassure everyone that I am still in Japan, and working very hard with the support of different parties to find a solution to our recent issues. ... In light of recent news reports and the potential repercussions on MtGox's operations and the market, a decision was taken to close all transactions for the time being in order to protect the site and our users. We will be closely monitoring the situation and will react accordingly." MrBingoBoingo writes that we should not be surprised Mt. Gox appears to have failed "The recent closure of the famous Bitcoin exchange Mt. Gox has grabbed a lot of media attention lately, but people involved heavily in bitcoin have been raising alarms about business practices at Mt. Gox for quite some time now. With the Mt. Gox failure being Bitcoin's biggest since the collapse of the ponzi run by Trendon Shavers, also known as Pirateat40, it might be time to revisit the idea of counterparty risk in the world of irreversible cryptocurrency."

Comments

Is MtGox Bitcoin?

[serviscope_minor]

If you can answer that question, then it says something about the usefulness of bitcoin without MtGox.

Yeah MtGox was big, and this will almost certainly cause bitcoin to take a slide, but there are other exchanges, and Bitcoin is bigger than just MtGox. My prediction: bitcoin will drop a lot, then slowly recover as other exchanges take the load and people see that this is not, in fact, the end of the world.

Hopefully the ones that replace MtGox will have better tech.

Re:Is MtGox Bitcoin?

[alphatel]

Here we have a large brokerage that shuts down, but changes in the value of bitcoin are largely unaffected except temporarily by the news, and everything remains stable despite a large market share being removed from the market. How will this change when users gain access to their accounts and finally settle at a loss is unknown. But the value of the underlying currency is both an interesting sounding board for this type of data, and in terms of technical chart analysis, an interesting point of stability. FWIW.

Re:Is MtGox Bitcoin?

[JoeMerchant]

MtGox is a large part of the Bitcoin "brand."

Much of the value attributed to Bitcoin comes from the perception that it can be traded, easily, for traditional currency, and how do you do that? Well, the main place to do it is (was) MtGox.

If you hold a stock that trades on the NYSE, part of its value is that NYSE market. When stocks fall off the major exchanges onto "the pink sheets," they almost invariably lose value just from the de-listing.

The MtGox failure is worse, it's like a bank failure - your coins are in there, but can you get them out now?

Regardless of history, it is true that Bitcoin is "just another cryptocurrency" and MtGox is "just another exchange" but, they are both significant brands in their space, and perception of them will weigh heavily on all similar cryptocurrencies and exchanges, regardless of "reality."

Re:Is MtGox Bitcoin?

[JDG1980]

Yeah MtGox was big, and this will almost certainly cause bitcoin to take a slide, but there are other exchanges, and Bitcoin is bigger than just MtGox. My prediction: bitcoin will drop a lot, then slowly recover as other exchanges take the load and people see that this is not, in fact, the end of the world.

That's basically what has happened over the last couple of days. After the joint statement on the insolvency of Mt. Gox, the Bitcoin price dove to ~$400, but started to recover not long after; it's now back up to ~$600, which isn't far from where it was before the most recent round of nonsense.

Re:Is MtGox Bitcoin?

[Anonymous Coward]

Yes, in a rigged market, the price is controlled and doesn't drop on very bad news. You can contrast that with a free market like housing which took a drop after Lehman shut down.

Re:Is MtGox Bitcoin?

[TheRealMindChild]

Well, the main place to do it is (was) MtGox.
No it wasn't and hasn't been for a long time

Re:Is MtGox Bitcoin?

[Joce640k]

That's basically what has happened over the last couple of days. After the joint statement on the insolvency of Mt. Gox, the Bitcoin price dove to ~$400, but started to recover not long after; it's now back up to ~$600, which isn't far from where it was before the most recent round of nonsense.

Mt. Gox is only the beginning. Once the script-kiddies get around to it then anything of value that can be stolen electronically from ordinary PCs is toast.

Re:Is MtGox Bitcoin?

[Immerman]

Let it be a warning to anyone dealing with bitcoin - don't store it in a "bank" that lacks bank-grade security. Doing so just means your coins have been combined with a bunch of others to make a much more tempting target.

Re:Is MtGox Bitcoin?

[Anonymous Coward]

To be honest, MtGox hasn't been the main place to trade for at least half a year. This might sound like a very short time, but in BTC time it's decades.

Re:Is MtGox Bitcoin?

[JoeMerchant]

Well, the main place to do it is (was) MtGox.
No it wasn't and hasn't been for a long time

Spoken like a truly "hip" trader of 'coin.

Value doesn't come from you guys, value comes from the unwashed masses who see a story on CNN and say "how can I get in on this Bitcoin thing?" Where, until very recently, would they end up placing their first buy order?

Re:Is MtGox Bitcoin?

[TheRealMindChild]

https://btc-e.com/

Re:Is MtGox Bitcoin?

[Spazmania]

The MtGox failure is worse, your coins are in there, but can you get them out now?

Are you sure? I thought the reason they stopped trading was alleged software flaws which were siphoning the coins out.

Re:Is MtGox Bitcoin?

[1s44c]

MtGox is a large part of the Bitcoin "brand."

MtGox was a parasite on the backside of BitCoin. Removing it might hurt like hell but it has to go. If that kills the price so be it, it will recover.

The customer's coins are most likely not in MtGox anymore. They leaked away all the coins they were trusted with because they had no understanding of how the technology they relied on actually worked.

Re:Is MtGox Bitcoin?

[Anonymous Coward]

Well, the main place to do it is (was) MtGox.
No it wasn't and hasn't been for a long time

I would disagree.

I couldn't find historical data, but MtGox dominance is even great if you go back only a few months.

Re:Is MtGox Bitcoin?

[pankkake]

http://bitcoincharts.com/chart...

Re:Is MtGox Bitcoin?

[Anonymous Coward]

So the rest of the world is travelling at nearly the speed of light while MtGox remains stationary, and so half a year elapses for us but decades for them thanks to time dilation?

Re:Is MtGox Bitcoin?

[tom229]

CAVirtEx allows you to do a direct conversion of Canadian dollars, debited directly from your bank account to a bitcoin wallet address of your choice. The site never holds the funds and the transfer is nearly instant. This is how it should be done.

Always think of an online wallet as asking some stranger to hold your money and promise to give it back. We're used to this idea because traditional banks are federally regulated and insured, but without those protections it's a terribly foolish practice. The only reason to let someone else hold your money would be if they could do so more securely and with a reasonable guarantee. Online wallets/exchanges can provide neither.

Re:Is MtGox Bitcoin?

[pankkake]

It's easy to have volume when you're trading two worthless things (mtgoxUSD was known to be worthless for a while, then it appeared mtgoxBTC was going to be too as it was used to get out of it).

Re:Is MtGox Bitcoin?

[NiteTrip]

Here's a prediction for you. As long as bitcoin transactions remain anonymous, one of the key selling points of bitcoin, people will continue to abuse this and steal millions of dollars from unsuspecting users claiming "technical problems" and "hackers". 700,000 + bitcoins went missing, with a value of $350 million right now, after the huge drop. That's a lot of temptation. If this is allowed to keep happening the value of bitcoin will drop until they are worthless again.

Re:Is MtGox Bitcoin?

[NiteTrip]

Never heard of it and I've been following bitcoin for a couple of years.

Re:Is MtGox Bitcoin?

[NiteTrip]

Software flaws for the users, but features for the owners. The owners lined their pockets with untraceable stacks of cash with no change of legal repercussions because bitcoins aren't regulated.

Re:Is MtGox Bitcoin?

[alphatel]

Yes, in a rigged market, the price is controlled and doesn't drop on very bad news. You can contrast that with a free market like housing which took a drop after Lehman shut down.

Those two objects are not correlated. The housing market collapsed because of bad debt that was loaded into paper held by banks, and Lehman happened to have some of the paper too. Note that Lehman was allowed to collapse because the impact to the housing market was a non-event. The impact to the US as a whole, and the housing market secondarily, by the bankruptcy of all solvent banks was much greater. And so we entered into a time when the government took a stake in the stock market and financial institutions.

MT and BTC are the same scenario, luckily the US Govt has not stepped in yet. Which means the market is actually free.

Re:Is MtGox Bitcoin?

[zieroh]

Spoken like a truly "hip" trader of 'coin.

Value doesn't come from you guys, value comes from the unwashed masses who see a story on CNN and say "how can I get in on this Bitcoin thing?" Where, until very recently, would they end up placing their first buy order?

Coinbase. It's a US company with a strong fiduciary angle.

Not an exchange in the many-to-many sense, but you can still buy Bitcoin there. And that's where a lot of new Bitcoin purchasers are getting them.

Re:Is MtGox Bitcoin?

[zieroh]

MtGox is a large part of the Bitcoin "brand."

It was. It hasn't been for over a year, which is an eternity for Bitcoin. Everyone involved in Bitcoin has known for a very long time that putting money into MtGox is extremely high risk. And when someone involved in Bitcoin says "high risk", it means something.

Re:Is MtGox Bitcoin?

[fuzzyfuzzyfungus]

Bitcoin is sort of a funny arrangement. You've got your mathematically clever, cryptographically secure, hard inner kernel; but the moment you step away from that it's pure Wild West.

"Sir, you may take comfort in your currency being cryptographically unforgeable and protected against double spending. However, sir is advised not to bank at financial establishments that are currently on fire, under attack by anonymous militants, or run by con men. Enjoy your stay."

Re: Is MtGox Bitcoin?

[Anonymous Coward]

Liar.

Re:Is MtGox Bitcoin?

[Anonymous Coward]

The impact to the US as a whole, and the housing market secondarily, by the bankruptcy of all solvent banks was much greater.

How exactly would bad banks going out of business be a bad thing? And please don't say "hundreds of millions of people would lose all their money", because that is bull.

Re: Is MtGox Bitcoin?

[AudioEfex]

Precisely. And now those folks are scared shitless to even think about it. That's what the "everything is gonna be okay, folks!" wishful thinkers are missing here. It doesn't matter if it's rational or not - who the hell ever said investing/gambling was rational. Regardless of anything else, this was a big huge warning to those masses that told them to stay as far away from BitCoin as possible.

That's why this is the beginning of the end - some folks who have been mildly curious, or who haven't even really hard of or understood BitCoin, are being introduced by this - BitCoin has never had such constant mainstream press before. They aren't going to touch it with a ten-foot pole now. And the only way for the pyramid to keep working is if more and more people start buying into the base, and that just isn't going to happen at this point. So while the initiated will keep trading back and forth for awhile, and some of them will finance those who are jumping ship by buying up coins as they are down in price, this doesn't end well because without new investors buying into the pyramid to keep real legal tender flowing in, BitCoin will soon be worthless as no one will be willing to buy the pretend "currency" to make it actually worth anything in the real world.

Re:Is MtGox Bitcoin?

[Anonymous Coward]

Since the exchanges offer no transparency and follow no regulations, I don't see it as a free market and view the current price of ~$550 as a result of manipulation by bad actors.

Re: Is MtGox Bitcoin?

[AudioEfex]

But what you are missing is that to the masses out there that BitCoin needs to keep buying into the base of the pyramid to make current Bitcoins worth anything in the real world, MtGox is the onky exchange they have ever heard of, and first impressions may not be everything but they sure count for a lot. You guys who buy into this are missing the overall point - BitCoin has had more mainstream press over this than every before and it's all negative, terrible news. Most folks aren't going to get involved enough to see if your statements are correct - the bad kid in school has misbehaved, and that's the one that will be remembered.

Without folks continually pumping real legal tender into the BitCoin system it's worthless. The only reason it didn't drop totally yet is that the believers are buying up what people are selling who are getting out. Thinking they are going to pick them up now before they rise again. The truth is, it's not going to rise again because the only folks who are going to get involved now are the ones who are already in the thick of it - and without new blood bringing real legal tender to the table, it can only last so long with the already-in folks trading amongst themselves.

Re:Is MtGox Bitcoin?

[PRMan]

Actually, bitcoin went up about $60 yesterday. I think the feeling around the bitcoin community is, "Finally! Good riddance!"

