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Major Bitcoin Exchange Ceases Operation 208

Posted by Unknown Lamer
from the but-mom-money-does-grow-on-gpus dept.
First time accepted submitter Sabbetus writes "On Monday the CEO of prominent Bitcoin exchange Tradehill announced that they are shutting down. Ars Technica ran a story on this stating that 'After Monday's news, the currency's value fell from $5.50 to $4.40, a decline of 20 percent.' Tradehill is returning all funds and meanwhile their competitors are fighting over who gets Tradehill's customers."
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Major Bitcoin Exchange Ceases Operation

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  • by eldavojohn (898314) * <eldavojohnNO@SPAMgmail.com> on Wednesday February 15, 2012 @01:24PM (#39046329) Journal

    ... meanwhile their competitors are fighting over who gets Tradehill's customers.

    Not sure where that came from, didn't find it in the Ars article. At the end they mention Mt. Gox being the only other exchange ... so there's one competitor. They didn't mention anything about fighting over customers.

    Furthermore the third sentence in the Ars article was suspiciously absent from the summary:

    He has pledged to open a new site once these issues have been resolved.

    As well as the explanation of why all this happened (lack of proper money transmission licensing). I've asked this many times before but how do you track illegal purchases on BitCoin [slashdot.org] when, by definition, it claims to be an anonymous payment solution?

    Quite simply put, no BitCoin exchange -- neither Tradehill nor Mt. Gox -- is going to be able to comply with the Bank Secrecy Act [wikipedia.org].

    • by alphatel (1450715) * on Wednesday February 15, 2012 @01:25PM (#39046365)
      A trading firm that never actually trades, with non-existent competitors, trading a currency that doesn't exist, has gone out of business due to massive losses!
    • by Ogi_UnixNut (916982) on Wednesday February 15, 2012 @01:31PM (#39046449) Homepage

      The Act only applies to the US though. Many places you can host an exchange. Never heard of tradehill though, so can't tell where they were based.

      One of the nice things about bitcoin is that there are no real borders for it. You can trade on any exchange in the world, and use the currencty anywhere without restrictions (so a bit like cash, but without limits on how much you can take out the country, or currency conversion fees, etc...).

      • by zill (1690130)
        You seem to forgot that the US government controls the DNS system and can confiscate domain names at will.

        Also we're not talking about a Bitcoins to seashells exchange here; we're talking about a Bitcoins to USD exchange. Any such exchange must perform transactions with other banks that operate with USD. Guess where a majority of those USD-handling banks are located?
        • by BitZtream (692029)

          Really? The government controls *.co.uk? No, I didn't think they did.

          All they 'control' are the silly generic domains that are too overpopulated to be useful anymore anyway. The rest of the world could rather quickly tell the US to go fuck themselves are far as DNS is concerned.

          Other countries run root servers too.

          • by arth1 (260657)

            While many of the root servers are operated outside the US, it is ARIN that assigns them the space in the root server namespace, and delegates the root server cache. And ARIN is as American as apfelstrudel.
            Nothing except it (a) being incredibly stupid to do so, and (b) the politicians being unaware prevents the US from retracting root servers they don't like from the rest of the world.

            There were a couple of attempts at creating a parallel DNS world not touchable (remember alternic, anyone?), but they neve

      • by Wonko the Sane (25252) * on Wednesday February 15, 2012 @01:42PM (#39046633) Journal

        The Act only applies to the US though.

        Technically true but in practice any institution that touches dollars ends up being bound to obey US law if it wants access to the international financial system.

    • by iluvcapra (782887) on Wednesday February 15, 2012 @01:39PM (#39046569)

      Quite simply put, no BitCoin exchange -- neither Tradehill nor Mt. Gox -- is going to be able to comply with the Bank Secrecy Act.

      I disagree. As long as an exchange keeps identity records for all of its business and for all of the address endpoints it creates, it'd probably be able to comply with US Treasury Department regulations. Bitcoin isn't anonymous. Things only start to get murky once you are moving bitcoins around off an exchange, but that's not the exchange's problem.

      • by pla (258480)
        Bitcoin isn't anonymous.

        I mine one block of 50 BitCoins. I use that that block to get 50 $5 Sears gift certificates (redeemable in-store) through BTCBuy. I redeem them (CA, ME, MA, and MO all require stores to cash out gift certificates with $5 or less on them) in-store for cash.

