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Bitcoin Exchange Accidentally Allowed Customers To Buy Coins For $0 (cnbc.com)

Posted by EditorDavid on from the free-money dept.

AmiMoJo writes: "A system glitch at cryptocurrency exchange site Zaif enabled users to obtain digital money for free, with one apparently "purchasing" Bitcoin valued at $20,000,000,000,000 and then attempting to cash in on it..." according to the Japanese newspaper Asahi Shimbun. "The glitch, which lasted for 18 minutes from 5:40 p.m. to 5:58 p.m. on Feb. 16, affected Zaif's price calculation system, enabling customers to buy cryptocurrencies for nothing."

CoinDesk adds that "At least one customer attempted to resell their bitcoin, but the large amount of the cryptocurrency offered soon drew attention even outside the exchange. The firm later cancelled the transactions and corrected the users' balances. However, a source suggests that the correction is still being agreed with one of the seven users who attempted to transfer the free bitcoin away from the Zaif platform."

51 comments

  1. Cancelled the transaction? by fafalone · · Score: 4, Interesting

    The article didn't make this any clearer either, I thought one of the basic principles of bitcoin was that transactions can't be reversed? Did they not immediately transfer to a wallet they controlled? Or did their cash balance go negative and the company is going to ask for/sue for the balance? Anyone know more about this?

    1. Re:Cancelled the transaction? by Anonymous Coward · · Score: 0

      How do you make money as an exchange? Keep all the coin in your own wallet and just keep an accounting tally of what is in your customers wallets. Still charge the usual transaction rates. Only if the coins leave the exchange do they really have to go to another wallet.
      While juggling things the exchange keeps track of the inside allocation of all the coins. So a reversal is just an inside accounting change.

    2. Re: Cancelled the transaction? by Anonymous Coward · · Score: 0

      this wasn't a bitcoin transaction but a withdraw request to the exchange for an amount of bitcoin s that couldn't have possibly been completed. trades on an exchange are not published in a blockchain unless your talking a decentralized exchange which we are not. so to sum up the exchange had an accounting error in it's backend people tried to take advantage of turn into real bitcoin.

      the fact it was even possible for thier system to allow that would make me never want to deposit btc into their system ... that's for sure

    3. Re:Cancelled the transaction? by Anonymous Coward · · Score: 0

      Bitcoin exchanges often keep your wallet and it's key with them so that they can facilitate transactions more quickly and easily. It also allows them to "reverse" any transaction by running the same transaction again in reverse and since they have your wallet key, they can simply transfer the funds right back to their bitcoin wallet(s).

    4. Re: Cancelled the transaction? by Anonymous Coward · · Score: 0

      When you sign up with an exchange, you basically get two ledgers; a real money one and a "bitcoin" one, which represents how much bitcoin you "have." In reality it represents how much bitcoin they owe you.

      Eventually an actual bitcoin transaction is submitted to the blockchain, and at that point the transaction is no longer reversable. Some exchanges first transfer purchases to an individual wallet they control for you.

    5. Re:Cancelled the transaction? by thegarbz · · Score: 1

      The article didn't make this any clearer either, I thought one of the basic principles of bitcoin was that transactions can't be reversed?

      On the blockchain yes. But transactions take a long time to actually get verified in the blockchain which is why on these exchanges when you make a transaction to another customer in the exchange they may not even update it in the blockchain on the same day. It is all just written in Zaif's own ledgers, which they control much like any other bank doing internal accounting.

      Hence also they are having problems with a customer who tried to move the bitcoin out of wallets controlled by Zaif.

    6. Re:Cancelled the transaction? by tomxor · · Score: 1

      I thought one of the basic principles of bitcoin was that transactions can't be reversed?

      I doubt it really ever took place in the actual bitcoin block chain since the article states they bought bitcoin worth 20 trillion... many times more than the current market cap of bitcoin, making it impossible. It's would be confined to their order system since it was reversible.

    7. Re:Cancelled the transaction? by TheRealMindChild · · Score: 1

      That isn't how it works at all. Your transfers, buys and sells are all "virtual"... internal until you actually withdraw.

      --

      "When life gives you lemons, don't make lemonade. Make life take the lemons back!" -- Cave Johnson
    8. Re:Cancelled the transaction? by Anonymous Coward · · Score: 0

      The coins are never yours until you transfer them off the exchange. So any purchase and then trading on that exchange can all be reversed, provided no one moved their money off the exchange.