Re:Is MtGox Bitcoin?

[PRMan]

"Bitcoin is sort of a funny arrangement. You've got your mathematically clever, cryptographically secure, hard inner kernel; but the moment you step away from that it's pure Wild West."

Well said. That's exactly it.

Re:Is MtGox Bitcoin?

[Cajun Hell]

MtGox is a large part of the Bitcoin "brand."

That's entirely subjective and also controversial. It's true that lots of people who have heard of Bitcoin have also heard of Mt Gox, but we have no reason to believe that a significant number of them used Mt Gox, do we?

You might as well say Russia is a large part of the Olympics brand. That's true and also not true, depending on how you're choosing to look at things.

Much of the value attributed to Bitcoin comes from the perception that it can be traded, easily, for traditional currency

I think this is definitely wrong and a large supermajority of Bitcoin users would say that exchanging it for traditional currencies is relatively difficult compared to all other things that can be done with Bitcoin. And they're not saying it starting in late February 2014; they're saying it in 2010. Show me a Bitcoin advocate who has hawked fiat exchange as one of its advantages or being an important aspect of Bitcoin's utility. For the last few years, nearly all I have heard about Bitcoin, has been the exact opposite.

Exchanging with regulated currencies has always been seen as a barrier. Not only that, but it has (and is) always predicted to be a barrier. No one is even saying that exchanging Bitcoins for dollars or euros is likely to become easier some day. It's pretty much exchanging Bitcoin for other things (anything but highly regulated things) that the Bitcoin economy as faith in. "Corrupt" or low-tech fiat currencies are seen as the problem that Bitcoin is intended to solve. (Whether the problems are that its value is disconnected with reality, or that it isn't easily/cheaply transmissable.)

Re:Is MtGox Bitcoin?

[E 99]

A NYSE stock can only be traded on the NYSE. Bitcoins can be traded and exchanged for dollars on many exchanges, coinbase now being the most popular. The problem isn't even that an exchange shut down, which wouldn't have been a big deal. The problem is that a lot of people trusted that exchange to hold their coins, and those coins have probably disappeared with the exchange.

Re: Is MtGox Bitcoin?

[JoeMerchant]

Back in the day when a coin was $5 (I actually had one of those...), I think you would have been right - if MtGox had imploded then, in this fashion, it could have tailspun the whole thing into non-existence.

Not that Bitcoin is now "too big to fail," but I think that enough people are deeply enough invested into it at this point to rationalize their fears away and carry on - and probably invest a little bit in educating the world about how "it's really not as scary as all that." That education/pr campaign is going to be a lot more expensive now than it would have been if MtGox hadn't screwed up, but I think it's possible.

Me, personally, I can't get behind the whole Bitcoinesque cryptocurrency concept that requires global block chain validations - I can't conceive of that scaling well when attempting to replace even 1% of today's real money transactions, but that's my personal problem, it doesn't seem to bother the people who have invested 7 Billion-ish USD so far.

Re:Is MtGox Bitcoin?

[amicusNYCL]

I think that BTC has matured enough that there are enough speculators waiting for the currency to drop so that they can buy low. A lot of people took notice when BTC started selling for $1200. Since there is so much more attention given to it now than there was a year ago, I don't think the recovery is nearly as slow as we might expect.

Here's a 1-week price graph for 3 exchanges:

http://www.coindesk.com/price/#2014-02-19,2014-02-26,close,bpi|bitstamp|btce

There was a pretty sharp drop yesterday, accompanied by an equally sharp rise. People are watching the price drop and getting in when they think it bottoms out.

Of course, the 1-month graph shows a larger trend:

http://www.coindesk.com/price/#2014-01-26,2014-02-26,close,bpi|bitstamp|btce

The trend is definitely downward from the highs in the past, but I think that BTC might have reached a threshold where there are enough people watching it that we might see the price shoot up quickly at any point once big purchases start being made.

When I heard the news about Mt. Gox yesterday, frankly I was expecting a crash, and I was ready with my cash. The dramatic crash that I was expecting didn't happen, though. The small slide that happened had already completely recovered by the time I could have done anything.

Re:Is MtGox Bitcoin?

[amicusNYCL]

Looks like slashdot broke my links. You can copy and paste the link text, or click the link and replace the %7C with |

Re:Is MtGox Bitcoin?

[JoeMerchant]

Much of the value attributed to Bitcoin comes from the perception that it can be traded, easily, for traditional currency

I think this is definitely wrong and a large supermajority of Bitcoin users would say that exchanging it for traditional currencies is relatively difficult

Maybe. I used to be a Bitcoin user, I wouldn't have been if it had no fungibility, arguably, nobody would be. I held a coin for awhile, when my $5 "investment" could be cashed out for $150, I did.

I know a guy who was actively trading Bitcoins, around that $50 to $300 price window-time - he was effectively "making market" in coin, trading between several different exchanges, playing the classic buy low, sell high game. Maybe he wasn't a "Bitcoin user," but he, and thousands like him, are responsible for the real world valuation of Bitcoin becoming something resembling stable and attractive - without those kinds of market makers, you'd have to pay twice as much for a commodity as you could turn around and sell it for.

This is bait, but, without trading for real world currency, what, exactly, are Bitcoins good for? Sure, you can exchange them for goods and services at thousands of points in the world. I live in Jacksonville, and there are two registered Bitcoin accepters here, a lawyer and a parked web domain. So, how, in real life, does the lawyer spend these bitcoins he accepts for his services? The parked web domain doesn't seem to be offering anything of value. Meanwhile, there are 800,000 other people here, nearly all of whom will accept and give real world currency for goods and services.

Re: Is MtGox Bitcoin?

[NiteTrip]

Idiot. See I can call people names too.

Re:Is MtGox Bitcoin?

[farble1670]

My prediction: bitcoin will drop a lot

the news has been out for a few days, and BTC is up.

Re:Is MtGox Bitcoin?

[TheCarp]

> To be honest, MtGox hasn't been the main place to trade for at least half a year.

To be honest, I have been kind of busy with other stuff and only peripherally following bitcoin recently. However a friend of mine, who also has a few, has been following a bit more closely and, for at least the past few months, this is what he has been saying.

Long before the MtGox issues cropped up publically, they stopped being the largest exchange by volume.

Re:Is MtGox Bitcoin?

[TheCarp]

That is a pretty nasty accusation to make without any evidence. They were taking a fee on every transaction, making money.

Now maybe somebody on the inside did it, but I doubt highly that it was the owners.

Also bitcoins are regulated just like anything else. If that is what they did, it was still illegal because it was still fraudulent. Stealing or defrauding people out of bitcoins is every bit as illegal and regulated as anything else you would like to steal from them or defraud them out of.

Re:Is MtGox Bitcoin?

[Anonymous Coward]

Considering that the only people who care about cryptocurrencies are criminals and libertarian morons, isn't this both the expected outcome and the one that such a group should want?

Re:Is MtGox Bitcoin?

[Anonymous Coward]

"That's entirely subjective and also controversial. It's true that lots of people who have heard of Bitcoin have also heard of Mt Gox, but we have no reason to believe that a significant number of them used Mt Gox, do we?"

Most people who have heard of bitcoin have nothing to do with it because they're not criminals or the delusional libertarian morons who vastly over-represent on slashdot.

Re:Is MtGox Bitcoin?

[Anonymous Coward]

>everything remains stable despite a large market share being removed from the market.
Lol. Bitcoin and stable don't even have a passing relationship with each other.

Re:Is MtGox Bitcoin?

[AlphaWolf_HK]

No, it doesn't come from them either. It comes from people accepting bitcoin as a form of settlement of any kind of debt (aka payment.)

Here's why: Bitcoin isn't intended to be something you invest in, it's intended to be a medium of exchange. What you are saying is akin to saying the dollar wouldn't have any value unless people see a story on CNN and say "how do I get in on this dollar thing?"

In any case, he's correct. I sold bitcoins I mined using GPU's I've owned from gaming, which was about 5 months ago, and even at the time MtGox was generally recommended against using because of how long it took to get your exchanges done (not only that but moving money to them was very costly.) I personally used coinbase to sell my bitcoins. Made a $700-$800 profit off of it.

With regard to MtGox, some lessons can only truly be learned while in the process of making mistakes. This is one of them. Likewise, what happened at MtGox is probably a good thing that it happened this early in bitcoin's lifespan (personally, I'm going to call anything within the first 15 years or so of bitcoin operating as "early," unless it meets a sudden demise within 40 years of its lifespan, which I somewhat doubt.)

By the way, while this didn't make much fanfare, you can buy stuff on tigerdirect using bitcoins.

Re:Is MtGox Bitcoin?

[fuzzyfuzzyfungus]

On the plus side, it will fit in perfectly with the decor if the 'seasteaders' ever actually decide that living on a glorified oil rig is worth the reduction in marginal tax rates...

Re:Is MtGox Bitcoin?

[fafalone]

I think you're really overstating the significance of MtGox. BitInstant was a much bigger deal for me and most other people I know, and that incident didn't destroy bitcoin. In fact there's also several other incidents that were a much bigger deal.

Re:Is MtGox Bitcoin?

[Copid]

How exactly would bad banks going out of business be a bad thing? And please don't say "hundreds of millions of people would lose all their money", because that is bull [wikipedia.org].

One bad bank going under isn't a bad thing. Lots of bad banks (or one or two really huge bad banks) going under is a majorly bad thing for a lot of reasons:

1) Like any insurance scheme, the FDIC can't pay out on all of its policies (or even most of its policies) at the same time.
2) Lots of money owed to people by banks is not in the form of insured debt.
3) Banks owe each other a lot of money. If a large enough bank goes down, it can turn another "good" bank into a "bad" bank simply because that bank was holding a lot of paper from the bank that died.
4) Banks borrow on the short market and lend on the long market. A big part of that short market is in uninsured money market funds. If banks start collapsing, people pull out of money markets and effectively "run" on all of the other banks (which is exactly what we saw happening after the Lehman Brothers collapse).

Re: Is MtGox Bitcoin?

[Anonymous Coward]

it doesn't seem to bother the people who have invested 7 Billion-ish USD so far.

You're mistaking the value as listed on paper with how much actual currency has been exchanged in return for Coin.

Re:Is MtGox Bitcoin?

[houstonbofh]

Since the exchanges offer no transparency and follow no regulations, I don't see it as a free market and view the current price of ~$550 as a result of manipulation by bad actors.

So? Why do you need an exchange? You can pay cash for bitcoins directly to a person. You can sell goods directly for bitcoins, and buy good with the same.

Re:Is MtGox Bitcoin?

[mestar]

"coinbase now being the most popular."

What?

http://bitcoinity.org/markets/list?currency=ALL&span=24h

Re:Is MtGox Bitcoin?

[mestar]

"3) Banks owe each other a lot of money. If a large enough bank goes down, it can turn another "good" bank into a "bad" bank simply because that bank was holding a lot of paper from the bank that died"

No, this does not "turn" it bad. This means the bank was bad the whole time.

Re:Is MtGox Bitcoin?

[Copid]

By that definition of "bad", the existance of one very large bank potentially means that the entire banking system is bad. That's not totally unreasonable, but then "bad" isn't a particularly useful term. It's also an explanation of why we don't let catastrophic bank failures happen. If all of the banks always "deserve" to go under because they loaned money to a bank that loaned money to another bank that loaned a lot of money to one particularly bad Kevin Bacon bank, then letting bad banks go under wipes out your financial system by definition. Worse, a run on the money market system can make any bank a "bad" bank simply because people feel like banks as a whole might not be so great.

All this goes back to, "why is it bad to let some banks fail?" I'd have thought that the Lehman collapse would have covered it, but some people need a clearer explanation of the transmission mechanisms.

Re: Is MtGox Bitcoin?

[zieroh]

But what you are missing is that to the masses out there that BitCoin needs to keep buying into the base of the pyramid to make current Bitcoins worth anything in the real world

You're starting with the assumption that Bitcoin is a pyramid scheme. That makes the rest of your comment rather questionable, but I'll soldier on anyway.