        More realistically (and less likely to arouse suspicion from a salesdrone), I would just take a $250 gift cert and actually buy something I needed at Sears; but the protest-of-last-resort from the naysayers always runs along
    • by houstonbofh (602064) on Wednesday February 15, 2012 @01:40PM (#39046599)

      Quite simply put, no BitCoin exchange -- neither Tradehill nor Mt. Gox -- is going to be able to comply with the Bank Secrecy Act [wikipedia.org].

      Totally not true. They have to record cash transactions for negotiable instruments. They have to report cash transactions over $10,000. Most of them did not deal in cash at all, but in credit or debit cards and paypal, all of which is easily recorded. The act makes no mention of tracking the negotiable instruments (bitcoin) after they are sold.

    • by subreality (157447) on Wednesday February 15, 2012 @01:41PM (#39046619)

      Mt. Gox being the only other exchange

      MtGox is the only exchange bigger than TradeHill, but there are lots of smaller exchanges: https://en.bitcoin.it/wiki/Category:Exchanges [bitcoin.it]

      Quite simply put, no BitCoin exchange -- neither Tradehill nor Mt. Gox -- is going to be able to comply with the Bank Secrecy Act.

      First, Bitcoin is pseudonymous, not anonymous. Second, the important part: while it's very difficult to positively identify who sent you some Bitcoins, the exchanges know exactly who receives them, trades them back and forth to fiat currencies, and then sends them back out. They have names and bank account numbers, or they're using fiat payment services that have bank account numbers. Know Your Customer is not a problem for most exchanges.

      • Bitcoin is perfectly anonymous.
        Bitcoin exchanges like Tradehill and MtGox are not anyonymous.

        • by iluvcapra (782887)

          Bitcoin is as anonymous as an advertiser clickstream. It's quite possible to correlate individuals from their transactions [blogspot.com], and the transactions are out in the open for all to see.

          • I can send Bitcoins to people from a random address and all they will only know how much, when, and from what address.

            You'd have to trace transactions backward to the originating address to find out where the money truly came from, and the ultimate originating source is always the miners.

            For you to track anyone on Bitcoin you'd have to know their address. But anyone can generate a new address whenever they want.
            I myself had dozens back when I was mining Bitcoins.

            You can trace all transactions to addresses

    • Hmm. I thought Trade Hill was going down, and the company behind it was putting up a new, compliant website by the end of the month...

      • Re: (Score:2, Funny)

        by Anonymous Coward

        AHA! Proof that you actually read the article AND Jered's original post to the bitcointalk forum announcing the change. Tradehill is closing so that a new platform can be built from the developer team.

        You actually read the article and its source material. You are an embarrassment to the Slashdot community. :-)

    • by Ultra64 (318705)

      Bitcoin never claimed to be an anonymous payment solution. In fact every single payment (along with sender and recipient address) ever made is visible in the very public block chain.

      People who don't understand bitcoin claimed it was an anonymous payment solution.

      • by Kjella (173770)

        As I understand it all you needed was a swapping service, you put a coin in and get a different coin back. It's a little more complicated to avoid correlation and timing attacks and such, but that's the basic idea.

    • by Sabbetus (2457652)
      I could have written a much longer description but I think that the Ars Technica article covers it well. The claim that Mt. Gox is the only other exchange is silly though. There are many exchanges and Tradehill was only slightly bigger than Intersango and Cryptoxchange. Both of these exchanges have started to push their marketing especially at Bitcointalk forums, after this incident: https://bitcointalk.org/index.php?topic=63941.0 [bitcointalk.org] & https://bitcointalk.org/index.php?topic=63877.0 [bitcointalk.org]

      So that everyone clea
  • by SleazyRidr (1563649) on Wednesday February 15, 2012 @01:35PM (#39046527)

    I thought that Bitcoin must have ceased operating when there stopped being a slashdot story about them every day.

    • by Bieeanda (961632)
      Dude, there are nerds who are still convinced that the Amiga could make a comeback. Irrational fixations transcend population boundaries.
    • by pz (113803)

      We stopped getting bitcoin articles when Taco left.

      Yeah, yeah, correlation is not causation ... but it sure is sufficient cause to suspect causation.

    • That's my bet. One (or maybe more) of the Slashdot staff was in to bitcoins. They mined them, bought them, whatever. So they had an interest in getting people in to them so the value would go up and they could make money. Now they are out of it so they don't give a shit, no reason to pimp it anymore.

