Japanese Police Arrest Mount Gox CEO Mark Karpeles

McGruber writes with the news as carried (paywalled) by the Wall Street Journal that Mark Karpeles, who headed bitcoin exchange Mt. Gox, has been arrested by Japanese police: In February 2014, Mount Gox filed for bankruptcy, saying it had lost 750,000 of its customers' bitcoins as well as 100,000 of its own, worth some $500 million at the time. A police spokesman said Mr. Karpelès is suspected of manipulating his own account at the company by making it appear that $1 million was added to it. The BBC reports the arrest as well, and notes that the coins missing from Mt. Gox represent 7% of all Bitcoins in circulation.

Comments

No sweat, just act like a bankster.

[Anonymous Coward]

Nothing will happen to you - in fact, demand the government give back all that money they stole from you after you stole it.

Re:No sweat, just act like a bankster.

[K. S. Kyosuke]

In Japan, getting arrested is pretty much like getting convicted.

Found?

[invictusvoyd]

The firm said it found the bitcoins - worth around $116m (£70m) - in an old digital wallet from 2011.

They just "found" it in an old wallet? Who would leave $116m to be just found? . The whole story seems to be fishy right from the start.

Re:Found?

[Anonymous Coward]

Know how I know you don't know how Bitcoin wallets and wallet backups work?

Re:Found?

[Anonymous Coward]

Who would leave $116m to be just found?
Given the mass incompetence of how Gox was run, that's the least surprising thing. They had paper wallets scattered around the city that that only Mark knew the password to.

The fishy part has always been that the theft occurred from offline, "cold storage" wallets, and that they rarely/never reconciled the money they had on hand with the debts they owed to customers. The latter is just business 101 for a business that holds other peoples assets. For MtGox that should match 100% as Gox was an exchange, not a bank, and didn't loan out money. Even for a bank the assets have to match the liabilities, and they have to reconcile the books. Gox didn't do that, which is criminally negligent.

Re:Found?

[lgw]

Given the mass incompetence of how Gox was run, that's the least surprising thing. They had paper wallets scattered around the city that that only Mark knew the password to.

So, you're telling me that Magic the Gathering Online Exchange stored its assets by printing them on paper cards? I never saw that coming. I hope they were at least kept in protective sleeves!

Re:Found?

[DanielRavenNest]

> The fishy part has always been that the theft occurred from offline, "cold storage" wallets,

According to a Reddit AMA today from a former Mt. Gox employee (he had kept silent until the arrest, because his testimony was part of the investigation), there were no cold storage wallets. It was total amateur hour on Karpeles' part: no proper security, no proper accounting, customer funds used for business and personal expenses, etc. The likely situation is the "missing" bitcoins never actually existed. Customer accounts were credited with fake coins to cover the fact that their funds were being used for other things. Eventually customer demands for cash or sending out their bitcoins elsewhere could not be met, and they declared bankruptcy.

"Mount Gox"

[Anonymous Coward]

"Mount Gox"? Got to admit, I do tend to think of it like that, but it was (back in the day) an acronym for "Magic the Gathering, Online eXchange". Just MtGox.

Re:"Mount Gox"

[ArcadeMan]

Good news! The word month doesn't appear in the title!

Note to self

[fustakrakich]

Don't trust private currencies from hucksters such as these guys. Their business is based on pure FUD. Play it safe with the government of your choice, one that has its millions of citizens ready and willing to back it up.

Re:Note to self

[TWX]

The bitcoin attitude has amused me. Sure, I get that some people don't believe in, don't trust, or don't like their government and as such want to avoid using fiat currency issued by their government, but since the use of third-party intermediaries seems to have become the de-facto standard for using Bitcoin, one has all of the downsides of a fiat currency (ie, no natural value of its own) without any of the normal advantages associated with a government interested in the security of a currency or the ability of a government to correct issues associated with that currency. It's also possible to lose or destroy wealth simply through the loss of information due to the specific nature of Bitcoin, so wealth lost cannot be regained.

Re:Note to self

[murdocj]

It's so weird... I go to the bank, I get cash, I buy stuff. I use my credit card, I buy stuff. I send checks to pay bills. All with this worthless fiat currency that you rant about. Remind me, what's wrong here? The fact that what it can buy tomorrow may be different from what it can buy today? If you can point me to ANYTHING whose worth hasn't changed over time, I'd love to see it.

Re: Note to self

[bill_mcgonigle]

Yes, do that - please trade me your btc for fiat. Fiat has a fabulous long-term track record every time it's tried. Oh, I know - humans are so much smarter this time around!

Re:Note to self

[Fire_Wraith]

People who rant about fiat currency tend to miss the point about what money is. Money isn't something of absolute inherent value, it's a representation of productive capacity, that lets people establish relative values of radically different commodities and services, as well as to easily store and transport that value. If I'm a farmer, I don't want to carry a sheaf of wheat around with me to pay for a drink if I get thirsty while I'm in town. Better to use money to represent that, which I can trade to the blacksmith or the carpenter or whomever for what I need, and they can use that same money to come buy wheat from me later.

Gold/silver/etc are certainly traditional forms of money, because they were easily recognizeable in the ancient world as such. The problem with using them as such today is that you can't tailor the supply of money to the amount of production going on. Why do you need to do this? Well, because having it off by too much is bad. Imagine a village where there's 1000 pounds of gold in use as money. Someone comes back from an expedition, having found another 1000 pounds - and causes an immediate 50% inflation because you have 2x the money representing the same amount of production. The reverse is true as well, if production increases by 5% each year, but the amount of gold stays the same - except this time you get deflation, where gold is worth more (so people tend to hoard it to spend later, not now, which in a modern economy is very very bad).