MtGox is the onky exchange they have ever heard of, and first impressions may not be everything but they sure count for a lot.

Most of the mainstream population is barely even cognizant of Bitcoin. They're certainly not cognizant of MtGox. Or at least, they weren't until Monday, when reports of their insolvency started appearing in the mainstream media. Regardless, MtGox has not been the go-to exchange for over a year. That position has been taken over by a variety of other entities, some of which are true exchanges and some of which are just portals to buy Bitcoin. Even if "first impressions" were important here -- and I don't really think they are -- then we've been sounding the alarm within the BTC community for over a year that MtGox is NOT the place to go.

You guys who buy into this are missing the overall point - BitCoin has had more mainstream press over this than every before and it's all negative, terrible news.

Yes. And after every crisis, after every sudden dip in the USD/BTC exchange rate, Bitcoin has rebounded. It has continued to thrive. That's the really remarkable thing about Bitcoin, and why "us guys who buy into this thing" continue to believe that Bitcoin -- or something very much like it -- will be the future. We can see the potential, even if everyone else can't. And we're willing to risk money on it, even though we could very well lose it all. We are betting, in essence, that Bitcoin will be a success. And we're putting our proverbial money where our mouth is.

And that's a point that you all who don't buy into this are missing.

Most folks aren't going to get involved enough to see if your statements are correct - the bad kid in school has misbehaved, and that's the one that will be remembered.

You're arguing that Bitcoin is bad because it has an image problem. Firstly, so what? Secondly, what's to be done about it? Nothing, that's what. A bad actor did something stupid and some people lost some money. We've all learned from this experience, and Bitcoin is stronger for the loss of MtGox.

Without folks continually pumping real legal tender into the BitCoin system it's worthless.

Kind of like gold.

Actually, exactly like gold.

The only reason it didn't drop totally yet is that the believers are buying up what people are selling who are getting out. Thinking they are going to pick them up now before they rise again. The truth is, it's not going to rise again because the only folks who are going to get involved now are the ones who are already in the thick of it - and without new blood bringing real legal tender to the table, it can only last so long with the already-in folks trading amongst themselves.

It has already largely recovered to it's pre-MtGox-meltdown level. So you're wrong. Just like it has always recovered before. If the (brief) history of Bitcoin has taught us anything, it's that underestimating the resilience of Bitcoin is a losing bet.

HODL!

Re: Is MtGox Bitcoin?

[AudioEfex]

You miss the point on so many levels, but when you are chin deep into it, it's no wonder you cling.

You stated it yourself but you don't understand how currency works. Currency is based on confidence. It doesn't matter if MtGox has been the "go to" place or not among the believers. And now, as you said, as of Monday, it's the only exchange anyone really can name who isn't chin deep like you. And you need some of those people to keep bringing legal tender into the BitCoin system to keep it operating. That's why it is a pyramid scheme.

BitCoin is worthless in the real world, because you need the ability to turn it into legal tender to use it. Now, before you try to correct me, yes, a few coffee shops and online retailers will take it directly, but only because THEY can then turn it into real world currency. Overstock.com can't pay their employees, buy product from suppliers, or pay for the electricity to run it's business with BitCoin. They take it from you and then turn it into real currency mostly as a gimmick to draw folks with obviously disposable income to their site. That's why it's a novelty.

You also hit on the very point I was making, which is sure - those of you who have already bought in keep "putting your money where your mouth is", but after this - no one who isn't already in is going to keep funneling real currency in so you can use your BitCoin ATM to withdraw cash. They only reason it hasn't fallen completely yet is because you folks are buying up from all the folks selling out, temporarily halting the decline. Once you folks run out of money to turn into BitCoin, or come to your senses, it will be worthless. Without new legal tender coming into the system, BitCoin literally worthless, because on its own it's just a virtual game with no intrinsic value unless folks are willing to trade real currency for it.

Re: Is MtGox Bitcoin?

[Xordin]

A bank going broke is a bad thing because it hurts people who are unrelated to the bank's behavior. For example, a plumber could lose his pension; a butcher could lose access to his current account; a big payment to a hospital could be lost.

An economy runs better it has a trustworthy financial system. We should share the cost of bank failures so we all sleep better.

Re: Is MtGox Bitcoin?

[zieroh]

Ultimately, I don't really *care* if people like you believe in Bitcoin or not.

So really, you're waisting bandwidth trying to argue the point to me.

Re:Is MtGox Bitcoin?

[Optali]

Well, what would be necessary is not that bitcoin raises but that it finds it's way as a means of exchange, but people are more eager of speculating with it than they are of implementing strategies for using it as a currency and that is not happening.

In fact a relatively cheap but stable bitcoin would be ideal for trade but it isn't.

Re:Is MtGox Bitcoin?

[Anonymous Coward]

Well, the main place to do it is (was) MtGox.
No it wasn't and hasn't been for a long time

Spoken like a truly "hip" trader of 'coin.

Value doesn't come from you guys, value comes from the unwashed masses who see a story on CNN and say "how can I get in on this Bitcoin thing?" Where, until very recently, would they end up placing their first buy order?

I don't think it would be possible to get ahold of BTC without coming across a variety of exchanges along the way.

Re: Is MtGox Bitcoin?

[Anonymous Coward]

Really? It is illegal only if there is a government willing to investigate and prosecute a case. Do you really think the expertise even exists in the FBI to pursue such an endeavor? I don't.

Risk?

[JoeMerchant]

Risk? In a commodity that has regular 2x and 0.5x value swings in a single day? Say it isn't so!

Re:Risk?

[Wrath0fb0b]

You are right to be sarcastic but you are dead wrong in conflating volatility risk with counterparty risk. The two are actually completely orthogonal -- you can have very little risk of volatility but high counterparty risk, or high/low (and high/high low/low for that matter).

The key is to distinguish from the risk inherent in the fulfillment of the contract and the risk that the contract will not be carried out.

Re:Risk?

[E 99]

Despite conventional wisdom that says otherwise, volatility is not the same as risk.

Can someone explain this theft?

[OakDragon]

I don't understand Bitcoins in general, but I *really* don't understand the process where they could be stolen. Could someone please explain it? Car analogies OK.

Re:Can someone explain this theft?

[drinkypoo]

This is a very simple situation. It's no different from an uninsured bank failing.

But you can also steal bitcoins by getting access to someone's wallet, just like you could steal cash by getting access to someone's wallet. Once you spend them, they can't be spent again. The system doesn't know that they didn't arrange to give them to you offline.

Re:Can someone explain this theft?

[silas_moeckel]

Bitcoin was fine these guys were idiots and left a gaping hole in the exchange API. Sending your bitcoin to somebody else to hold for you is not a good idea security wise. The transactions can not be undone and there is no state run insurance backing it so they can and will loose your bitcoin.

Re:Can someone explain this theft?

[darkwing_bmf]

Let's say you deposit your retirement money at the Bonnie and Clyde savings and loan. They then take that money and move to Mexico and use it for their retirement. They may or may not use a car to get there. Either way, you're never going to see that money again.

Re:Can someone explain this theft?

[n7ytd]

I don't understand Bitcoins in general, but I *really* don't understand the process where they could be stolen. Could someone please explain it? Car analogies OK.

Just about any scenario where money is held as cash or a deposit in a bank account could apply equally to Bitcoin. You give a stack of $100 bills to a bank, they give you a slip of paper showing they have your money and will give it back when you ask. If the bank president or a crooked teller then puts everyone's stacks of $100 bills in a suitcase and disappears, your slip of paper isn't worth much.

In the case of the Pirateat40, it was a classic Ponzi scheme. The fact that it was done with Bitcoins instead of pieces of paper with pictures of dead Presidents and statesmen on them doesn't change much.

Re:Can someone explain this theft?

[OakDragon]

So, the reason for my question is that when I first heard about this, it was presented as a theft by an entity outside of Mt. Gox. These explanations seem like it was inside job. Is that the thinking now?

Re:Can someone explain this theft?

[JoeMerchant]

One difference, most US "banks" that little kids are told are safe to put their money in have a little sticker in the window that says "FDLC insured" - meaning that your little slips of paper are not only backed by the bank, but also by the government.

Re:Can someone explain this theft?

[medv4380]

It's like someone came up to their car siphoned off some gas. Then rather than report that the tank was half empty they ran things as if everything as "ok". As long as people kept putting in gas no one would be the wiser. But when people started taking their gas back, and stopped putting more gas in the tank eventually ran empty before it should have.

Ether it was deliberate theft on part of MTGOX that was done to effectively make a ponzi scheme. It could have been a theft from unrelated parties, and MTGOX lied to effectively create a ponzi scheme to hide the damage. Or, somehow, it was theft from unrelated parties, and MTGOX was blissfully unaware until it all came crashing down.

Re:Can someone explain this theft?

[Trachman]

For a simplistic explanation, think of Bitcoins as golden coins. You can own gold coins/bitcoins physically (keep gold coin in your pocket or keep BTC private keys in your posession). You can also relinquish your gold coin to the bank and have a bank note stating that they owe you a gold coin. In terms of Bitcoin, MtGox acted as a de-facto bank, where BTC owners gave away (or transfered) BTC to Mt Gox and had a false sense of security that their assets were "there". MtGox victims basically entrusted their private key to the third party (MtGox). Now, let's assume, the bank who kept gold was robbed, by someone who dig to the vaults and silently removed gold. The bank kept telling you that, according to their records, you still are the owner of the gold, while in reality they would not be in position to repay you. MtGox did the same thing: their real assets were stolen, while their "paper" records were showing existence of the BTC. This is a simplistic explanation, but, to be sure gold/bitcoins did not just disappear. They only sit in the possession of other owners.

Re:Can someone explain this theft?

[Anonymous Coward]

1. you intiate a transaction with a given transaction id and hash.
2. you initiate second transaction with the same id and a different hash
3. normal bit coin clients know that the second transaction is bogus and fail it
4. your braindead software sees that the second transaction failed and reissues it.

Re:Can someone explain this theft?

[Anonymous Coward]

Mt. Gox is presenting it as a theft by an entity outside of Mt. Gox.

The question is whether you trust Mt. Gox enough to believe that. Other possibilities are:

1. Someone at Mt. Gox stole the money
2. Mt. Gox itself was just a confidence trick designed to steal peoples' money.
3. Mt. Gox was a Ponzi scheme that is now unraveling.
4. Mt. Gox was essentially a legitimate bank, but was run too incompetently to maintain solvency in the face of market fluctuations, and they're now lying to cover up their incompetence.
5. Even the people at Mt. Gox don't know what's going on and have self-servingly decided on an explanation that puts the blame on someone else.

I'm sure there are more options.

Re:Can someone explain this theft?

[JDG1980]

I don't understand Bitcoins in general, but I *really* don't understand the process where they could be stolen. Could someone please explain it? Car analogies OK.

A car analogy? Sure. You're a classic car collector. Because storing and securing your classic cars is such a pain, you decide to entrust them to a business that is fairly well known and respected in the hobby. This business, for a modest fee, says they will keep your classic cars in a secure garage, and also let you sell them to other collectors who are customers of the same service without having to physically move them.

For a while all this works OK. People deposit their cars for safekeeping, they withdraw their cars, they trade them, everything is fine. A few mix-ups and glitches, but nothing out of the ordinary for a business of this size. Then at some point there's a "security problem" that keeps people from taking their cars back. The business says it's because of some kind of flaw in the software they use to track them, but they're working on getting it fixed. They give a date. The date comes and goes, and people still can't get their cars back. The CEO of the company gives excuses – he can't talk about what actually happened, but he promises everything will be OK if the collectors just give him a bit more time. There are complicated issues, but no, your cars haven't been stolen, pinky swear!

Eventually a hobbyist organization that this CEO is a member of decides to kick him out, and puts out an announcement saying that his company is insolvent – as everyone suspected for some time now, he doesn't have the cars he was supposed to be keeping in safe storage for his customers. No one knows where they went, who has them now, or if the theft was internal or external.

And because this company was holding ~6% of all the classic cars in existence, it's kind of a big deal.

Re:Can someone explain this theft?

[timeOday]

Sending your bitcoin to somebody else to hold for you is not a good idea security wise.

