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The Tangled Tale of Mt. Gox's Missing Millions
jfruh writes "What went wrong to produce the spectacular implosion of bitcoin repository Mt. Gox? Well, according to some preliminary investigation from the IDG News Service, pretty much everything. There was a lack of management oversight and 'culture,' the code running the site was a mess, and the CEO seemed more concerned about his plans for a 'Bitcoin cafe' than he was about his Japanese bank closing the company's account."
Really?
Greylisting is to SMTP as NAT is to IPv4
Stop relying on your spelchekker, people. It's like everyone sees your lips moving while you read.
Oh, my soar eyes.
...that all scrip currencies are going to find themselves subject to attack from all sides? Wasn't it obvious that governments are going to have a problem with it due to a lack of ability to regulate/tax, banking systems are going to have a problem with it due to their not having a role in something that could be lucrative, and criminals are going to be interested in exploiting the lack of government oversight in order to either profit through its use or through outright theft?
A coworker previously had sang the praises of Bitcoin, but it sounded like he was approaching it from a stock market speculation angle, as in the more it grows the more he was interested. This wasn't long before it started making the news big-time, and like all bubbles, once everyone is involved it usually means that it's time to get out. And also like other bubbles, it has started experiencing the bursting that kills value.
Bitcoin is interesting, but for something so libertarian requires way too much third-party interaction in order to practically use it, and those third-party gatekeepers are the perfect targets.
Do not look into laser with remaining eye.
The editors have a ruff job. Them have two get those articles up in time for us too sea abd meat there quota. Working four Dice must bee really hard considering that there job cold be sent oversees at anytime!
the code running the sight was a mess,
is particularly irritating.
sed -e 's/Chuck Norris/Rajnikant/g' joke > fact
I believe it was the Medici family which first documented the need for bank regulation in the 1500s, although it is possible that other civilizations with extensive merchant activity may have realized that earlier but not left records. Bank and banking system failures in the 1600s, 1700s, 1800s, and early 1900s led all nations with large merchant, industrial, and financial economies to pass and implement banking regulation, oversight, and auditing requirements.
Bitcoin? "Freedom!"
sPh
Presiding over it all was CEO Mark Karpeles, who uses the online moniker MagicalTux. The attendant image of Karpeles as a stage magician may now inflame Mt. Gox customers who suspect their losses are due to sleight of hand, not sloppiness or outside thieves.
I make exchange sight .... .. POOF .. it's all gone ..
I get beetcoin
I get more beetcoin
I get some more beetcoin
some more
and
Thank you come again
The only anonymity the users have is the notion, these bitcoin wallets exist only in the bitcoin universe and it can not be linked to real life entities. This is a big assumption to make. Whenever bitcoin universe intersects real universe there is potential for the anonymity to be broken. A vendor delivering goods maintaining records like "bitcoin wallet xxx placed order for yyy delivered to address zzz" will link the wallets to real identities and clues.
I thought "These blocks go well into the past, so people who have conducted illicit transactions in the past also have their wallets linked to the transactions. These can not be erased or modified. Multiple copies of the blocks exist. So the law enforcement can catch them years from now". More informed slashdotters explained that those "expired" blocks have been purged from most miners. Only their final checksums were carried forward. So past transactions to buy drugs or something can not be decrypted.
But NSA and other agencies have been sucking up internet traffic like a giant vacuum. They know more about the value of the blocks being validated (Mining is a misleading term. Mining is repeatedly validating the block till the checksum meets a criterion). Those blocks exist in the vault.
So yes, every time a drug dealer or a hired assassin gets nabbed and his/her bitcoin wallet gets decoded, all the wallets that dealt with him will be recovered. The web will grow. There is potential for a very large number of people to be caught by the law years after their "illegal" activity happened. If it is a time bound offense they might be lucky. But there is no statuette of limitation for murder and other higher felonies. Bitcoin blocks might turn out to be a huge law enforcement tool after all.
