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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."
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.
SJW n. One who posts facts.
Risk? In a commodity that has regular 2x and 0.5x value swings in a single day? Say it isn't so!
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.
I only look human.
My mother is a halfling and my dad is an ogre, so that makes me an Ogreling
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.
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.
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!
Take the cheese to sickbay, the doctor should see it as soon as possible - B'Elanna Torres, "Learning Curve"
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?
Dark Reflection
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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...
Greed is the root of all evil.
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.)
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.
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.
but I can't feel bad for anyone that trusted a 'bank' called Mt. Gox or 'bankers' named PirateAt40.
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?
Some drink at the fountain of knowledge. Others just gargle.
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...
I've tried before, I'll try again . . .
.) What is the advantage of putting all my Bitcoins in a Bitcoin bank?
(I don't have any but . .
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.
No, I don't remember your name. But the memory mapped screen on a TRS80 from 1977 is from 15360 to 16383 if that helps.
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.
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.
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.
"Our two-party system is like a bowl of shit looking at itself in a mirror." - Lewis Black