      At any rate, his purchase would have been impossible. The exchange did not have 20 trillion dollars of Bitcoin.

    9. Re:Cancelled the transaction? by jdavidb · · Score: 1

      It wasn't a Bitcoin transaction. It's basically a Bitcoin bank/exchange. A bunch of people deposit, they have an account with the exchange that has a certain balance, they can exchange with other users on the exchange and then withdraw.

      --
      Secession is the right of all sentient beings.
    10. Re:Cancelled the transaction? by Anonymous Coward · · Score: 0

      It isn't a bitcoin transaction that was reversed.
      It was a Zaif "transaction"

      Think of it like putting a bitcoin up for sale on ebay.
      Until the moment you actually transfer that BT to another wallet it is still yours, and up to that point you most certainly can cancel the transactions around it.

      You can cancel the ebay auction for example. You can also do it the fraudulent way by letting the seller pay you (IE paypal or whatnot) then just never follow through on transferring the BT

      Zaif's webstore made the sell and, at least as a record in this case, took the users money. Being $0 there wouldn't be any charges to a credit card or anything, but this is still named a transaction in the financial world.

      Zaif doesn't actually do anything with their bitcoins beyond track how many of their pool each user "owns"
      The BT itself isn't transferred into your wallet until you explicitly request them to do so.

      Shockingly the article claims only one person attempted to do this.
      I guess all the others realized if they did that, Zaif would likely find the problem, correct it, and do anything and everything in its power to collect the proper payment afterwards.
      At least up until transferring coins between wallets, everything is just some numbers in a database, and so can be easily fixed without resorting to collections style action on the part of Zaif.

    11. Re:Cancelled the transaction? by Anonymous Coward · · Score: 0

      Interesting theory, but none of that would make money. Bitcoin exchanges aren't using their reserves to loan money and gain interest like banks, so it doesn't matter if your bitcoin is in your wallet or theirs.

      The way exchanges make money is by imposing fees on transactions. Once again, it doesn't matter which wallet the bitcoins are in, they still get a transaction fee.

    12. Re:Cancelled the transaction? by The+New+Guy+2.0 · · Score: 1

      Any transaction can be reversed by an equal and opposite transaction in the future.

      Remember the day a bunch of bad prints caused the NYSE/NASDAQ market to go near zero. All of that was reversed and the market moved on...

    13. Re:Cancelled the transaction? by The+New+Guy+2.0 · · Score: 1

      A bank that collects deposits to make loans is an "interest bank"... a bank that relies on transaction and maintenance fees is called a "fee bank".

      BitCoin exchanges are acting like fee banks currently.

    14. Re:Cancelled the transaction? by The+New+Guy+2.0 · · Score: 1

      The bug allowed the hacker to buy bitcoins at zero, so he typed in the number he wanted and was suddenly showing his number in the account without any actual trade happening... the exchange then killed all nonsense trades... and nobody was willing to take his bitcoins elsewhere. It's a market malfunction that CNBC/FBN/Bloomberg can have fun with, claiming that bitcoin still isn't safe yet.

    15. Re:Cancelled the transaction? by MachineShedFred · · Score: 1

      This is exactly why stock trades (usually) take 72 hours to clear and settle, so that if there is electronic fuckery going on (unless it's sanctioned electronic fuckery like HFT), it can be rolled back and everyone gets a do-over.

      --
      Slashdot still doesnâ(TM)t support Unicode after it was added to the HTML standard in 1997.
    16. Re: Cancelled the transaction? by Anonymous Coward · · Score: 0

      They can do it either way.

      Some exchanges hold a wallet for you, and actually transfer the coin into that wallet from their slush wallet when you buy coin, then you can transfer it to a wallet you control (or someone else if you want) wheneber you want.

        It costs more in transaction fees of course, but you know that the exchange isn't pulling any shady tricks and selling you more bitcoin than they actually have.

    17. Re:Cancelled the transaction? by torkus · · Score: 1

      You realize virtually no 'normal' people trade on the actual exchange, right? E-trade, etc. are all dark pools and they settle the majority of their trades internally so they never hit the actual open market.

      HFT can be rolled back as well.