But most likely to catch illegal downloads than drug dealing, given the tenacity and connections of MPAA and RIAA.
sed -e 's/Chuck Norris/Rajnikant/g' joke > fact
who has lost real money by "investing" in Bitcoins than I have for anyone who lost real money by "investing" in beany babies. Like my momma always told me, "stupid is as stupid does".
Mt. Gox was run by a drug-addled manchild. How is this outcome surprising at all?
The drug culture is fundamentally incompatible with responsible adult life, and especially banking. Just look at what our coke-addled bankers did in the US! Nothing new here..
Buy all you can. :)
The only thing that cannot be fudged is that we cannot make. Gold keeps it's spending power over long stretches of time.
I'd go on a Vegan diet but the delivery time from Vega is too long. --brownkitty
Turns out those evil corporate bankers with their evil statist money turn out to have some useful skills. Like, they know how to prevent the theft of a good chunk of all the money in their world. Apparently it involves boring stuff like spreadsheets and regulations and corporate hierarchy rather than algorithms, so that's kind of a drag, but so it goes.
Bitcoin can't and won't survive without regulation, and all (most) countries have said they won't, so... Many a fool and his money shall soon part. ; ) it'll be interesting to watch. 500 million dollars go missing, and the funny thing is governments don't really seem to care that anti-government investors lost their ass. LOL
What's important to realize is that the dollars won't go missing. They're still around - they have just changed hands. And that seems to be the real purpose of Bitcoin - have real money change hand, and mostly to the early adopters and those who get out in time.
In itself, bitcoins have no value. The only value comes from what other values people exchange bitcoins for. It's a parasite economy that depends on non-bitcoin money for backing.
And it's irrelevant. Can we forget it soon, like we've forgotten other ponzi/pyramid/tulip schemes? It's not worth mentioning - let fools and crooks shift real money around between themselves. The losers will deserve it, and while the winners don't, they're not worth losing sleep over.
"Tokyo police are now scratching their heads. "The National Police Agency seems to lack the ability to analyze the bitcoin trading history of Mt. Gox," a government official told a source probing the investigation."
that's not a bug, it a feature.
never bring a twinkie to a food fight.
In short, buy AMD and nVidia stock. Especially nVidia, with their new Maxwell GPUs.
Get free satoshi (Bitcoin) and Dogecoins
Hey, what a coincidence! My company is doing poorly because it's run by incompetent idiots too! Small world, huh?
In itself, bitcoins have no value. The only value comes from what other values people exchange bitcoins for. It's a parasite economy that depends on non-bitcoin money for backing.
By this logic, paypal, western union, moneygram, ect.. are all worth nothing and the stockholders are being fleeced.
The value of real money is in being a by-currency for minerals and materials with actual, practical utility. Where is the practical utility for bitcoin?
The practical utility of Bitcoin:
1) Provides a deflationary currency in a sea of inflationary options. Useful if you live in a country with mild inflation like the US, extremely useful in countries with hyperinflation like Argentina.
2) Allows you to use escrow for free and remove all counter party risk with mutisig authentications- bitrated.com is one example.
3) A much cheaper and secure payment protocol where you can reduce merchant processing fees 2-7% lower than credit cards and not even worry about the volatility because you instantly transfer into fiat of your choice. - bitpay.com
4) No chargeback risk is great for merchants.
5) No risk of frozen accounts for consumers or businesses.
6) Provide an option in third world banks for the unbanked or underbanked
7) Ability to instantly send money around the world instantly and not have to wait days for wires or ACH payments.
8) Cost to send money is half a cent to nothing for almost any amount you can think of.
9) International currency that gives you the option of not worrying about merchants banning you. An option of free speech where you can donate to non-profits like wikileaks.
10) Smart contract systems, Time locks, DAC's , Oracles, ect....
The list is much larger than this but the important take away is that Bitcoin isn't just a currency but a new technology which is extremely useful because it has over a billion dollars worth of infrastructure behind it and efficiently solves the Byzantines' generals dilemma. It is likely that Bitcoin will be used by most in the future whether they are even aware of it or not because of what it can accomplish just like how most use HTTP and TCP/IP protocols daily and have no idea what they are.