      Plus it was a fad, and its time has come and gone. While it isn't dead, the days of "big money" are gone. It lost a shit ton of value, the miners aren't making much, etc, etc. The virtual gold rush is over, so i

      • by tompaulco (629533)
        That would be a good theory if it wasn't the fact that every single article about them was negative. Also usually inflammatory and misleading. Kind of like this one.
  • Who didn't see that coming?
    /snark

  • Oh well. (Score:2, Redundant)

    by Beelzebud (1361137)
    And nothing of value was lost.
  • Major? (Score:4, Interesting)

    by sexconker (1179573) on Wednesday February 15, 2012 @01:56PM (#39046849)

    Tradehill was never a major Bitcoin exchange.
    MtGox is the only one anyone ever used. Tradehill was started by some guy who got mad that MtGox was raking in the cash. He started throwing out accusations about security holes, the owner (of MtGox) not actually having all of the BitCoins backing his market, etc. Then he threw up Tradehill and it was shit.

    All Bitcoin exchanges are shit. They're for speculators. Bitcoin as a currency is fine, and it will be fine if every exchange dies off.

    • by Ultra64 (318705)

      "and it will be fine if every exchange dies off."

      Except for the fact that there will be no way to acquire bitcoins?

      • Sure there will -- you can grow some marijuana and trade that for Bitcoins. Except that the only reason anyone does such a thing right now is because they want to trade the Bitcoins for their nation's currency.
      • "and it will be fine if every exchange dies off."

        Except for the fact that there will be no way to acquire bitcoins?

        By that logic there would be no way of acquiring US dollars either.

        Without exchanges, you acquire Bitcoins in exchange for goods and services. It's money. Earn it.

        • by Sycraft-fu (314770) on Wednesday February 15, 2012 @02:33PM (#39047507)

          Many of them. The US dollar is traded on all international currency markets and for a small scale, any bank will convert them. If it weren't, it wouldn't be very useful. If I pay someone in Europe in US dollars they are ok with that because they can convert them to Euros, which is what they need to do their business. If they couldn't, if US dollars were non-convertible, they'd be non-useful.

          Also you have the problem that next to nobody accepts and deals in bitcoins directly. It isn't a functional currency. The US Dollar, the Euro, the Yen, these are all functional currencies because a lot of people will accept them as such. You can buy goods with them, pay taxes with them, etc. I cannot name a single thing I'd want to buy, a single place I shop at, that takes bitcoins. As such if they aren't convertible, they are worthless.

          • Sure, it would only be used by a tiny niche of enthusiasts. So what? It has to start somewhere, and even if it didn't grow from there it could live on as a functional niche currency.

    • All Bitcoin exchanges are shit. They're for speculators. Bitcoin as a currency is fine, and it will be fine if every exchange dies off.

      Without speculation, Bitcoin is worthless. The only reason anyone has ever accepted Bitcoin as payment for anything is because they believe they can redeem Bitcoin for some other currency later on -- something which there is never any guarantee of (compare to private currencies that are backed by national currencies). This is in stark contrast to national currencies like dollars, which people must have if they intend to pay their taxes (which they must do if they intend to legally own property, hold a j

      • How can I short this currency?

        • by subreality (157447) on Wednesday February 15, 2012 @03:23PM (#39048325)

          How can I short this currency?

          Right over here: https://bitcoinica.com/ [bitcoinica.com]

          Be careful. Volatility cuts both ways.

        • by tompaulco (629533)
          How can I short this currency?
          I believe MtGox was working on options trading for BitCoin and one would assume they might allowed short trading. If not, then just buy a Put option at the current price (that ought to be cheap right?) and then at some later date come in and cover your Put at the presumably lower price, or sell your Put, which is usually a better deal than exercising it.
          However, I wouldn't recommend shorting it at this point. Once the dump story dujour moves on, it will probably move back to
      • The only reason anyone has ever accepted Bitcoin as payment for anything is because they believe they can redeem Bitcoin for some other currency later on

        This is demonstrably false. There's a considerable demographic in the Bitcoin community who don't like that the speculators have eclipsed the commerce side, and who would very much prefer if they could trade it back and forth as an isolated currency rather than having everyone think of it as a proxy for dollars.