Compared to what? Stuffing your savings into your (digital) pillow case isn't a good idea security wise either. Whatever you do, It's going to boil down to something physical that hopefully doesn't break or get stolen, plus a secret that isn't forgotten or discovered.

All around, it's hard to imagine what you could come up with that would beat a safety deposit box at a bank, i.e. letting somebody else hold your bitcoin.

Re:Can someone explain this theft?

[Chickan]

They weren't always FDIC insured. Not too long ago they were not insured at all, so you would only put money in banks that you trusted. These banks still sometimes would fail. FDIC insurance came about to eliminate the fear of a bank collapsing. One day a bit coin exchange/bank may be FDIC (or similar) insured, but probably the whole thin will collapse first.

Re:Can someone explain this theft?

[medv4380]

Actually that slip of paper is worth quite a bit with most US Banks. FDIC insurance will cover the losses to your account unless you're keeping some absurd amount in a single account. And the receipt is proof that you did do a deposit. Similarly a receipt in a cash transaction allows for legal recourse if the person you're doing business with is a thief though not as much as if it were a bank. Unregulated entities, and Bitcoin in general offers very few of the legal protections normal transactions offer.

Re:Can someone explain this theft?

[ClickOnThis]

One difference, most US "banks" that little kids are told are safe to put their money in have a little sticker in the window that says "FDIC insured" - meaning that your little slips of paper are not only backed by the bank, but also by the government.

FTFY.

Other countries protect depositors with similar measures.

Re:Can someone explain this theft?

[ArsenneLupin]

As far as I understood, the Mt. Gox' API had a hole, which allowed customers to withdraw money without it showing up in Mt. Gox's books. Some customers noticed, and overdid it so much that no money was left to honour the other (honest) customers' accounts.

Re:Can someone explain this theft?

[Anonymous Coward]

I don't understand Bitcoins in general, but I *really* don't understand the process where they could be stolen. Could someone please explain it? Car analogies OK.

Just about any scenario where money is held as cash or a deposit in a bank account could apply equally to Bitcoin. You give a stack of $100 bills to a bank, they give you a slip of paper showing they have your money and will give it back when you ask. If the bank president or a crooked teller then puts everyone's stacks of $100 bills in a suitcase and disappears, your slip of paper isn't worth much.

Apparently you've forgotten about a few things. Your slip of paper is guaranteed and insured by the FDIC to be worth exactly what is printed on it, up to $250,000.

This is also exactly what makes BTC more like a gamble than an investment. No different than stocks, people invest in risky things with NO guarantee of return every single day. They just assume BTC is different because it's somehow "currency". Stop doing that stupid shit and wake up.

Re:Can someone explain this theft?

[Patent Lover]

Just about any scenario where money is held as cash or a deposit in a bank account could apply equally to Bitcoin. You give a stack of $100 bills to a bank, they give you a slip of paper showing they have your money and will give it back when you ask. If the bank president or a crooked teller then puts everyone's stacks of $100 bills in a suitcase and disappears, your slip of paper isn't worth much.

In the case of the Pirateat40, it was a classic Ponzi scheme. The fact that it was done with Bitcoins instead of pieces of paper with pictures of dead Presidents and statesmen on them doesn't change much.

This would be a good analogy if you substituted "some guy in an alley" for "bank".

Re:Can someone explain this theft?

[TomGreenhaw]

You are a car rental agency and your customer comes to get the car they reserved. The customer pays and drives off with the car. They return immediately afterward and says they haven't picked up the car yet. Because of a deficiency in the paperwork, the checkout person doesn't realize that a car has already been provided but sees that its paid for and provides a second car. Turns out the customer has used a false identity and can also reissue VIN numbers and now has two cars for the price of one. You look out in the parking lot the next day and realize all your cars are gone and you only have half the money. Crap. Somebody had the nerve to take advantage of a problem in your paperwork system that has been publicly known for a couple years but you have been too lazy and irresponsible to correct.

Its pretty obvious that getting the transaction process fixed is the solution. All the exchanges have or are in the process of doing this. Its too late for Mt. Gox. They and their customers are screwed unless they can come up with a way to trace the funds through a byzantine scheme to mix and anonymize and retract the transactions. Building a warp drive star ship would likely be simpler...

Re:Can someone explain this theft?

[Anonymous Coward]

They weren't always FDIC insured.

Exactly, and before FDIC insurance there were massive upheavals of the monetary system (i.e. people lost their life savings) due to bank runs.

FDIC insurance is backed by the government's power to borrow money, and more importantly to print money. This means that the FDIC can never be insolvent.

There is no equivalent for bitcoin, and there can never be, because no one can print bitcoins. That means that the best an insurer can do is cause you to worry about an insurance collapse instead of a banking collapse. (We got a taste of this in the real world with AIG, and it wasn't pretty.)

Re:Can someone explain this theft?

[1s44c]

The feeling on reddit and bitcointalk is that it was due to unbelievable incompetence by MtGox and not an inside job. They wrote their withdrawal code to throw money away over and over and they didn't audit their accounts for years. They also lied to cover up their losses for maybe a couple of years.

They simply had no understanding of the technology they were using.

Re:Can someone explain this theft?

[wonkey_monkey]

What about letting several somebodies hold encrypted copies of your bitcoin wallet?

Re:Can someone explain this theft?

[Anonymous Coward]

People withdraw part of the money they paid in, and Bitcoins had to be split into change in order to pay them. All transactions with Bitcoin are recorded in a global distributed resource, the "Block chain" and each Bitcoin or fraction of it can only be spent once.

MtGox identified Bitcoins with a simplistic method. When they paid out a Bitcoin, the recipient immediately spray-painted the Bitcoin (or its transfer) in a different color (changed its description to the Blockchain in a manner MtGox would no longer recognize) and injected their version of the transfer into the Blockchain. When MtGox' version of the transfer arrived at the Blockchain, the Blockchain looked at the engine number and said "no go, this car is already sold". Then MtGox looked through the Blockchain to see whether there was a sale of a red car reported somewhere and came up empty-handed.

So they took a different Bitcoin and sent that "instead" instead of trying to figure out just why the Bitcoin they tried sending apparently never arrived according to their search for the red car they put out for delivery (instead of taking the pains of checking the engine numbers).

"Transaction malleability" was the art of stuffing the Blockchain accept a description of the authorized transfer that the optimistically written MtGox software did not recognize as the transfer it initiated itself.

So here comes the Ponzi scheme: stuffing the increasing holes by using the money of customers. Payout of money got increasingly delayed, and the money was used for purchasing the missing Bitcoins elsewhere when people wanted to have them for good (rather than for sending them to another MtGox customer's account).

Re:Can someone explain this theft?

[invid]

You buy a virtual car online.
You store your virtual car in a virtual garage.
The virtual garage collapses to virtual rubble, and all the virtual cars that were once inside are now gone.

Re:Can someone explain this theft?

[Anonymous Coward]

This would only help in the scenario where you have lost all your (own) copies of your wallet, but still have the encryption key for the wallet your friend keeps for you.

What else would it be good for?

Re:Can someone explain this theft?

[Zero__Kelvin]

"Just about any scenario where money is held as cash or a deposit in a bank account could apply equally to Bitcoin. You give a stack of $100 bills to a bank, they give you a slip of paper showing they have your money and will give it back when you ask. If the bank president or a crooked teller then puts everyone's stacks of $100 bills in a suitcase and disappears, your slip of paper isn't worth much."

Somebody should invent the FDIC!

Re:Can someone explain this theft?

[JoeMerchant]

Thanks, though you reinforce my point, exact knowledge of the acronym isn't required to gain trust from the concept.

Re:Can someone explain this theft?

[JoeMerchant]

Funny, on the other end of this thread, I've got people telling me how MtGox hasn't been the "go-to" exchange for nearly six months now - an eternity in Bitcoin time.

I think FDIC came around in the 1930s - well before my parents were born in any case.

Re:Can someone explain this theft?

[endoboy]

Nice analogy... if you want a real world example of this happening, consider the storage facilities for fine wine in Manhattan-- flooded during hurricane Sandy
For (largely unexplained) reasons the storage facilities still won't allow the customers access to (or even look at) the wine they're supposedly storing...

http://www.nytimes.com/2013/12...

Re:Can someone explain this theft?

[zieroh]

Funny, on the other end of this thread, I've got people telling me how MtGox hasn't been the "go-to" exchange for nearly six months now - an eternity in Bitcoin time.

I think FDIC came around in the 1930s - well before my parents were born in any case.

And that was after how many years of the banks not being FDIC insured? If you only go back to the founding of the US (since FDIC is a US thing) that's still about 150 years. And of course banking as a concept goes back quite a bit farther than that.

Re:Can someone explain this theft?

[NiteTrip]

Here's a car analogy. Let's say someone owns a car. Now this person lets you store all your money in that car and gives you the opportunity to buy something digital that represents that money. The prices on this digital currency fluctuates, so you want to keep the money in the car so when the price is low you buy it, and when it's high you sell it. The care is always loaded with money. Well what happened here is the owner of the car drove off with the car and hid it, but said it got stolen.

Re:Can someone explain this theft?

[dak664]

Isn't the history of a bitcoin included in the block chain? And the stolen bitcoins identifiable?

If so whoever tries to use one risks being traced, moreover the recipient could be considered as knowingly accepting stolen goods..

Sort of like the haul from a bank robbery having an indelible "This money stolen from Bank X" printed on every bill.

Re:Can someone explain this theft?

[Zalbik]

Sending your bitcoin to somebody else to hold for you is not a good idea security wise.

Stuffing your savings into your (digital) pillow case isn't a good idea security wise either. Whatever you do, It's going to boil down to something physical that hopefully doesn't break or get stolen, plus a secret that isn't forgotten or discovered.

The GP is saying instead of stuffing it into a digital pillow case, stuff it into multiple digital pillow cases. That way if one of the pillow cases breaks, you still have backups.

If the pillow cases have decent encryption, you don't care if they are stolen. If you lose one, you have backups. If you forget your password, you're an idiot.

Relying on someone else to hold your bitcoins digitally is as stupid as relying on cloud computing to hold sensitive data (without backups). The company holding it might be sad if they lose it, but you are going to be more sad.

Re:Can someone explain this theft?

[Cyberax]

Incorrect. A crooked bank teller would be put into prison and bank would have to compensate you. In the case of a crooked bank president the _government_ (or state-run bank insurance organization like FDIC) would have to compensate you.

The classic banking system evolved for a LONG time to minimize the effects of bank failures and bad bank employees. Besides, it's almost impossible to actually _steal_ money from a bank. Sure, you can rob a bank and maybe get a couple hundred thousands in cash. But stealing any non-trivial sum is impossible, because accounts are not kept in anonymous cash.

Re:Can someone explain this theft?

[JoeMerchant]

Banks have been gaining importance over the centuries.

Used to be that having a good store of grain for the winter was far more important than a few gold coins that you could keep in a pot behind the bed.

Re:Can someone explain this theft?

[PRMan]

Bitcoins are like putting cash in a safe that can teleport anywhere in the world instantly. They can also move your cash to any other teleporting safe in the world by just entering an address and pressing send.

But, it turns out that the process of putting cash into or getting cash out of this special safe has to be handled by a transaction of somebody else who already has cash in their safe. So sites came up allowing you to trade bitcoins. You give them cash to transfer the coins to your safe. But these sites did it by maintaining a giant online safe with all their coins in it, and database entries as to how much of that each person should have.

People figured out ways to trick their database into thinking they has more cash in their account then they should have and then transferred the additional cash to their safe. Mt. Gox was stupid and never ran inventory to notice that they should have more cash in their safe than they do.

If you keep your own cash in your own teleporting safe, it's pretty secure. If you keep your cash in someone else's safe with just a database entry saying how much you should have, that's not very safe. One mistake on their part and you are in trouble.

Does that help?

Re:Can someone explain this theft?

[PRMan]

Stuffing your savings into your digital pillow case is a VERY good idea in the bitcoin world. Because you still get interest while it's in your pillowcase.