In itself, bitcoins have no value. The only value comes from what other values people exchange bitcoins for. It's a parasite economy that depends on non-bitcoin money for backing.
What distinction do you think you're striking between BitCoin and "real money"? You can just as easily use your same construct to (correctly) say, "in itself, the U.S. dollar has no value. The only value comes from what other values people exchange U.S. dollars for." This is the very definition and role of currency.
And it's irrelevant. Can we forget it soon, like we've forgotten other ponzi/pyramid/tulip schemes? It's not worth mentioning - let fools and crooks shift real money around between themselves. The losers will deserve it, and while the winners don't, they're not worth losing sleep over.
I don't understand how you qualitatively distinguish the BitCoin bubble from, for example, a stock bubble, or even the price of a stock being moderately driven up higher than its fundamentals will bear. The same thing happens -- when the music stops, the last to buy gets left holding the bag, right? Do you consider yourself to "deserve it" when your 401(k) goes down because your fund manager didn't get out in time?
around July 2013, Bitcoin entrepreneur Roger Ver visited Mt. Gox's Tokyo headquarters. He published a video saying he believed the company's withdrawal problems were caused by the "traditional banking system, not because of a lack of liquidity at Mt. Gox."...
In an email interview last week, Ver recalled his meeting with Mt. Gox: "I watched him [Karpeles] log into his online bank account in real time and saw the balances with my own eyes. They had a huge amount of U.S. dollar liquidity at that time."
Yea, that's how a CPA would conduct an audit. No chance of anything sketchy going on with that kind of oversight.
Video cards are ineficient now for Bitcoin. Mining has moved to ASICs.
"Spaghetti code" is what developers say when they're confronted by code that exceeds their capacity to understand complexity.
Look at the very title of this submission. The "Missing Millions" are a reference to money, not Bitcoin.
That pretty much sums up Bitcoin and how it doesn't stand on its own.
The main problem with Mt. Gox was not that the code was a mess. It was a lack of basic financial controls. Mt. Gox lacked a chief financial officer, a controller, inside auditors, outside auditors, a board of directors, an audit committee, and a compliance officer. Yet they were doing a billion dollars of transactions a year. It's not even clear that they have a general ledger listing all transactions. Lack of financial controls is usually considered an indicator of fraud. I've been making this point on bitcointalk for the last year. None of the "Bitcoin exchanges" have proper financial controls. None have an outside auditor and published audits. Yet they're handling far too much money to operate that way.
As for "The National Police Agency seems to lack the ability to analyze the bitcoin trading history of Mt. Gox", that seems to be correct. One would think that the Japanese National Police Agency would have a cyber-crime division, but they don't. In 2013, they were trying to beef up their capabilities in the computer area. This is embarassing for a developed country. Today, any sizable financial mess involves computers, and Tokyo is a major financial center. Untangling any business collapse requires computer forensics and forensic accountants.
The Tokyo police have a backup option - putting Mark Karpeles through one of their standard 23-day interrogation sessions. That's probably going to happen at some point.
Mt. Gox didn't have that high a transaction rate. They only did two or three money transactions a minute on average. They had a lot of traffic from people querying their site for market info, but that's all read-only traffic, and they had nginx and Amazon AWS to help with that.
Their use of PHP wasn't the real problem. From the leaked code, a big part of the problem seems to have been that the front-end system that talked to web users also handled the money. Banks have a separation between the front-end web system and the money system, with standard-format transaction items flowing between them. All those transaction items are logged, often by a third system that just does logging. This allows auditing. It's separation of function that's important, not the language. As far as anyone can tell, Mt. Gox had nobody on staff who understood this.
This all screams "inside job". If you're running a business that handles a lot of money and you lack financial controls, you're scared that someone will rip you off. Unless you're the one doing the ripping off.
I do not do bitcoin, i have neither the bandwidth to waste or the gpu hardware to mine and also not run microsoft windows that seems to scream btc fan.