        • There's a considerable demographic in the Bitcoin community...who would very much prefer if they could trade it back and forth as an isolated currency

          Unless they live outside the jurisdiction of any effective government, they will have to find at least enough of some nation's currency to pay their taxes (which in some nations includes taxes on transactions made using Bitcoin, which cannot themselves be paid using Bitcoin). I sincerely doubt that these users live under such circumstances, and even if they did, they would also have to find a way to generate electricity and connect to the Internet without incurring any costs other than Bitcoin, which is

          • they will have to find at least enough of some nation's currency to pay their taxes

            Just because you're using Bitcoins doesn't mean you have to use ONLY Bitcoins. There's no reason it can't exist as a niche currency.

            • There's no reason it can't exist as a niche currency

              OK, I'll grant that -- Bitcoin might live on as an obscure, niche currency with extremely limited utility. Not even the black market users will stick with it in that case, and perhaps people will realize that there are more effective digital cash systems out there that could be deployed in a way that benefits society (not just the black market).

              • On the other hand I think it will be exchangeable to dollars for the foreseeable future, regardless of what the island-currency niche wants. As long as there's another group that DOES want it exchangeable, they'll find a way.

                • Except that there will always been more demand for national currencies than there will be for Bitcoin, and so over the long term we should expect Bitcoin's value to decline. Trying to bet on it being exchangeable for dollars for any period of time is speculation, which gets back to my original point: Bitcoin's value is almost entirely due to speculation.
                  • and so over the long term we should expect Bitcoin's value to decline.

                    That too is speculation. It's just speculating on the downside. :)

                    Bitcoin's value is almost entirely due to speculation.

                    I agree, but I want to contrast it with your earlier statement...

                    Without speculation, Bitcoin is worthless.

                    ... which which I disagree.

      • All Bitcoin exchanges are shit. They're for speculators. Bitcoin as a currency is fine, and it will be fine if every exchange dies off.

        Without speculation, Bitcoin is worthless. The only reason anyone has ever accepted Bitcoin as payment for anything is because they believe they can redeem Bitcoin for some other currency later on

        Wrong. People accept Bitcoin because they believe they can also use it for goods and services.
        Just like every other currency in existence.

        • Wrong, people demand government issued currencies because they need it in order to pay taxes and other debts; failure to make such payments can result in the loss of one's property or freedom. There is a legal structure surrounding government issued money, which is where demand for that money comes from: courts determine property values and damages in terms of he government's currency, tax collectors will only accept payments in government currency, banks will only accept debt payments in government curre
    • NYSE was never a major stock exchange.
      NYSE is the only one anyone ever used. NASDAQ was started by some guy who got mad that NYSE was raking in the cash. ... Then he threw up NASDAQ and it was shit.

      All stock exchanges are shit. They're for speculators.

      FTFY. :)

      • A real exchange (e.g. like the CME) has the following important property: all participants have the exchange as an economic counterparty, not each other. That is you take on the credit risk of the exchange, which is presumably better than any individual participant.

        This means that if X trades with Y on the CME, and X (as a broker) goes bankrupt before the money settles, the CME will pay Y, and then attempt to get money back from X. This actually matters sometime (cf MF Global). The exchange then has stand

        • On most of the Bitcoin exchanges, X and Y deposit their respective funds (say, USD for X and BTC for Y) into their account on the exchange. During a trade the exchange immediately transfers X's USD to Y's account and Y's BTC to X's account, less fees on both sides. IE, trades are settled instantly and withdraws may be performed immediately (though the usual banking delays exist on the fiat side, and received BTC take about an hour to confirm).

          Legally the exchange happens between X and Y, and the exchange i

  • by adjustable_pliers (1409219) on Wednesday February 15, 2012 @01:57PM (#39046871)

    The loss of Tradehill and the security breaches of other exchanges disrupted the confidence in using Bitcoin, but the protocols remained intact. I see this as a testament to the design of the system, even though a fundamental quality for any currency is the confidence of its users.

    As a Bitcoin lurker (I've never owned anything more than 2 BTC), I've been intensely fascinated in the potential of this "currency." Without belaboring the great qualities of a decentralized currency, it has attracted a speculative class of users that have rushed into centralized exchanges using nervous money transmission providers. The irony is not lost on me.

    Tradehill's departure and what I believe will be an eventual international agreement hobbling Bitcoin's biggest exchange Mt. Gox in Japan (a la UBS in Switzerland), due to tax evasion, ought to serve as a cautionary note to Bitcoin users. Money transmission is a confiscatorially regulated practice. Bitcoin's best hope ought to be transactions as decentralized as the protocol it uses.