Re:Can someone explain this theft?

[PRMan]

Excellent example.

Re:Can someone explain this theft?

[PRMan]

Oh yeah... "IS THIS THE END OF WINE AS WE KNOW IT?!?" Just had to get that out there to complete the analogy...

Re:Can someone explain this theft?

[amicusNYCL]

My understanding, which is admittedly pretty shallow regarding BTC, is that essentially the attackers created 2 transactions, but that Mt Gox saw one. The 2 transactions used the same transaction ID, which is the only thing that Mt Gox used to uniquely identify a transaction, when they should have been using more information (to, from, timestamp, amount, etc).

Basically, the attacker would send say 1000 BTC, and then show another transaction with the same ID where they receive 1000 BTC. The first transaction wouldn't actually be valid, but Mt Gox would still send them the 1000 BTC.

If you want to see the actual transactions, check here. First, notice these are still going on today. The stats on top show that that address has received a total of over 788,558 BTC, and the current balance is 0 (they moved it). In the list of transactions you can see one transaction where they send BTC to a lot of addresses, followed by a transaction where they receive BTC from one or a small number of other accounts. Basically, those requests where they receive money shouldn't have happened, but Mt. Gox allowed it. The fact that transactions are still happening means that Mt. Gox is not the only victim.

Someone figured out that there are wallets or exchanges that are not verifying transactions correctly, and they are exploiting that to steal the coins.

Re:Can someone explain this theft?

[amicusNYCL]

In other words, it sounds like someone with my understanding of how bitcoins work built Mt. Gox.

Re:Can someone explain this theft?

[Anonymous Coward]

There is the correct option, which is not really any of the ones you mention (but 4 is closest).

Mt Gox tried to run as a legitimate bank but due to apparent incompetence left a gaping security hole that allowed transactions to be repeated. So you could essentially double your withdrawals if your modified the transaction id that they posted. They apparently failed to detect this for some time (a complete lack of auditing?).

So due to the thefts via this security hole (and possibly other yet unknown shenanigans) they do not have the assets to back all of the holdings of their depositors. So users (depositors) may think they have a balance of x bitcoins with Mt Gox, but Mt Gox no longer has anywhere near the necessary amount to cover everyone.

When bitcoin was expanding rapidly, the theft and balance issues could go unnoticed since Mt Gox would have so much new incoming money it would cover any withdrawals... but as soon as Mt Gox began to have banking issues in the US and more people wanted to get their money out than in, the issue obviously came to a head.

Re:Can someone explain this theft?

[Anonymous Coward]

It will be curious to see what the police response is to this theft. If you were to steal tens of millions of dollars from an established bank, there would be a significant police response (FBI, Interpol, etc). Will the police mount an equally serious investigation for Mt Gox?

Re:Can someone explain this theft?

[Pope]

Bitcoin was fine...

Nope. Not even close. The blockchain size is getting unwieldy, the entire system is still 51% attack vulnerable, etc.

Re:Can someone explain this theft?

[Pope]

Somebody should invent the FDIC!

...but with BitCoins!

Re:Can someone explain this theft?

[Anonymous Coward]

It's probably not outright stealing; just a mixture of incompetence and shady business practices. At the first sign of impending doom (when withdrawals started becoming a problem and people started warning them about transaction malleability) they should have been honest about what was happening and also halted all trading until problems were ironed out. They should have stopped everything until the problems were fixed (and the bitcoin devs were even willing to help them with this). Instead, they kept trading open, probably in some vain attempt to make it easier to reopen withdrawals. In the process they wound up fucking up the entire market for several weeks, and now it's going to take several more weeks for bitcoin to recover (and probably months for it to get back up to $800).

We don't know what happened behind the scenes at Gox, and since they hold a lot of customer money, they should at least be investigated for fraud. Best case scenario is they are innocent and we all breathe a sigh of relief. But an investigation should be made.

Re:Can someone explain this theft?

[Anonymous Coward]

The transactions can not be undone and there is no state run insurance backing it so they can and will loose your bitcoin.

They can and will set your bitcoin free? Is that what you were really trying to convey? because that's what you said.

Re:Can someone explain this theft?

[n7ytd]

Incorrect. A crooked bank teller would be put into prison and bank would have to compensate you. In the case of a crooked bank president the _government_ (or state-run bank insurance organization like FDIC) would have to compensate you.

The classic banking system evolved for a LONG time to minimize the effects of bank failures and bad bank employees. Besides, it's almost impossible to actually _steal_ money from a bank. Sure, you can rob a bank and maybe get a couple hundred thousands in cash. But stealing any non-trivial sum is impossible, because accounts are not kept in anonymous cash.

As many people have pointed out, regulated banks in the US have the FDIC behind them to give depositors a warm cozy feeling when they drop off their money. In exchange for that backing, the banks agree to abide by a set of rules to safeguard deposits and pay into the fund that is used to reimburse depositors of failed banks. MtGox (and every other Bitcoin exchange) has none of that. Their biggest asset is their reputation, which will never recover from this even if they could scrounge up the money to make whole all of their accounts.

I suppose a better example would be asking your frat brother to hold onto your cash for you. Maybe he could keep it in his glove box, if we really need a car analogy.

Re:Can someone explain this theft?

[JesseMcDonald]

All around, it's hard to imagine what you could come up with that would beat a safety deposit box at a bank, i.e. letting somebody else hold your bitcoin.

You can do that with Bitcoin—perhaps even a bit better. A safety deposit box generally requires two keys, one held by the bank and one held by the customer. The bank has custody of the deposit box, but doesn't have access to the contents without the customer's key (short of breaking it open). You can set up a Bitcoin address which similarly requires two keys to create a spend transaction, one held by the bank/exchange and one you keep to yourself. You can even create a two-of-three address where a neutral third-party can supply the second signature in the event one of the main keys is lost. (Or the bank/exchange could hold the extra key in secure offline storage, etc.)

Re:Can someone explain this theft?

[benjamindees]

With emphasis on the "unbelievable," as in "probably complete bullshit." MtGox has been under investigation for a year now, selectively limiting accounts and withdrawals. Karpeles has said himself that the Bitcoins aren't lost, but "temporarily unavailable." There is likely more going on behind the scenes.

Re:Can someone explain this theft?

[Anonymous Coward]

The feeling on reddit and bitcointalk three weeks ago was that Gox was solvent and was just having technical difficulties. If you listen to those fools you are a bigger fool.

Re:Can someone explain this theft?

[almechist]

There is the correct option, which is not really any of the ones you mention (but 4 is closest).

Mt Gox tried to run as a legitimate bank but due to apparent incompetence left a gaping security hole that allowed transactions to be repeated. So you could essentially double your withdrawals if your modified the transaction id that they posted. They apparently failed to detect this for some time (a complete lack of auditing?).

So due to the thefts via this security hole (and possibly other yet unknown shenanigans) they do not have the assets to back all of the holdings of their depositors. So users (depositors) may think they have a balance of x bitcoins with Mt Gox, but Mt Gox no longer has anywhere near the necessary amount to cover everyone.

When bitcoin was expanding rapidly, the theft and balance issues could go unnoticed since Mt Gox would have so much new incoming money it would cover any withdrawals... but as soon as Mt Gox began to have banking issues in the US and more people wanted to get their money out than in, the issue obviously came to a head.

That would make it a Ponzi scheme, no? Which means the correct answer in GP's list of possibilities was in fact:

3) Mt. Gox was a Ponzi scheme that is now unraveling.

Re:Can someone explain this theft?

[Cruciform]

When you set up a bitcoin wallet it creates a wallet.dat file which contains your private key. This is what you never want anyone else to have.
The clients present you with an option to encrypt the wallet so transactions can not be made without entering a password, but not everyone does it. So if someone gets their hands on your wallet.dat file they can put it in their own wallet and use it to send your coins to another address.

Car Analogy

[Dareth]

You load your friend you car and he promises to take care of it.
You sell your car to a person not your friend.
You ask your friend for the car back. He can't or won't give it back to you to deliver to the buyer.

Re:Car Analogy

[allcoolnameswheretak]

You type out a lame car analogy
You suspect that it is not actually correct
You like to appear knowledgeable and witty, yet
You didn't secure your Bitcoin wallet
You are in quite a predicament, and how?
Your Bitcoins are all belong to me now.

Re:Car Analogy

[Anonymous Coward]

I have a fever, and the only prescription, is more car analogy.

Re:Car Analogy

[JoeMerchant]

Too simple, try this:

There's a budding market in Ford turn indicator lenses - they're exposed to unusually high levels of breakage and common across a large number of models, and the supplier that makes them is having labor troubles, something about the paperwork required to certify them for use growing exponentially.

So, some guy sets up an overseas depot that makes a market in these turn indicator lenses, they'll hook up buyers and sellers of the lenses and allow the market to find its own price point. For convenience, they will hold the actual lenses for you and you can just deal with them in cash.

Somebody runs a classic scam, resulting in less lenses being held at the depot than are promised to be held there. Now, if everybody wants to get their lenses all at once, there won't be enough to go around. The depot halts trading while they sort things out. Unless the scammer is caught and forced to cough up the goods, people are going to be taking a loss due to the missing lenses.

Other depots around the world haven't been scammed, that we know of, so they continue to trade.

Re:Car Analogy

[Anonymous Coward]

Burma-Shave

no paper trail, no hope

[Anonymous Coward]

no paper trail, no hope

You lost your fait assets. Anonymity is a double edged sword, you just felt the bad edge blow.

Re:no paper trail, no hope

[chemish]

no paper trail, no hope

You lost your fait assets. Anonymity is a double edged sword, you just felt the bad edge blow.

Do some research. Fiat is government issued currency and crypto currencies are not really all that anonymous. All transactions can be followed on the chain. The only trick is matching the wallet with a real person but that isn't impossible.

Re:no paper trail, no hope

[1s44c]

Yep. Gone. Poof. The people that lost out though were the ones who didn't do their research. MtGox had been delaying payments for months for about a year, you stay the hell away from companies like that.

Re:no paper trail, no hope

[leuk_he]

Forget the "non"anonymity of bitcoin. The problem is: every transaction becomes final. No reverse.

If i buy a apple, give a (real) coin, i expect a apple in return. If i do not get the apple, I will hold the counter party responsible. (e.g. beat him up/ call the police / etc etc.)

Now the counter party becomes the entire bitcoin public. I give a (fraction of) a bitcoin.... and I fail to get the apple. Now who do i beat up? Who do i call for? How do I tell that the reputation of the apple-seller is bad?

That is where there is no counterparty in the bitcoin protocol. bitcoin only keeps track of the bitcoin transaction, but looses track of the counter-part of the transaction.

For fiat money you can call someone (cop) to mediate the bad outcome of the transaction. For bitcoin you are lost. The coin transaction is deep down in the chain.

That is where the idea of counterparty is born, some way of 2-way commit, or reputation system for party that receives the coin transaction.

Re:no paper trail, no hope

[Anonymous Coward]

There are ways of sending bitcoin in many small transactions from various address from multiple computers. This is what the silk road did. It makes it almost impossible to associate one transaction to a person. The only thing you could really tell is if the person is using the service.

Re:no paper trail, no hope

[Anonymous Coward]

This non reversal can be corrected by putting the money into a escrow or a 3rd party that holds the money for a very small fee until a certain time has passed or both party provide consent to the completion of the transaction. This is how ebay used to work in the early 2000s. Also if there is an issue with the sale you should have legal options. the fact that bitcoin transactions are public means that the transaction can easily be shown to have taken place. You would need to demonstrate that you didn't receive the goods or services you paid for just like with current payment systems. It is really no different.

Re:no paper trail, no hope

[PRMan]

And, even worse, you could have pulled your bitcoins out of there (or bought bitcoins at the current price) and transferred them anywhere in the world up to about 3 weeks ago. And none of these people did. Despite there being a 6-month delay on cash withdrawals for a year and a complete lack of cash withdrawals for over 3 months.

Re:no paper trail, no hope

[quetwo]

But, just like cash, why couldn't you call the cops or "beat him up" when the product is not produced? Nothing with BTC prevents you from doing this.