I do need bitcoin not much per year (under 100 dolars) , and so tried to open an account with mtgox.
I got the governental forms [months pass], that got me a updated drivers license and passport and submitted them to magic the gathering exchange to verify my id. but I kept getting rejected. I had no value in the account.
So three months after i start this and still getting nowhere with the identity verification i email them and say please cancel the account.
Oddly that means approve in magic speak.
Somehow that concerns me and this was last year so i do not anything with this thing, and spend some time getting an independent wallet which takes a couple of months to download. Then mtgox go bankrupt.
I have a btc wallet, it has no money in it, and i have not spent money to do anything with bitcoin so far.
Maybe i got lost in translation but i am glad i never had any further dealings with mtgox
The value of a currency is often predicated on having enough of a market in which to spend it.
The US government backs the USD in two important ways; the first, though FDIC et al, by ensuring that there are safe places to store your USD while you're not using them. As we can see, that's not an insignificant benefit.
The second is by guaranteeing that you'll be able to use those USD to pay all of your public debts - taxes, fees, permits, &c. That automatically grants a critical mass as far as having places to spend USD, which means that other people will accept the currency, which then snowballs until you have an effectively universal acceptance rate.
Currently, no Bitcoin backers offer anything close to either of those two benefits.
You're special forces then? That's great! I just love your olympics!
The blockchain is currently about 15GB, and grows every time there's a transaction. That's a problem. Most phones don't have 15GB of free space. You'd have to get an SD card, just to hold it and that is only a temporary solution, since it'll keep growing.
Also this would be a real problem if BTC was actually used like a major currency and not just played with by speculators as the number of transactions would be orders of magnitude higher, and thus so would the growth.
So it would be totally unrealistic to just store it on mobile devices, which is something you'd probably want to do if you were going to use it as a general purpose kind of payment system, security issues aside and those are not minor.
So where do dollars enter and leave the system with the price of Bitcoins going up and down?
Bitcoin is actually a distributed peer-to-peer ledger that keeps track of who has the coins. The coins themselves don't actually exist. It's like if you and I both have bank accounts in the same bank and I write a check to you and you deposit the check. The bank reduces my balance and increases yours by the check amount. This works even if there are no actual physical dollar bills in the bank anywhere.
Mining is doing that bank teller work (increasing and decreasing other people's balances when transactions are requested), and the tellers (miners) are paid for that work with small amounts of the same virtual coins for each transaction they process.
The brilliance of the bitcoin protocol is how it automatically prevents both the bank tellers (miners) and bank customers (bitcoin users) from embezzling virtual coins or inflating the virtual coin supply.
If one more person quotes the Byzantine's general dilemma on this thread I'm going to projectile vomit. Enough all ready with the pointy head nonsense,
By this logic, paypal, western union, moneygram, ect.. are all worth nothing and the stockholders are being fleeced.
No. Because, outside of Paypal (which is a scam that's been going on for FAR too long), Western Union, Moneygram, and various such services are regulated. And all transactions are cash transactions. They're simply applying the money you put in to the account of the person you're sending it to. Almost like a bank account. The money transfer fees just come off the top. They're not using some other form of currency or commodity to represent a nebulous, volatile cash value.
Also, if the money gets applied to the wrong account, the funds can be retrieved and applied to the proper account. With BTC, it's "Toughski Shitski".
So go shill someplace else.
Chas - The one, the only.
THANK GOD!!!
I suggest that you learn how to understand it instead of complaining about it to those who do.
It's elaborate window dressing and sexy crypto bait for geeks to hide the underlying ponzi scheme.
If you can understand it enough to ask such questions as those above then you are not the sucker they are looking for.
Wow, really? That was a polite way of asking someone to justify what is on its face an irrational theory. Sorry you missed the subtlety.
No, not very polite, but more polite than writing "who is this creep trying to justify the scam he is part of by pretending he's too stupid to be able to see the differences between it and the stock market".