Re:So what's up with those bitcoins?

[Anonymous Coward]

BitCoin is NOT anonymous. All it takes is a little detective work.

Re:So what's up with those bitcoins?

[watermark]

And then? If a wallet is lost, the bitcoin is lost forever? No way to re-mine it or anything? Because this would be bad for the future of bitcoin. 7% disappeared with the demise of MtGox. A large number got lost to some UK garbage belt. More will be lost to whatever causes. Over time there may be no bitcoin left!

Supply and demand, then the value of all other coins go up. Traditional currencies have inflation because they are printing money faster than old bills get destroyed. This causes the value of traditional currencies to go down over time. It's argued that some inflation is good as it encourages investment or spending (as opposed to keeping it under your mattress). Having a currency with deflation has never been really tested. At the least, some specter cannot decrease it's value by just creating more at will (no, mining bt is different).

http://www.economist.com/blogs...

Re:So what's up with those bitcoins?

[watermark]

A single bit coin can be broken down into parts almost infinity (so you could pay someone 0.00003 bitcoin). It's limited now to something like 8 decimal places, but there's room in the spec to allow even more granularity than that. So while technically every bitcoin in the world could be lost, it's very unlikely.

Everyone forgets there were two Mt. Gox scams

[xtal]

I lost around 200 bitcoins in the first "crash"; it was very early on. Not widely reported.

I hope this guy spends some time in the slammer.

Re:So what's up with those bitcoins?

[Fire_Wraith]

It's not all that crazy. The general problem is that a lot of people aren't familiar with a liquidity trap, they're just familiar with the problem of too much inflation.

Part of this is because inflation was a really big problem in the 70s and early 80s. The way monetary policy usually works is pretty easy. Growth usually corresponds to inflation. If there's too much inflation, raise interest rates. Growth starts to slow too much, cut interest rates. It's all about smoothing out the up/down (or boom/bust) cycle. In the 70s though, we started having this problem where we were getting high inflation without significant growth, so the standard remedy wouldn't work.

Now (or a few years ago) we were facing a different problem, which is failing growth that wouldn't respond to interest rate cuts, because you can't cut them below zero. Deflation definitely is bad in a modern economy, because it leads to drops in production, and because it also sets up a self-sustaining cycle that you have to break out of (less spending means economy shrinks means deflation means your money is more valuable tomorrow than today means less spending today, etc).

Problem is, the way to break out of that trap is... you have to actively take inflationary measures that would be crazy in any other environment. It's what we had to do in the Great Depression, which was a similar circumstance in terms of the macroeconomic mechanics. Now, maybe they did too much, maybe they didn't do enough in a quickly enough manner - but if you want to see a good example from recent history, look at Japan. They were a powerhouse in the 80s, only to hit this exact sort of thing, and their economy stagnated. It's really only started to kick back into gear after the current government expressly said they're going to try to drive inflation up to get things moving.

Put yet another way... I wouldn't normally want someone to zap my chest with a couple hundred volts of electricity, but if I'm in cardiac arrest, um, yeah, it might be called for.

Re:you don't know much about Japanese do you?

[hcs_$reboot]

Their cops don't arrest your ass unless their prosecutor is pretty f_cking sure they can convict your ass.

Or if they're requested to arrest someone (eg by theUS)

A wallet is a file that can be backed up

[perpenso]

If a wallet is lost, the bitcoin is lost forever? No way to re-mine it or anything? Because this would be bad for the future of bitcoin. 7% disappeared with the demise of MtGox. A large number got lost to some UK garbage belt. More will be lost to whatever causes. Over time there may be no bitcoin left!

Well to be fair a wallet is a file that can be duplicated, backed up, like any other file; or photocopied if a paper wallet. It doesn't hold coins, it only holds encryption keys that grant access to coins.

And one does not have to rely on an exchange, its this reliance on an exchange that can introduce a major vulnerability. Now your coins are in someone else's wallet, a wallet you cannot backup. If you keep your coins in a wallet you create and backup you may be much safer. Assuming of course you have a secure computer, basically a computer that has been used for nothing other than bitcoins. Use your wallet on your regular malware infested computer and now we have another major vulnerability. Similar story for a wallet on your phone.

Fortunately you can have as many wallets as you like. Wallets on your regular computer and phone with only a small amount of coins, walking around money for a few days. Another wallet on a secure computer with a larger number of coins to occasionally refill the walking around wallets, or make occasional "big" purchases. And an offline wallet (paper) where most coins are stored, more like a savings account.

The simple truth **today** is that bitcoin is not a "currency". It fails the "store of value" test, its too prone to user error for mass adoption. What it is is a good transaction mechanism, a way to quickly transfer/exchange fiat currency. Convert fiat to coin, immediately transfer coin, immediately convert coin to fiat. No holding of coins, just conversion to/from fiat as needed. Many merchants the bitcoin community touts basically do this. They contract with an exchange that offers merchant services. The merchant does all accounting and pricing in fiat, never touches a coin. When a customer wants to pay with coin the exchange silently steps in and presents a coin price and a payment account. The merchant is credited with the fiat amount immediately upon coin receipt verification, its credited fiat paid out daily.

Today **holders** of non-trivial amounts of bitcoins are largely speculators and a few enthusiasts.