What you are proposing is similar to eBay or PayPal, and is ripe for abuse just like those methods. You could easily claim you didn't get object X from a BTC transaction and that transaction gets yanked even though you did get object X.

The only way to make it trouble-free is to have a real mediator that can handle disputes. We would all pay to have this mediator (lets call them an escrow), in between each transaction (lets say 3%), and they would be the ones that would mediate the dispute, or take the hit if it can't be resolved.

If that sounds a lot like a CC processor, it is.

Re:no paper trail, no hope

[leuk_he]

You see, by using a escrow service, or someone to investigate the transaction ( tricky, since there is no interface to confirm you own a address) you are introducing a central point of authority again. Just like Mt gox. Would it not be great if the reputation of the receiver of money was maintained at the same time.

Re:no paper trail, no hope

[leuk_he]

That might be an option.... But that processor would have to be build in into the protocol. Not some website where you would have to deposit your (BC) money, you should only risk the transaction fee.

Beside that I can think of 3 modes.
-Reputation monitor, just like you check e-bay reputation or some BTC website WOT reputation. ( I bet this is feasible very simple, but it would double the transaction log. )
-3th party processer that can validate your transaction... but only risking the processing fee.
-Reversible transaction. If some goods are bought that are also reversible, reversible transaction give little trouble.

MtGox != BitCoin

[JohnA]

As posted recently on Twitter by @Henry_Young:

"#MtGox=Service #Bitcoin=Protocol. If Gmail closed would email be dead? No because Gmail is a service & email is a protocol."

Re:MtGox != BitCoin

[Anonymous Coward]

Gmail isn't operating as a currency exchange for a new type of digital currency whose value depends on public image.

Re:MtGox != BitCoin

[Spad]

True, but if Gmail was the thing that everyone associated with email and the only service anyone outside of the email field had really heard of, then it'd do serious damage to email's reputation.

Re:MtGox != BitCoin

[ArsenneLupin]

Gmail already does sufficient damage to email as it is now, it doesn't even need to fail!

Re:MtGox != BitCoin

[Anonymous Coward]

If somebody hacked into Gmail, downloaded every message ever sent, then deleted every message from the server, and then the GMail team said "This was caused by an inherent flaw in the email protocol and all mail servers are vulnerable*", you can damn well bet that everyone in the world would be looking for alternatives to email.

*I'm not saying this is true, only that this is what MtGox seems to be claiming, and to many people MtGox is to Bitcoin as Gmail is to email. Also, email isn't really a protocol. POP, SMTP, IMAP and MAPI are protocols. I'd like to think the folks at GMail would be aware of that, and thus their statement would likely be worded differently.

Ah! westerners in japan ...

[Anonymous Coward]

when cultures collide ... full body bubble baths?

Update, good news!

[eclectro]

I just read online that the flash drive containing the 170K missing bitcoins was just found behind the couch at Starbucks that it slid behind!

Re:Update, good news!

[tech.kyle]

[Citation Needed]?

Re:Cryptocurrency

[Spad]

It would have been fine if they'd kept it in their mattresses, but instead they gave it all to a guy who used to manage Magic The Gathering card swaps.

Old news still $580 /BC

[Anonymous Coward]

This is old news, and shouldn't have been a surprise to anyone who is involved in bitcoin or hasn't been under a rock. The value dipped briefly yesterday but is back to 580 today with little effect.
Mt Gox is no longer relevant to anyone except to another outdated tech page struggling to also stay relevant.

Transaction ID Bug

[Grantbridge]

There was a bug in the code whereby you could get MtGox to send out your bitcoins to your address, but rebroadcast the transaction under a different transaction ID. This mean when MtGox checked to see if their transaction worked, it looked like it hadn't (since the transaction ID didn't match.) They then re-sent you the bitcoins you already had received, giving you twice as much as they should have.

Apparently the bug has been there for years.

It's like getting a cheque, and changing the cheque number from 123 to 124. The new cheque still looks valid so it cashes fine, but you go back to the sender and complain you never got a cheque. They see cheque 123 was never cashed, and so write you a new one. You cash that one as well. At some point they should notice that they've paid out twice as much as they should have, but for MtGox they didn't notice this for a long time.

Re:Transaction ID Bug

[Grantbridge]

http://www.cryptocoinsnews.com...
Has some relevant information.

Re:Transaction ID Bug

[1s44c]

The story goes they were automatically resending these transactions. It didn't require any manual action.

MtGox were amazingly stupid.

Re:Transaction ID Bug

[Kjella]

At some point they should notice that they've paid out twice as much as they should have, but for MtGox they didn't notice this for a long time.

Which shows they're either absurdly incompetent or complicit. Validating the books is incredibly much easier with Bitcoin than regular money because nobody can forge the blockchain. Here's how much money our system thinks we have, here's how much the blockchain says we got and we're not even talking about an audit. We're talking about somebody keeping their own bank account record on a napkin listing deposits and withdrawals without ever checking with the bank what they say the balance is. Honestly, it doesn't sound like a place you'd even want to trade Magic cards, much less "money".

Re:Transaction ID Bug

[number17]

It sounds like there is no audit process to ensure that transactions occur in a proper manner. Could this be happening at other exchanges and how easy is it to implement this bug without anybody noticing?

Re:Transaction ID Bug

[Anonymous Coward]

>Which shows they're either absurdly incompetent or complicit. Validating the books is incredibly much easier with Bitcoin..

meaning that if that had honest accountants they would have had to fake it by summing the fraud + the real to keep them from talking.

with dishonest or no accountants you'd still need to do some make belief math to keep your wallets-ops people from knowing

with dishonest wallet-ops people or a theft baked into the system you could have gotten far but at risk

which is why they * used a proprietary home-brew wallet written by the inner circle.

* must have

if you follow this chain of thought it becomes so soo hard to attrib this happening to ignorance now - internal malice emerged as the likely truth here the moment 'ongoing' joined the word 'theft' in their releases. some time ago too.

soooo... my money's on 'complicit' as long as that covers intentional and by design as well.

actually, i'm not alone with this deduction. see here for more: http://www.zerohedge.com/news/...

Re:Transaction ID Bug

[PRMan]

The other exchanges noticed immediately (within 1 day) and closed withdrawals for 1-3 days to solve the problem and then reopened.

Just accept

[Anonymous Coward]

Just accept that bitcoin was never meant to be.

You talk about bitcoin like it was some kind of sparkling unicorn that's going to solve all our problems... but as you can see, theft, human error, all will still happen. It's currency. Either you regulate it or shit like this is going to happen. You know why it gained this much attention? Because someone said "look, this should be worth real money", than the top nerds got there to mine the crap out of it so to have more of it, not out of thirst for knowledge or feelings of open source bliss or for the benefit of others. It's money dude, and money is all the same.

You say "there can never be more bitcoin than what's mathematically possible", but when that wall get hit, someone someday somehow will find a way to convince the bitcoin community to add more bitcoins and to add "new rules". Then your system you crumble and be corrupted and fail BIG TIME, because you will enter "their" territory, and "they" are there a lot longer than you dealing with real currencies (no matter how failed they are).

why speculate on buyassed pr firm rhetorhea?

[Anonymous Coward]

check it out http://bitcoincharts.com/markets/

slashdot only allows....... check this out http://www.youtube.com/results?search_query=fiat%20currency&sm=3

MtGox was always a joke

[1s44c]

MtGox had been taking months to make payments and they had been doing this for about a year. They made bad excuse after bad excuse for this. They blatantly lied about the delays in support tickets. It was obvious that something was seriously wrong for around a year. I'm sorry for anyone that lost money but there were many obvious warning signs.

The whole world is better off without companies like MtGox. Good riddance to bad rubbish and may they be replaced with a competent outfit.

Re:MtGox was always a joke

[jones_supa]

Yep. Bitcoin can still live, but we must start rigorously monitoring and rating the trust towards various exchanges. As you said, for Mt. Gox it was obvious that something was seriously wrong for around a year. That should have rung an alarm bell.

Re:MtGox was always a joke

[PRMan]

Everybody but the MSM was aware of it. We were all shocked they kept pointing people to Mt. Gox.

Bitcoin is Nuts.

[MarkvW]

To play Bitcoin, you have to trust your Bitcoin exchanges. Those are BANKS, people. UNREGULATED banks!!! Banks have a history of really screwing depositors over when they're unregulated. Bank panics?? Why we have the FDIC?? Think about this for half a fucking second.

How do you know where "your" Bitcoins are right now?

One of the benefits of money is that it's backed up by a social superstructure (police, judiciary, the army, etc.). Bitcoin has none of that. You are on your own.

Re:Bitcoin is Nuts.

[drinkypoo]

One of the benefits of money is that it's backed up by a social superstructure (police, judiciary, the army, etc.). Bitcoin has none of that. You are on your own.

Yes, and if you don't use it in the way they prefer, then police, the judiciary, and eventually the army will be used to force you to do so, or to punish you for doing otherwise. It's not all wine and roses.

Re:Bitcoin is Nuts.

[wonkey_monkey]

To play Bitcoin, you have to trust your Bitcoin exchanges.

What stops a user keeping their wallet to themselves? Is there no mechanism for an individual to make payments without the use of an exchange?

Re:Bitcoin is Nuts.

[Anonymous Coward]

No, banks pay interest, make loans and let you buy stuff with drafts directly from your account. Exchanges don't do that. The problem is people using exchanges as a vault, when they're not meant to be that. Put your money or bitcoins in, make the transaction, pull it out. It's not that hard. Don't expose yourself any more than you have to and don't leave more there than you can afford to lose.

Re:Bitcoin is Nuts.

[Ralph Wiggam]

Bitcoin has none of that. You are on your own.

That was a selling point not that long ago. People pitched bitcoin as the "Wild West", where fortunes could be made quickly using just your wits and some luck.

Most people don't realize that life in the actual wild west sucked. Banks failed all the time, losing people's life savings. People shot each other over mining claims, horses, or just drunken bar fights.

Re:Bitcoin is Nuts.

[Anonymous Coward]

You can make all the bitcoin transactions you want without the exchanges. The exchanges make it easier to turn those bitcoin into your local currency and more importantly, your local currency into bitcoin (can't play if you don't have them).

Without an exchange, you must find an individual willing to exchange bitcoin for local currency.

Re:Bitcoin is Nuts.

[tom229]

To play Bitcoin, you have to trust your Bitcoin exchanges.

Simply incorrect. You could "play" Bitcoin easily without ever touching an exchange. Exchanges are used to... well exchange other currencies for Bitcoin. You can still provide goods and services for bitcoin, purchase goods and services with bitcoin, or mine bitcoin, without ever touching an exchange.

Also, the real issue with MTGox's collapse was not that it was a popular exchange, it was all the people who lost bitcoin because they were storing it there. Storing your money in an online wallet is not required. There's several software wallets, and the source code for the protocol is available so you could even write your own if you'd like.

There may be issues with Bitcoin (deflationary, monopolized network, etc) but lack of regulation in exchanges is a problem manufactured by people that don't really understand the currency.

Re:Bitcoin is Nuts.

[Registered Coward v2]

One of the benefits of money is that it's backed up by a social superstructure (police, judiciary, the army, etc.). Bitcoin has none of that. You are on your own.

Yes, and if you don't use it in the way they prefer, then police, the judiciary, and eventually the army will be used to force you to do so, or to punish you for doing otherwise. It's not all wine and roses.

True, but Bitcoin does offer you much protection if it you use it in a way they don't like either; so you get all the downside of counterpart risk with no upside.

Re:Bitcoin is Nuts.

[Kjella]

To play Bitcoin, you have to trust your Bitcoin exchanges. (...) How do you know where "your" Bitcoins are right now?

In my wallet, which is on my machine. You can't get away from the transaction risk (that you'll send Bitcoins and not get dollars back or vice versa), but keeping it on an account they control is entirely optional and if they stopped processing transactions that'd get noticed really, really quick. Unlike real banks, you lose no interest and it's just as easy to transfer from my client as from an online website, as long as I'm on the machine where my wallet is. Of course the downside is that it's like hiding money under the mattrass, if it gets stolen or destroyed in a fire it's gone. But it still beats storing it under someone else's mattrass, which seems to be the current security level.