In other words your petty little tactic of pretended stupidity has been seen through.
Are you getting the hint yet?
I'm getting offended by being seen as fresh meat to be taken advantage of by scammers.
No, not very polite, but more polite than writing "who is this creep trying to justify the scam he is part of by pretending he's too stupid to be able to see the differences between it and the stock market". In other words your petty little tactic of pretended stupidity has been seen through. Are you getting the hint yet? I'm getting offended by being seen as fresh meat to be taken advantage of by scammers.
Ouch... lose some money in BitCoin or something? No need to take it out on me.
And if you really know me and my supposed involvement in BitCoin, pray do post the details here for the world to see. Since I've never touched the stuff, you'll just make yourself look like a bigger fool than you already have.
Once again from the top: BitCoin is speculation. Stocks are speculation. Gold is speculation. Belly up to the bar like the rational adult you supposedly are and tell me why I'm wrong, or kindly take your ill-directed bitterness somewhere else.
Never took part in it and very much dislike being seen as prey.
If you are not part of the scam why the loud advocacy and why demean yourself by pretending to be so stupid?
>. All the transactions of all the people are public and is verified by multiple entities
Oh really? So you know *all* the principle entities of Mt. Gox? You know just where they were storing/investing that HALF A BILLION DOLLARS ? You know the names of the independent accounting agency that oversaw that HALF A BILLION DOLLARS ?
You know none of that and very little else.
Why who ever would have thought that when you give have a f!@kig BILLION dollars to a more than less anonymous source(s) by anonymous means and with no oversight - why who every would have thought that maybe - just maybe - someone would be tempted to just walk the hell away with Half a BILLION??
You know who didn't think that way? Some chump wanna-be geeks with too much disposable income and too little common sense.
----- In Your Cubicle No One Can Hear You Scream...
For those who need an overview of the rise and fall of Mt Gox, I made a handy timeline
Oh dear. One more time, for whatever good it'll do.
Me:
BitCoin is speculation. Stocks are speculation. Gold is speculation. Belly up to the bar like the rational adult you supposedly are and tell me why I'm wrong, or kindly take your ill-directed bitterness somewhere else.
You:
If you are not part of the scam why the loud advocacy and why demean yourself by pretending to be so stupid?
Please be so kind as to direct us all to the specific language above that you characterize as "loud advocacy" on my part (I assume for BitCoin, but you didn't really say that).
As to your continued vitriol, I reissue and clarify my challenge: If the distinction between BitCoin and any other target of a speculative bubble is so blindingly obvious, it should be quite simple for you to marshal a very succinct collection of words in the English language to make that point. Care to do so?
I find that people who don't say anything more than, "it's so clear I don't have to explain it to you" or "if you don't see why I'm right, you must be stupid" generally do that because they realize they're backed into a corner, have nothing substantive they can say, and thus try to get out of the situation by waving their hands and pounding the table. Looking forward to your thoughtful, rational reply.
I hate the notion that one would need a chief financial officer, a controller, inside auditors, outside auditors, a board of directors, an audit committee, and a compliance officer. Having any of those wastes would not have made any difference whatsoever to the current outcome of bitcoin. I'm so proud of those guys for not going that route.
We're talking about a $1B/yr operation. Sure, if it were smaller you could probably get by with only a few of those.
My linux distro has a board of directors, and it only does maybe $10k/yr in financials. Heck, so does the local RC airplane club, and I doubt they own much in the way of tangible property at all.
Sure, simply paying people doesn't make your bank secure. If they do their jobs it certainly helps though.
The way it works is that nobody does business with a real bank if they don't have external auditors (which effectively includes government regulators, even though they're usually not counted as auditors). The various internal positions are then required to get all the work done needed to satisfy them.
A lot of it is about division of responsibility so that one person can't just dip into the account and wire themselves $100M. Separating your front-end and back-end software is just sane security practice. You don't stick all your validation and business logic on a web-server that anybody can pwn.