      As to GP - yes, you can roll back a transaction with an opposite one following it. However, whether or not you can do that depends on having access to the wallet private key you need to send from. If someone bought BTC for $0.00 and sent that to a wallet the exchange did not have the private key for, they would have no technical means to force the reversal. You can't own negative BTC so you couldn't 'overdraft' the exchange side wallet even.

      This is part of the reason coinbase enforce a lengthy settlement for buying crypto.

      --
      You can get rich if you own a politician, but you have to be rich to buy one in the first place.
    18. Re: Cancelled the transaction? by slashrio · · Score: 1

      I was only partly able to correct the errors introduced by your keyboard.

      --
      "Trump!!", the new Godwin.
  2. An efficient market by Anonymous Coward · · Score: 0

    Bitcoin's finally legit.

    1. Re:An efficient market by Anonymous Coward · · Score: 0

      Legit value?

  3. The bitcoin aint there by Anonymous Coward · · Score: 2, Informative

    There isn't even $20 trillion dollars worth of bitcoin in existence. You obviously wont be able to withdraw that to a real wallet. The bitcoin figure displayed on the website couldn't be backed by $20 trillion in real bitcoins.
    The exchange seems to have been screwed over by one customer withdrawing some of the bitcoin of the exchange, obviously not $20 trillion. But it seems some amount of real bitcoin was withdrawn.

    1. Re: The bitcoin aint there by Anonymous Coward · · Score: 1

      Tell me, what is a "real" bitcoin? It's all imaginary.

    2. Re: The bitcoin aint there by DontBeAMoran · · Score: 1

      It's as real as the "money" I have in my bank account, i.e. numbers in a computer.

      Except my bank could drop that to zero and I wouldn't have any proof of what they owe me, unlike Bitcoin and its blockchain.

      --
      #DeleteFacebook
    3. Re:The bitcoin aint there by Anonymous Coward · · Score: 0

      Regardless of whether that much bitcoin exists to be sold or not, the transaction should be honored. Anything less is fraud.
      If the exchange cannot fulfil the entire payment, they need to treat it as a debt, pay what they can, and file for bankruptcy protection.

    4. Re: The bitcoin aint there by The+New+Guy+2.0 · · Score: 1

      my bank account, i.e. numbers in a computer

      Banks have to keep actual bills in a vault, and anything that moves bank-to-bank sends a truck rolling at 3am the next business day. Only Bank of America has problems finding everyone's money in the vaults.

    5. Re: The bitcoin aint there by Anonymous Coward · · Score: 0

      Out of curiosity, have you heard the term "fractional reserve"?

    6. Re: The bitcoin aint there by burtosis · · Score: 1

      Nope, that way it's easier to pull money straight from the aether. It's a simple extension of quantum uncertainty - if you look you could collapse the monetary function such that there is no money at all in there and go bankrupt. Whereas dollars that are snug and comfy and love each other very much in the dark can do something very special - and behold you have created more money!

    7. Re:The bitcoin aint there by Anonymous Coward · · Score: 0

      I guess I'm just a little impressed that he didn't overflow some 32-bit value somewhere shy of $4.3 billion.

      I guess that exchange has a real optimist coding it?

    8. Re: The bitcoin aint there by torkus · · Score: 1

      my bank account, i.e. numbers in a computer

      Banks have to keep actual bills in a vault, and anything that moves bank-to-bank sends a truck rolling at 3am the next business day. Only Bank of America has problems finding everyone's money in the vaults.

      You're reading some out of date encyclopedias. Banks keep digital ledgers these days and most certainly do not roll trucks at 3AM to cover transactions (how exactly would international money transfers work for that?)

      Just like when people do trades in oil, bullion, etc. No one actually ships you a barrel (or a million) of oil. You 'own' whatever amount that happily sits (or will sit for futures) in the same storage facility it did when the last 5 people 'owned' it ... all mixed together with what other people own.

      Beyond that, fractional reserve banking is the norm AND banks can back deposit sheets with assets, not just currency IIRC. It's part of the scam known as 'banking' and your explanation is very out of date.

      --
      You can get rich if you own a politician, but you have to be rich to buy one in the first place.
    9. Re: The bitcoin aint there by Anonymous Coward · · Score: 0

      Banks only work like that in war time. And only when you are losing the war and aren't sure the bank will exist, like, tomorrow.