Re:Bitcoin is Nuts.

[Zalbik]

Yes, and if you don't use it in the way society prefers then police, the judiciary, and eventually the army will be used to force you to do so, or to punish you for doing otherwise. It's pretty much all wine and roses, as long as you can manage to follow some reasonably sensible rules.

Fixed that for you.

Re:Bitcoin is Nuts.

[drinkypoo]

Fixed that for you.

That's a lot of horseshit. First, it's undesirable to have the government do whatever society wants on a whim. Second, they aren't even pretending to do that anyway.

Re:Bitcoin is Nuts.

[ADRA]

Yes, society is a contract of cooperation and when you fight against general social norms, expect to be punished for it. What now, not fair? Who the hell said life was fair for everyone. I could cry for unborn babies aborted because their potential mothers didn't want them or for the thousands of cattle slaughtered every day, but I don't, and neither do I care about your disestablishmental libertarian views. Society as a whole could care less as well it seems.

Re:Bitcoin is Nuts.

[Anonymous Coward]

One of the benefits of money is that it's backed up by a social superstructure (police, judiciary, the army, etc.). Bitcoin has none of that. You are on your own.

One of the disadvantages is that it's still a system that can be gamed, like the Default Credit Swap and the bailouts that followed, so the loss is shared with you while you had none of the opportunity to share in the gains.

Re:Bitcoin is Nuts.

[PRMan]

Make your trade and then pull your coins into a local offline wallet. You can store a paper wallet at a bank safety deposit box or you can make multiple backup copies of an encrypted wallet and burn them to CDs and put them in various safe places, etc. So yeah, most people know where their coins are because they control them themselves.

Re:Bitcoin is Nuts.

[PRMan]

Yes. Notice that bitcoin is the only method of still supporting Wikileaks, for instance, if someone wanted to do that.

Re:Bitcoin is Nuts.

[PRMan]

Except that I can make unlimited copies of my mattress and store them away from my house. And I can encrypt them so it's a mattress that nobody can tear open, no matter how long they try.

Re:Bitcoin is Nuts.

[m.dillon]

My bank account is 'safe' because if money gets stolen out of it, I'll eventually get it back from the bank, and if the bank goes south, I'll get it back up to the $250K FDIC limit. (And if I have more than $250K it sure as hell won't be sitting in a bank account anyway). My credit card is 'safe' for the same reason.

If your bitcoin wallet gets stolen (for example, by a virus), you have no recourse. Hundreds of millions of dollars worth of bitcoins have been stolen in the last 2 years. Almost a billion dollars, in fact, when include the MtGox heist.

I'll stick with a real bank, a real brokerage, and a real credit card, thank you.

-Matt

Re:Bitcoin is Nuts.

[Anonymous Coward]

You'e simply wrong. All the major exchanges ARE regulated. MtGox was/is registered by the Tokyo Chamber of Commerce and has to work according to their rules. Granted, the regulations are different from what you would expect for a normal bank, but it's not like it's some wild west every-man-for-himself orgyfest.

Re:Bitcoin is Nuts.

[Anonymous Coward]

No, you do not need exchanges (to/from fiat) at all.

You can write a program for me - I give you BTC. (I had BTC from selling linux admin work)
Then you spend BTC to buy domains, pizza, beer, etc.
Now, if the domains guy needs a pizza and pizza guy needs a beer, they can exchange BTC agin.
Now imagine that the pizza guy in the end again wants to hire you to write some program :)

Full circle, currency is used to just faciliate trade (instead of less comfortable barter), you swapped your programming skill for pizza, even though I didn't had pizzas (as barter would require).

Also, we can do the above the same as well dispite of 1 BTC = 0.01 USD, 1 USD, 500 USD or 5000 USD.
(but ofcourse if price is jumping up and down in same day as it does not it requires some margins or waiting... but things were stable most of the time, and in long-term of 3+ months were always increasing in value anyway)

Re:Bitcoin is Nuts.

[Anonymous Coward]

>Simply incorrect. You could "play" Bitcoin easily without ever touching an exchange. Exchanges are used to... well exchange other currencies for Bitcoin. You can still provide goods and services for bitcoin, purchase goods and services with bitcoin, or mine bitcoin, without ever touching an exchange.

Not if you want to buy food or pay rent. Then you have to exchange your digital bullshit for actual money.

Free Market At Work

[Anonymous Coward]

Libertarians should be pleased.

Re:Free Market At Work

[sqorbit]

We are.

Re:Free Market At Work

[HornWumpus]

You prefer the government prop up broken financial institutions.

All things considered, the loses land exactly where they should. A fool and their bitcoins were lucky to get together in the first place.

Re:Cryptocurrency

[Anonymous Coward]

It would have been fine if they'd kept it in their mattresses, but instead they gave it all to a guy who used to manage Magic The Gathering card swaps.

No, they didn't. They gave it all to a guy who bought the business of a Magic The Gathering card swaps side from its original programmers and organizers, extending the site as an afterthought for Bitcoins worth cents at the time.

It was easier to replace lost Bitcoins than cards in stock. MtGox committed the ultimate fault for any business plan: the one thing they had no contingency plan for was success. They had no clue how to patch up the holes in their inventory (or probably even how to take inventory) when the holes became expensive because Bitcoins took off.

Not impossible, but

[Anonymous Coward]

It is not encouraged either.

In fact that is one of the top selling points of the crypto currency, it is fait, it is backed up by NOTHING, no assets, nothing.

Sorry folks...

[kaizendojo]

but I can't feel bad for anyone that trusted a 'bank' called Mt. Gox or 'bankers' named PirateAt40.

Re:Sorry folks...

[Anonymous Coward]

Yeah, because Magic The Gathering Online eXchange sounds like a great name for a company that has a few hundred million dollars of their customers' money at any given time...

Re:Sorry folks...

[jones_supa]

It is also a bit unnerving that the whole currency is created by some mysterious "Satoshi Nakamoto" whose identity is not known.

Re:Sorry folks...

[Anonymous Coward]

Amusingly, Mt Gox users would have been better off buying actual Magic the Gathering cards.

Re:Cryptocurrency

[1s44c]

Cryptocurrency is apparently significantly easier to steal than the cash in my mattress...

Cryptocurrency is absolutely secure. What the MtGox users did was gave their cash-stuffed-mattress to lying scumbags. Sure enough they got robbed.

There were clear warning signs about mtgox for about a year. They were not paying people back. You don't give your cash to people that have a history of not paying cash back. You just don't.

please sell your bitcoins

[Anonymous Coward]

I missed the train, I want cheap bitcoins. 584 is not cheap. Please panic more. Bitcoin is dead. sell to me please

Wrong

[Anonymous Coward]

Wrong. Banks are held responsible for safeguarding your deposits by their regulators. And in the US, your deposits are insured against loss by the FDIC, which collects insurance premiums from all chartered banks in the US.

Who uses bitcoin?

[Anonymous Coward]

Other than internet libertarian moron types and criminals, who even cares about bitcoin? When all of the people involved fall into one of those two categories, how can you expect anything but disaster?

Re:Who uses bitcoin?

[Anonymous Coward]

too many do write down... check it yourself just for kicks http://coinmap.org/

let me tell you about my pokemons...

[Anonymous Coward]

they were all stolen!

Following the money

[goombah99]

So given that bitcoin transactions are all known why can't they trace a suffient number of these back to wither a source or to nullify the recipient's income?

that is even if the person doing it hid there tracks at some point they would have transacted those bit coins, possibly to some third party (e.g. to convert them to dollars or buy a pony). Or they might have transmitted them into some combined tumbler to anonymize the trail. But with real currency if I rob a bank and buy a car with the money the money can be seized from the car dealer if the cops so decide. With bit coin there's no mechanism to do that. The whole bitcoin ecosystem would have to agree to the seizure to unwind the transaction trail. It would also require a lot of new non-trivial calculations to do that back multiple years.

But in principle these transactions are at least tracebale. Perhaps the problem is it's international and Mt GOx doesn't have the resources to trace this?

80 years of FDIC insurance

[sjbe]

They weren't always FDIC insured. Not too long ago they were not insured at all...

The FDIC has been around for 80 years. Strange definition of "not long ago" you have there.

so you would only put money in banks that you trusted.

It's a lot easier to trust a bank when it is backed by the taxing authority of the US government.

One day a bit coin exchange/bank may be FDIC (or similar) insured, but probably the whole thin will collapse first.

I think it is deeply unlikely that bitcoin will ever be backed by the US government or any similar institution.

Re:80 years of FDIC insurance

[lgw]

It's much more likely that banks will offer uninsured BTC-denominated accounts, giving you safety from theft but not from bank collapse. Banks have a history of doing this with foreign currencies to avoid reserve requirements. Back when inflation was 10+% and US savings accounts were legally capped at 5.25%, you could put your money in a European bank and get real interest, but no insurance: "Eurodollars". That sort of account is called "EuroFoo" now, so EuroBitcoin accounts really wouldn't be all that different.

The upside of that arrangement is: it's still a regulated bank! Banks fail far less frequently than home-made BtC exchanges in recent decades. (OTOH, when the sovereign debt bubble bursts: look out below!)

Re:80 years of FDIC insurance

[sjbe]

Back when inflation was 10+% and US savings accounts were legally capped at 5.25%, you could put your money in a European bank and get real interest, but no insurance: "Eurodollars"

Right, but even then dollars were MUCH more stable currencies than bitcoin. If I were a bank I wouldn't touch bitcoin with a barge pole. There is a reason banks tend to avoid foreign currencies with high inflation or heavy volatility. Very hard to make money.

Banks fail far less frequently than home-made BtC exchanges in recent decades.

Umm, banks fail all the time. Much more often than most people are aware.

Re:80 years of FDIC insurance

[lgw]

Oh, I think the chance of EuroBitcoin accounts happening is quite small, but still higher than the 0.0% chance of FDIC-Insured Bitcoin accounts.

Very very few of those banks actually fail. Instead, the FDIC says "things don't look that good right now for your bank, so we're just taking it from you and giving the customers and assets to someone we like better" long before the bank actually fails. It works pretty well as a system, and keeps the FDIC payouts quite low (you can see in that list only a couple of banks that failed with "no acquirer"). However, it's a system ripe for government abuse as well - for now the government still merely aspires to be as abusive as banks, so it's a good system.

So ... who stole the $400Mil?

[Anonymous Coward]

I see a lot of folks wasting heat over perception of bitcoin and "stupid" programmers at MtGox. But no one is talking as to where the money went. $400M is a hell of a loot! There isn't a crime syndicate on earth that wouldn't think of this as a huge win. So ... who stole it?

CNBC "Experts"

[tekrat]

When bitcoin hit $1000 each, all the talking head "experts" on CNBC were pushing it as an investment vehicle. It was then that I was positive the whole thing was a scam. After all, if there's one thing you can be sure of, it's that just about anything recommended by CNBC is wrong.

What is the advantage of a Bitcoin bank?

[jhumkey]

I've tried before, I'll try again . . .

(I don't have any but . . .) What is the advantage of putting all my Bitcoins in a Bitcoin bank?
I can see (for a few milliseconds while passing through) converting real works $$$'s to/from either a credit card or REAL bank account . . . into Bitcoins, then I KEEP the Bitcoins.

I thought that was part of the purpose/advantage of Bitcoins, they're Peer-to-Peer and need no bank.
It seems to me the only purpose of putting Bitcoins in a Bitcoin Bank . . . is to lose them when it goes under.
Physical assets (tangible cash, or jewelry in a safety deposit box) . . . sure, in a real bank.
Other than having a place to risk losing it all. What is the advantage of having a Bitcoin bank? When I can perform all my necessary transactions Peer-to-Peer, and only need have ANY funds "in" a bank . . . for the brief sub-second time it takes to convert it to/from some other currency.
And I'm not asking that they do the currency conversion for free . . . charge a fee.
But why do people "deposit" Bitcoins? I've searched, and read . . . I'm just missing something obvious I guess.

