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Mt. Gox Shuts Down: Collapse Should Come As No Surprise 232 232

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

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  • Is MtGox Bitcoin? (Score:5, Informative)

    by serviscope_minor (664417) on Wednesday February 26, 2014 @12:01PM (#46346407) Journal

    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.

    • by alphatel (1450715) * on Wednesday February 26, 2014 @12:07PM (#46346473)
      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.
    • by JoeMerchant (803320) on Wednesday February 26, 2014 @12:09PM (#46346507)

      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."

      • by TheRealMindChild (743925) on Wednesday February 26, 2014 @12:23PM (#46346655) Homepage Journal
        Well, the main place to do it is (was) MtGox.
        No it wasn't and hasn't been for a long time
        • by JoeMerchant (803320) on Wednesday February 26, 2014 @12:43PM (#46346903)

          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? (Score:4, Informative)

            by TheRealMindChild (743925) on Wednesday February 26, 2014 @12:48PM (#46346947) Homepage Journal
            https://btc-e.com/ [btc-e.com]
          • by pankkake (877909) on Wednesday February 26, 2014 @12:54PM (#46346997) Homepage
          • by zieroh (307208) on Wednesday February 26, 2014 @01:12PM (#46347229)

            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.

          • by AudioEfex (637163) on Wednesday February 26, 2014 @01:49PM (#46347785)

            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.

            • by JoeMerchant (803320) on Wednesday February 26, 2014 @02:15PM (#46348149)

              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.

      • by Immerman (2627577) on Wednesday February 26, 2014 @12:31PM (#46346761)

        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.

        • by fuzzyfuzzyfungus (1223518) on Wednesday February 26, 2014 @01:23PM (#46347369) Journal
          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."
      • by Spazmania (174582) on Wednesday February 26, 2014 @12:50PM (#46346961) Homepage

        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? (Score:2, Informative)

        by 1s44c (552956) on Wednesday February 26, 2014 @12:50PM (#46346965)

        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.

      • by zieroh (307208) on Wednesday February 26, 2014 @01:16PM (#46347293)

        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.

        • by AudioEfex (637163) on Wednesday February 26, 2014 @01:57PM (#46347927)

          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.

      • by Cajun Hell (725246) on Wednesday February 26, 2014 @02:03PM (#46347983) Homepage Journal

        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.)

    • by JDG1980 (2438906) on Wednesday February 26, 2014 @12:15PM (#46346585)

      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 [siliconangle.com], 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.

    • by tom229 (1640685) on Wednesday February 26, 2014 @01:01PM (#46347103)
      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.
    • by PRMan (959735) on Wednesday February 26, 2014 @02:01PM (#46347961)
      Actually, bitcoin went up about $60 yesterday. I think the feeling around the bitcoin community is, "Finally! Good riddance!"
  • Risk? (Score:5, Insightful)

    by JoeMerchant (803320) on Wednesday February 26, 2014 @12:02PM (#46346419)

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

    • Re:Risk? (Score:5, Insightful)

      by Wrath0fb0b (302444) on Wednesday February 26, 2014 @01:24PM (#46347393)

      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.

  • by OakDragon (885217) on Wednesday February 26, 2014 @12:02PM (#46346427) Journal
    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.
    • 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.

    • 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.

      • by timeOday (582209) on Wednesday February 26, 2014 @12:26PM (#46346711)

        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.

        • by wonkey_monkey (2592601) on Wednesday February 26, 2014 @12:43PM (#46346905) Homepage

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

    • by Dareth (47614) on Wednesday February 26, 2014 @12:06PM (#46346467)

      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.

      • by allcoolnameswheretak (1102727) on Wednesday February 26, 2014 @12:19PM (#46346627)

        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.

      • by JoeMerchant (803320) on Wednesday February 26, 2014 @12:24PM (#46346687)

        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.

    • by darkwing_bmf (178021) on Wednesday February 26, 2014 @12:09PM (#46346513)

      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.

    • by n7ytd (230708) on Wednesday February 26, 2014 @12:10PM (#46346523)

      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.

      • by OakDragon (885217) on Wednesday February 26, 2014 @12:13PM (#46346565) Journal
        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?
        • by Anonymous Coward on Wednesday February 26, 2014 @12:22PM (#46346651)

          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.

        • by ArsenneLupin (766289) on Wednesday February 26, 2014 @12:31PM (#46346751)
          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.
        • by 1s44c (552956) on Wednesday February 26, 2014 @12:40PM (#46346863)

          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.

        • by amicusNYCL (1538833) on Wednesday February 26, 2014 @02:48PM (#46348601)

          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 [blockchain.info]. 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.

      • by JoeMerchant (803320) on Wednesday February 26, 2014 @12:15PM (#46346575)

        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.

        • by Chickan (1070300) on Wednesday February 26, 2014 @12:28PM (#46346729)
          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.
          • by Anonymous Coward on Wednesday February 26, 2014 @12:39PM (#46346849)

            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.)