    Lurkers such as I can only hope of an ecosystem or application so widespread, so diversified, secure enough, and easy to use before Bitcoin can be considered useful to most internet users. I dream of a decentralized Facebook knock-off (e.g. diaspora*, etc.) with a Bitcoin client built in, making currency transmission as simple as tossing a dollar to a friend to buy a cup of coffee. Perhaps even at a coffee shop with patrons casually swapping US$ and BTC as they play chess or read.

    • by betterunixthanunix (980855) on Wednesday February 15, 2012 @02:34PM (#39047523)
      We go through this discussion every single time a Bitcoin article appears on Slashdot. Bitcoin is guaranteed to fail in the long run:
      1. It is a digital cash system in which the tokens cannot be refreshed; this is known in crypto research community to imply that the tokens must grow linearly in the number of transactions. Bitcoin attempts to hide this fact in its architecture, but if Bitcoin is secure then the computation resources needed to continue using Bitcoin will grow over time. Worse, as more people use Bitcoin, the growth rate will accelerate because of the increased number of transactions. If Bitcoin was used at anything close to the number of dollar transactions that happen every day, the technical limitations of Bitcoin would kill it off within a week's time.

        Useful digital cash systems involve a central issuing authority like a bank or government, that can accept old tokens and produce "fresh" tokens of equal value. Having such a central authority is not a bad thing:
      2. The demand for Bitcoin will never exceed the demand for national currencies. Using the USA as an example, people who live in America must pay taxes -- taxes on income, taxes on property, sometimes taxes on purchases they make, and so forth. The government only accepts tax payments that are made in dollars, and yes, you have to pay taxes on transactions that do not involve dollars, such as barter or having a Bitcoin salary. Every year, hundreds of millions of Americans must pay their taxes, and if they were all using Bitcoin for everything, they would all simultaneously try to trade their Bitcoins for dollars to cover their tax debt. While this frequently happens with other currencies -- people paid in pounds sterling will try to make a similar trade -- all national currencies are demanded by some nation's citizens for a similar purpose, unlike Bitcoin, which nobody is legally obligated to use.

        It is a good thing that nobody is obligated to use BItcoin to pay their debts, because:
      3. Bitcoin is a deflationary currency -- there is a fixed maximum number of Bitcoins that can exist. If you had a long-term debt to repay in Bitcoins, it would be harder to make payments as time went on, because Bitcoins would become harder to find (assuming that the Bitcoin economy continues to grow, which I already noted is an unlikely event). You would be a fool to ever incur a Bitcoin debt for this very reason. Unfortunately for Bitcoin, credit is a necessary component of any economy; this has been a fact of life for so long that it not only predates paper currency, but paper itself.

      So there you have it.

      • Sure Bitcoin is deflationary, but the total stock of coins is irrelevant for measuring your ability to pay off a debt. The only thing that matters is your income flow. Provided the bitcoins you are using to pay your debt continue to circulate, you could keep receiving the same coins as income. It is absolutely possible to pay off large debts using a currency with a limited stock of tokens.
  • by Animats (122034) on Wednesday February 15, 2012 @02:08PM (#39047067) Homepage

    Tradehill was probably the best-run Bitcoin exchange. They didn't steal customer funds, like some of the other defunct Bitcoin services. [betabeat.com] They didn't go down much. They didn't have a monthly crisis [thebitcoinsun.com] like Mt. Gox. (formerly Magic, the Gathering Online Exchange. Really.) If Tradehill does in fact return all customer funds, at least they shut down honestly.

    A basic problem with Bitcoin is that the ability to irrevocably transfer funds to anonymous parties is the scammer's dream. Bitcoin is thus a scammer magnet. Just about every known financial scam was replicated in the tiny Bitcoin world, from fake banks [globalstandardbank.com] to fake stock exchanges [glbse.com] to Ponzi schemes. [bitponzi.net]

    • That seems a little unfair. It'd be equally valid to say that a scammers dream is an electronic payments system that allows purchases to be made with only a fixed password, which must be given to anyone who accepts payments, which isn't connectable to any kind of second factor and in which the costs of fraud get sunk by the merchants (who can't do anything about it) rather than banks or end users, thus ensuring the party continues endlessly. How many credit card details can be bought on the black market aga

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