Re:What is the advantage of a Bitcoin bank?

[jones_supa]

I thought that was part of the purpose/advantage of Bitcoins, they're Peer-to-Peer and need no bank.

I was under that impression too.

Re:What is the advantage of a Bitcoin bank?

[sourcerror]

To convert bitcoin to USD/EUR and vice versa.

Re:What is the advantage of a Bitcoin bank?

[coldsalmon]

A Bitcoin bank could theoretically make a lot of money by manipulating the market. The bank could sell all of the money it borrowed from its depositors (deposits are loans to the bank), crash the market, then buy back the devalued Bitcoins at a lower price and return them to its depositors. In an unregulated, inefficient, and ignorant market like Bitcoin, a big player using other people's money could do a lot of things to enrich itself. Oh wait, were you asking about the advantage of USING a Bitcoin bank rather than BEING a Bitcoin bank? Can't help you there.

Re:What is the advantage of a Bitcoin bank?

[PRMan]

(I don't have any but . . .) What is the advantage of putting all my Bitcoins in a Bitcoin bank?

Nothing. You should not leave your coins on an exchange when it's easy to print a paper wallet or at least store an encrypted wallet on your PC at home which you leave turned off.

I can see (for a few milliseconds while passing through) converting real works $$$'s to/from either a credit card or REAL bank account . . . into Bitcoins, then I KEEP the Bitcoins.

You are 100% correct. My bitcoins were on Mt. Gox for less than 1 minute. Just long enough to trade and transfer.

I thought that was part of the purpose/advantage of Bitcoins, they're Peer-to-Peer and need no bank.

Again, you are 100% correct.

It seems to me the only purpose of putting Bitcoins in a Bitcoin Bank . . . is to lose them when it goes under.

It's laziness. You don't have to 1. Download the wallet (same as any other Next Next Next Windows install) 2. Copy a code and put it in the Send Bitcoins page at Mt Gox 3. Encrypt your wallet with a long passkey.

Physical assets (tangible cash, or jewelry in a safety deposit box) . . . sure, in a real bank. Other than having a place to risk losing it all. What is the advantage of having a Bitcoin bank? When I can perform all my necessary transactions Peer-to-Peer, and only need have ANY funds "in" a bank . . . for the brief sub-second time it takes to convert it to/from some other currency. And I'm not asking that they do the currency conversion for free . . . charge a fee. But why do people "deposit" Bitcoins? I've searched, and read . . . I'm just missing something obvious I guess.

People. Are. Lazy. I have a friend that I told 7 times to move his money off of Gox because they were shady. I even sent him $2 worth of bitcoins to force him to open a Coinbase account. I sent him screenshots showing him exactly how to do the transaction. He's a software developer, so this stuff isn't beyond him. He never listened and lost all his bitcoins (more than 10).

Re:What is the advantage of a Bitcoin bank?

[benjamindees]

MtGox was not really a bank. It was a trading platform. Keeping Bitcoins on deposit there would allow you to place limit orders.

Bitcoin is unsafe

[rmstar]

[link] Has some relevant information.

Thanks for the link. I find it especially interesting how careful you need to be to not risk getting robbed. See this email on the bitcoin dev list for some details. Among other things, it permeates that the problems that bit MtGox haven't been solved conclusively.

Clearly, the average person on the street should stay clear of things like bitcoin, because you really have to understand the protocol and know exactly what you are doing. The folks at MtGox surely spent some thought on this, and now look at this fuckup. They are in huge trouble right now.

Re:Bitcoin is unsafe

[Anonymous Coward]

This is 100% wrong.
Normal person just sends his coins to address X, if coins are in address X (after waiting 10 minutes, or 1 hours to be ABSOLUTELLY sure), it is fully guaranteed (by mathematics) that owner of address X really "has" the coins - that he can spend them (no one can reverse transaction, double spend or "bounce cheque" or anything).

What was complicated a bit, was for DEVELOPERS writting the exchanges. This experts were warned to NOT use transaction ID because it is NOT a constant number so it's stupid to reply on it. Instead developers of exchanges should check the recipient address, amount etc.

So you can do anything just do not store only the transaction ID as this is not secure.

Guess what did Mt Gox used to track their transactions...

Re: Update, good news

[Anonymous Coward]

At least give credit when you repost reddit jokes.

Re:Cryptocurrency

[PRMan]

And up to about 3 weeks ago, you could transfer your bitcoins to anywhere in the world from Mt. Gox at any time for free. But you couldn't get your cash out. Anybody who didn't move their bitcoins out when this was the case is just stupid.

inside job

[goombah99]

right, theres no reason a Bank should hold you bitcoins. its not like you need a vault room for them. Since we don't yet know who ended up will the ill gotten gains, isn't it possible that the culprit here is someone inside Mt Gox? who better to engineer this backdor transaction replication and to keep it unnoticed for years. But to do that they would need to have your bit coins in their vault. If you keep them they can't do that.

not the story MtGox tells

[dutchwhizzman]

MtGox tells us that they don't have those lenses any more, because people claim they didn't get lenses when they wanted them from MtGox, but they did get them delivered. MtGox now says that their stock inventory program was flawed and that this, combined with a flaw in the shipping companies track and trace software resulted in people maliciously requesting double deliveries.

This results in two observations. 1) The "flaw" in the track and trace was a long time known thing and everyone had found a way to deal with it, except MtGox. Due diligence anyone? 2) MtGox didn't do proper inventory counts and only found out that they had no lenses left when their warehouse was completely empty. Again, due diligence.

I don't know about the Japanese law, but it seems to me that because of the lack of due diligence, the management of MtGox would be personally responsible in a lot of jurisdictions for this fiasco?

Re:not the story MtGox tells

[JoeMerchant]

So, it was the classic double payment scam, and there might have been a lot of scammers taking advantage.

Personally, I'd like MtGox to pursue the scammers and expose some of the worst ones, just to deflate this whole anonymity of Bitcoin myth.

Mt Gox theft car analogy

[Cajun Hell]

I *really* don't understand the process where they could be stolen. Could someone please explain it?

Someone ran TV ads saying "I run a car exchange. Send me your money and I will send you a car some day. Or send me your car and I will send you some money some day."

People sent their cars and money. At first, the company appeared to be doing business normally, and with an expected markup. People would send them a car worth $10000 and they'd get back a check for $9000. Or they would send $10000 cash and get back a car worth $9000. It looked fairly reasonable as long as you didn't ever read anything that company's founder ever wrote, where he seemed kind of thoughtless or foolish about both money and cars. But hey, life is complicated and it takes all types.

One day, people noticed they would send $10000 cash and instead of getting a $9000 car, they would get a note saying, "oops, your car isn't ready yet. Hang on." Some of those people would say "ok, give me my $10000 back," and the company would say "Um, we're having computer problems. We've sort of forgotten who has sent us money and got a car in return, and who hasn't. Give us a few months to sort it out. You know how computer problems are. Please bear with us!"

Then one day the company closed, while they still had a bunch of peoples' cars and cash, that they never gave back. The cars and cash are somewhere, but not in the possession of the people who sent them. The person who has them, is considered to be a thief.

Then people read the news story and said "See? This proves that car technology doesn't work."

Re:Cryptocurrency

[Anonymous Coward]

Cryptocurrency is far from absolutely secure. If one party controls 35%-50% of all bitcoins they can alter the way the entire network functions this could be the case with a very large bitcoin bank or a number of bitcoin banks working together to alter the market. Also the crypto part of the currency can be stolen. such is the case with viruses that now look for the private key on personal computer so they can transfer the bitcoins. Even if you print the keys on to paper and destroy the digital copies of the key the security of the money is dependent on the security of the paper the key is printed on. However I do agree with you Mt. Gox should have gone along time ago. How many fuck ups did they do and never addressed the issues. Their shitty business practices has tarnished and hindered bitcoin adoption.

Bitcoin is akin to early American banks

[JoeyRox]

In the old days before the FDIC and the Federal Reserve, bank runs and collapses were common place. The FDIC and Federal Reserve were confidence measures, meant to reassure a weary public that their money was protected against fraud and the vagaries of fractional reserve lending. The true stability of those institutions in times of systemic crisis can be debated but they do serve their purpose for isolated failures. Bitcoin is going to need similar institutions to achieve mainstream adoption.

Re:Bitcoin is akin to early American banks

[coldsalmon]

Of course, even that system was constricted by the gold standard, and governments ran out of money for bailouts during the depression. To really achieve mainstream adoption, Bitcoin will have to stop being deflationary, and allow a central authority to control the money supply in the event of a crisis. Bitcoin is great fun as a teaching tool, because it shows exactly why all of the institutions surrounding modern currencies have developed. Those who are ignorant of history are doomed to repeat it, to the great amusement of everyone else.

Re:Cryptocurrency

[Anonymous Coward]

A note: Magic The Gathering: ONLINE. That is, it was actually the (Magic The Gathering: Online) Exchange.

Pretend Magic cards. Somehow it all seems even more appropriate that way.

A CEO assures me something is bening done

[Anonymous Coward]

I feel better already

"irreversible"

[Anonymous Coward]

Technically, if the community agreed, they could reverse any transaction.

It could be worse

[radarskiy]

Mt. Gox could have been regulated like a bank. Then we would REALLY be in trouble.

Magic The Gathering Online eXchange

[Anonymous Coward]

"Sorry about your life savings but we were having a bit of a plague rat problem here."

FDIC

[Anonymous Coward]

FDIC. Thanks for playing.

Re: Cryptocurrency

[Anonymous Coward]

No, it's 35-50% of the mining power, not of the coins, that you need in order to hijack the system.

No surprise?

[Anonymous Coward]

Pretty easy to say ex-post-facto that something "should come as no surprise". Maybe the smarty-pants who said this would now like to tell us a bit about our future. What other events will soon happen that "should come as no surprise"?

The good news is...

[Applehu Akbar]

...that just in time for spring, tulips will now be on sale.

everyone knew for a long time--- proof please.

[Anonymous Coward]

Keep hearing the same meme, everyone who was in bitcoin knew mt. gox was bad. YET, no frigging articles. ever none. YET gox was the largest by far of the exchanges, capturing 70% of the market. IF it was so bad why was he on the board? ahhhh every piece of evidence points to SCAM and all these people saying everyone knew- I call BS. There was no other exchange doing the amount of business, and almost every other week a exchange would get "hacked" and go under, with the CEO poping up doing something offline with the clients money- best scam going. nobody is even questioning that this GOX guy is telling the truth, has a 3rd party security firm even confirmed that it had actually been hacked? no.

Suck it losers, this is another ponzi, fanatics will be there to to the end, when bitcoin is worthless.

moo

[Anonymous Coward]

Sorry if I'm a bit illiterate about the whole Mt.Gox scandal, but what do you mean with "technology" (Is it they choose inferior technology, thus having an unstable/slow site? Was it their ignorance of computer security? Or was it just some kind of bug that caused a meltdown?)?

storing bitcoins

[Anonymous Coward]

I already keep most of my bitcoins in my personal wallet. Since bitcoin-24 went down, but no one remembers that anymore, i got lucky, got my stuff out just at the last minute.

Storing your wallet yourself IS way more secure. It is quite hard to steal you wallet if it stits on an encrypted drive, encrypted home folder and encrypted wallet. So you have to break 3 encryptions just to get to the wallet. Good luck with that.

And yes, i have backups of it in several geographical locations.

So how are you going to steal them? You break in to my home and take my PC, doubt that the average burglar even knows what bitcoin is, not to mention breaking encrypted disks....

FDIC is Moral Hazard

[Anonymous Coward]

FDIC resulted in the dollar losing value due to inflation. The charts are freely available. Competition of banks with no FDIC and mandated anything would result in survival of the fittest. Instead most are clueless about finance. Fractional Reserve Banking bakes in big crashes and debt is called in.

Bitcoin Rehypothication

[Anonymous Coward]

Bitcoin got into trouble because they were trading a "held" bitcoin many times over. Just like Wallstreet did with CDOs.

BITCOIN Collapse .....

[TheRealTruth]

THE SOONER...the better!!!