          • by JoeMerchant (803320) on Wednesday February 26, 2014 @01:09PM (#46347179)

            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.

            • by zieroh (307208) on Wednesday February 26, 2014 @01:26PM (#46347439)

              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.

          • by sjbe (173966) on Wednesday February 26, 2014 @01:11PM (#46347211)

            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.

        • by ClickOnThis (137803) on Wednesday February 26, 2014 @12:29PM (#46346739) Journal

          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. [wikipedia.org]

      • by medv4380 (1604309) on Wednesday February 26, 2014 @12:28PM (#46346733)
        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.
      • by Patent Lover (779809) on Wednesday February 26, 2014 @12:33PM (#46346785)

        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".

      • by Zero__Kelvin (151819) on Wednesday February 26, 2014 @01:01PM (#46347097) Homepage

        "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!

      • by Cyberax (705495) on Wednesday February 26, 2014 @01:46PM (#46347721)
        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.
    • by medv4380 (1604309) on Wednesday February 26, 2014 @12:15PM (#46346581)
      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.

    • by Trachman (3499895) on Wednesday February 26, 2014 @12:16PM (#46346589)
      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.
    • by JDG1980 (2438906) on Wednesday February 26, 2014 @12:26PM (#46346699)

      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.

    • by TomGreenhaw (929233) on Wednesday February 26, 2014 @12:38PM (#46346837)
      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...
    • by invid (163714) on Wednesday February 26, 2014 @12:47PM (#46346941) Homepage
      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.
    • by dak664 (1992350) on Wednesday February 26, 2014 @01:28PM (#46347469) Journal

      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.

  • by JohnA (131062) <johnanderson.gmail@com> on Wednesday February 26, 2014 @12:11PM (#46346537) Homepage

    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."

  • by eclectro (227083) on Wednesday February 26, 2014 @12:13PM (#46346561)

    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!

  • Transaction ID Bug (Score:5, Informative)

    by Grantbridge (1377621) on Wednesday February 26, 2014 @12:17PM (#46346601)

    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.

    • by Grantbridge (1377621) on Wednesday February 26, 2014 @12:23PM (#46346671)

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

      • by rmstar (114746) on Wednesday February 26, 2014 @01:48PM (#46347757)

        [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 [sourceforge.net] 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.

    • by 1s44c (552956) on Wednesday February 26, 2014 @12:28PM (#46346731)

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

      MtGox were amazingly stupid.

    • by Kjella (173770) on Wednesday February 26, 2014 @01:00PM (#46347087) Homepage

      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".

    • Following the money (Score:5, Interesting)

      by goombah99 (560566) on Wednesday February 26, 2014 @01:11PM (#46347209)

      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?

    • by number17 (952777) on Wednesday February 26, 2014 @01:29PM (#46347477)
      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?
  • by 1s44c (552956) on Wednesday February 26, 2014 @12:26PM (#46346703)

    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.

  • Bitcoin is Nuts. (Score:5, Insightful)

    by MarkvW (1037596) on Wednesday February 26, 2014 @12:29PM (#46346741)

    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.

    • by drinkypoo (153816) <martin.espinoza@gmail.com> on Wednesday February 26, 2014 @12:32PM (#46346781) Homepage Journal

      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.

      • by Registered Coward v2 (447531) on Wednesday February 26, 2014 @01:15PM (#46347271)

        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.

      • by Zalbik (308903) on Wednesday February 26, 2014 @01:53PM (#46347853)

        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.

      • by ADRA (37398) on Wednesday February 26, 2014 @02:11PM (#46348075)

        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.

    • by wonkey_monkey (2592601) on Wednesday February 26, 2014 @12:46PM (#46346923) Homepage

      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?

    • by Ralph Wiggam (22354) on Wednesday February 26, 2014 @12:55PM (#46347021) Homepage

      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.

    • by tom229 (1640685) on Wednesday February 26, 2014 @01:11PM (#46347213)

      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 [bitcoin.org], 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.

    • by Kjella (173770) on Wednesday February 26, 2014 @01:26PM (#46347413) Homepage

      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.

  • by kaizendojo (956951) on Wednesday February 26, 2014 @12:45PM (#46346917)
    but I can't feel bad for anyone that trusted a 'bank' called Mt. Gox or 'bankers' named PirateAt40.
  • by tekrat (242117) on Wednesday February 26, 2014 @01:29PM (#46347479) Homepage Journal

    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.

  • by jhumkey (711391) on Wednesday February 26, 2014 @01:34PM (#46347547) Journal
    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.
  • by JoeyRox (2711699) on Wednesday February 26, 2014 @02:25PM (#46348275)
    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.
    • by coldsalmon (946941) on Wednesday February 26, 2014 @02:59PM (#46348805)

      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.

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