    10. Re: The bitcoin aint there by jeremyp · · Score: 1

      How adorably naive.

      No, banks do not have to have actual bills in a vault. At the moment there are about $1.61 trillion dollars in circulation - that's all the notes and coins. It's only a fraction of the total US money supply.

      --
      All I want is a secure system where it's easy to do anything I want. Is that too much to ask ~~ Randall Munroe
  4. Glitch? by Anonymous Coward · · Score: 0

    A glitch would be applicable if the chips didn't work as expected. Without further evidence this was human failure.

  5. Greed again exposes some? by Anonymous Coward · · Score: 0

    So if the 'customer' who was able to buy a bunch of BitCoin for $0 had just tried to cash in a few of them (e.g. a few $100K worth) then it would not have raised suspicions and would have worked??? It was only because he/she tried to cash in all of it that they got caught??

    1. Re:Greed again exposes some? by The+New+Guy+2.0 · · Score: 1

      Think of this in dollar terms...

      The glitch caused the bank account of the hacker to raise his balance to something higher than the bank, or all banks combined have. Therefore, he was showing more money than exist at the vaults.

      Try to move this money out... wait a second, that's something the trucks/bitcoin codes can't support. Error is detected, and the hacker is caught.

    2. Re:Greed again exposes some? by Anonymous Coward · · Score: 0

      So if the 'customer' who was able to buy a bunch of BitCoin for $0 had just tried to cash in a few of them (e.g. a few $100K worth) then it would not have raised suspicions and would have worked??? It was only because he/she tried to cash in all of it that they got caught??

      Correct. However, not everyone is smart. The summary already said that one of them even tried to move the coins out to somewhere else which is what could be done without noticing. Though, some people are greedy and stupid, so in this case it is a good thing to happen.

      By the way, to the previous commenter, there is NO HACKER here. It was the software glitch that allow the transaction with no purchase value.

      https:

  6. Bitcoin is worth less than zero by Anonymous Coward · · Score: 0

    When you consider the electricity costs in mining it and the fraud involved in trading it, it is a net loss on the economy.

    1. Re:Bitcoin is worth less than zero by dohzer · · Score: 1

      But they're called "coins" for a reason. There must be some kind of copper-nickel alloy involved.

  7. theft by Anonymous Coward · · Score: 0

    Weird, if i bought at a price that I didn't like they'd tell me to fuck off but if they sell at a price they later regret then they just steal it back.

  8. The bigger question is by 93+Escort+Wagon · · Score: 2

    Sure, you got your money for nothin'... but did the exchange also let you get your chicks for free?

    --
    #DeleteChrome
    1. Re:The bigger question is by fahrbot-bot · · Score: 1

      Sure, you got your money for nothin'... but did the exchange also let you get your chicks for free?

      Well... perhaps they got their "checks" for free.

      --
      It must have been something you assimilated. . . .
  9. google ads being used for man in the middle by Anonymous Coward · · Score: 0

    fuck yoiu game of thrones

  10. stupidity and greed by gravewax · · Score: 1

    you have an opportunity to steal an unlimited amount quickly.... and you choose 20 trillion dollars. He made the leap to being a thief, FFS use half a brain cell and try something you can get away with like a few million then transfer immediately. he may have had a chance to get away with that. Just a complete moron.

    1. Re:stupidity and greed by Anonymous Coward · · Score: 0

      Agreed. He loses at life.

    2. Re:stupidity and greed by Anonymous Coward · · Score: 0

      He probably wasn't thinking that far. If he had realized what was happening first he might just have done a lower transaction like you said.

  11. That sounds about right. by Anonymous Coward · · Score: 0

    Software wants to be free.

    1. Re:That sounds about right. by The+New+Guy+2.0 · · Score: 1

      Bitvoins aren't software, they're blobs of data that check out under a specific formula. You can make a bitcoin out of thin air by computing a data blob that hasn't been used yet... but finding one takes more power usage than the bitcoin is worth.

  12. Accidentally priced BC based on intrinsic value by Anonymous Coward · · Score: 0

    Which is $0, as opposed to its speculative value, which is something like $10,000.

    1. Re:Accidentally priced BC based on intrinsic value by The+New+Guy+2.0 · · Score: 1

      The problem is trying to convert a bitcoin into groceries... Dollar, Euro and Pound all seem to have no trouble being spent.