Mt. Gox Shuts Down: Collapse Should Come As No Surprise 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."
Is MtGox Bitcoin? (Score:5, Informative)
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.
Re:Can someone explain this theft? (Score:5, Informative)
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.
Transaction ID Bug (Score:5, Informative)
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.
Re:Can someone explain this theft? (Score:5, Informative)
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.
Re:Can someone explain this theft? (Score:5, Informative)
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...
Re:Can someone explain this theft? (Score:5, Informative)
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.
Re:Is MtGox Bitcoin? (Score:4, Informative)
Re:Is MtGox Bitcoin? (Score:2, Informative)
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.
Re:Bitcoin is akin to early American banks (Score:4, Informative)
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.