They're simply applying the money you put in to the account of the person you're sending it to. Almost like a bank account. The money transfer fees just come off the top. They're not using some other form of currency or commodity to represent a nebulous, volatile cash value.
Also, if the money gets applied to the wrong account, the funds can be retrieved and applied to the proper account. With BTC, it's "Toughski Shitski".
So go shill someplace else.
With those companies they provide a service to do the following - Take my USD cash> convert it to Paypal/Moneygram/W/U digital Tokens in their private ledger> than transfer those tokens back to Fiat Cash on the receiving end in person or through an ACH.
With Bitcoin its the exact same thing but with a public ledger if you use it as a payment protocol.
It really is a ridiculous claim that Bitcoin has no value when the marketplace clearly states otherwise. I would even go so far as to posit Bitcoin will always have value as long as their are humans who are aware of it as there are always individuals willing to transfer their other assets to hold onto a finite piece of important history.
It was an audacious scheme on top of a pyramid scheme, and it worked.
With the run of successful attacks, bitcoin looks more and more like a pump and dump scheme. The early folk get out with lots of actual money and the latecomers end up holding the empty bag. Also -- what is with the Mt. Gox orthography. It is MtGOX, which makes the poorly run site and other issues seem easily foreseen.
Also -- what is with the Mt. Gox orthography. It is MtGOX, which makes the poorly run site and other issues seem easily foreseen.
Not everyone realize it stands (or stood) for "Magic-The-Gathering Online eXchange".
But the origins of a company name doesn't seem to stop companies from being successful. Google is named so because one of the founders couldn't spell "Googol", Sprint derives from Southern Pacific Railroad, and "Pepsi" is named for the digestive enzyme you usually associate with heartburn and vomit.
If you can't tell the difference it's your problem.
However it's very clear that you are just spinning a tale to bring in the marks instead of not actually being able to see the very large number of differences that you'd know of just growing up in a western society.
This lying bullshit of yours is tedious.
You are clearly pretending to be too stupid to be able to tell the difference - then calling others stupid who don't fall for your bluff.
To make it worse you are trying to pretend that you haven't written the comments you have.
If I want to hear "just try it you'll like it" stuff from slimy pieces of shit I can visit a prison and ask a drug dealer to let me hear his spiel.
To make it worse you are trying to pretend that you haven't written the comments you have.
Hmmm... still can't cite any actual words of mine to support your allegations, I see. We know from your past comments that you know how to quote. Cut and paste keys broken? LOL
it's very clear that you are just spinning a tale to bring in the marks . . . "just try it you'll like it"
And here, as unlikely as it might seem, your shrill irrationality reaches a whole new level. I've not breathed even a suggestion that you or anyone else should try BitCoin, and you can point to none. But you knew that -- it's clear now that you're just frothing at the mouth for reasons that even you may not understand.
Here's the bottom line, my friend: after reading through a number of your past comments, it's abundantly clear that (1) you despise BitCoin with a passion; (2) you can't present a cogent argument why you do (hint: "look at the definition of Ponzi scheme and look at BitCoin -- DERP" isn't a cogent argument); and (3) when asked to justify your rhetoric, you lash out at the questioner on a personal level and declare them to be part of the conspiracy you imagine to exist.
Given that you're doing exactly the same thing here, it's clear there's no productive discussion to be had (and shame on me, perhaps, for not realizing that from your very first post in this thread, where you broke into the middle of a discussion that didn't involve you and lobbed out one of your classic one-line insults). I think we'll both best be served by you getting back to counting black helicopters and finding another target for your rants. Please do have as good of a life as your angry, irrational, conspiratorial life perspective will allow.
Still going yet still pretending disinterest?
The time to be polite about bitcoin stopped when the perpetrators started actively targeting people on this site for their scam a couple of years ago. Other reasons can now be found even in mainstream newspapers. So do I really need to put up a polite 5000 word essay in every bitcoin thread to gently point out what should be incredibly fucking obvious by now - and if I did would anyone pay attention?
I think not, it's time to be blunt and use crowbars to get between these scum and their potential victims.