Mt. Gox Gone? Apparent Theft Shakes Bitcoin World 695
mendax was one of many readers to write with news about the apparent shutdown of Bitcoin exchange Mt. Gox, in the wake of massive theft. "The New York Times is reporting that Mt. Gox, the most prominent Bitcoin exchange, 'appeared to be on the verge of collapse late Monday, raising questions about the future of a volatile marketplace.' 'On Monday night, a number of leading Bitcoin companies jointly announced that Mt. Gox, the largest exchange for most of Bitcoin's existence, was planning to file for bankruptcy after months of technological problems and what appeared to have been a major theft. A document circulating widely in the Bitcoin world said the company had lost 744,000 Bitcoins in a theft that had gone unnoticed for years. That would be about 6 percent of the 12.4 million Bitcoins in circulation.' Maybe the U.S. Dollar isn't so bad after all." Forbes goes further, and says flatly that Mt. Gox has shut down; Wired calls it an implosion. Reader electron gunner links to the alleged leaked document which outlines the exchange's crisis strategy. Watch this story for updates, since there are bound to be new developments.
Acquisition hinted by Web page HTML source (Score:5, Informative)
From mtgox.com:
<html> <head> <title>MtGox.com</title> </head> <body> <!-- put announce for mtgox acq here --> </body> </html>
Re:surely someones considered this. (Score:3, Informative)
Never ascribe to malice what can adequately be explained by incompetence. This just looks like a sheer case of incompetence by Mt.Gox (which after all is a Magic The Gathering exchange, that's what it stands for - so run by gamers - not that this is necessarily a bad thing - but it's not an exchange run by people who are experts in banking, markets and computer security.
This kind of thing is why FDIC exists (Score:5, Informative)
Maybe this will be an object lesson for the libertarians (a very expensive lesson, for some of them). In the real financial world, we used to have "bank panics" all the time. People could lose their life savings if a bank was run poorly or crookedly. Worse, if there was a recession, people were more likely to need their money immediately, so they'd go to the bank to withdraw it – but of course a large portion of deposits had been loaned out and weren't immediately. And since people knew this could happen, they'd rush to withdraw their deposits at the first sign of trouble, since they didn't want to be the one left out in the game of musical chairs. These "bank panics", then, could happen even to well-run banks, and they made recessions far worse than they might otherwise have been. During the 19th century, the U.S. economy was repeatedly devastated by bank panics.
Finally, after the Great Depression and the mother of all bank runs, the government stepped in, because the "free market" obviously wasn't working well in this area and really never had. The answer was to create the Federal Deposit Insurance Corporation (FDIC), funded by insurance premiums charged to banks. This ensured that even if a bank did go broke, the FDIC would reimburse depositors up to a certain amount (originally $2,500, but now a quarter of a million dollars). Stockholders might be wiped out, but depositors would be made whole. As intended, this reform restored confidence in the U.S. banking system. There have been quite a few failed banks [fdic.gov] that went broke, but people with checking or savings accounts at those banks still get their money back.
But didn't that lead to "too big to fail"? Not really. The whole point of the FDIC is that you can let a bank go broke, let the stockholders be wiped out, sell the bank assets at auction, and the federal insurance will make sure the regular depositors – who didn't sign up for extra risk – will get their money back anyway. So why didn't that happen in 2008? It's extremely complicated, but it basically has to do with the repeal of Glass-Steagall. This was legislation passed in 1933 that basically said because banks are federally insured, risky investment activities have to be cordoned off into separate businesses from ordinary consumer banking. In other words, you weren't supposed to be able to run a bank, gamble on risky high-yield investments with the deposits, and then go running to the federal government for a bailout when things went south. They didn't want bankers privatizing profits and socializing costs. But that law was repealed by Phil Gramm in the 1990s. As a result, everything got intermingled – we had massive insured deposits being used to gamble on derivatives that no one understood, and everything was linked to everything else in such a way that one false move would bring the whole house of cards tumbling down. The fear was that if there was not a general bailout for the investment banks (not covered by FDIC) then the whole economy would collapse. Whether that argument was sensible or just self-serving, it's what happened. Since then there have been several attempts, only partially successful, to rein in the exuberant activities of Wall Street to try to stop this from happening again.
Now back to Bitcoin. People in Mt. Gox thought they were keeping their money in a bank. Well, they were – a pre-1933 bank, with no insurance and no guarantees. There was a de facto bank run on Gox a couple months ago, and now it's gone bust and everyone has lost everything. And the libertarians didn't see this coming because they thought FDR was the devil and that all banking regulations are unnecessary.
The new meme on Reddit seems to be that you need to keep your coins in "cold storage" – if you keep them on an exchange and something bad happens, you have only yourself to blame. Imagine the financial papers saying that you can't trust the banks, so y
Re:Mt.Gox has a long history of problems, Bitcoin (Score:5, Informative)
Re: Vive le Galt! (Score:4, Informative)
Huh? If an USican makes a deposit at at TD Bank branch in New York, that's certainly FDIC insured. All those banks operate in the US through US subs, which are US regulated and FDIC insured.
Re:Mt.Gox has a long history of problems, Bitcoin (Score:5, Informative)
Ding! We have a winner. Anyone who uses an exchange as a bank didn't grok the point of a distributed P2P transaction log in the first place. I would have thought it would be a key point for all those libertarians as well - personal responsibility n'all.
Keep your own wallets, keep your keys backed up, and keep them offline unless you need them. ALL these Bitcoin theft stories have one thing in common - the wallets were accessible from a public server. You would have thought that all the Bitcoin banks would have crashed right after the first story as people transferred their balances into personal wallets, but apparently people really do value their convenience much more than their hard-earned Bitcoin.
At a minimum, have a "current account" wallet that you maybe carry around on your personal devices like a phone, and a "deposit account" which you keep the wallet for OFFLINE. You can still transfer TO it any time you like - you only need the keys to transfer FROM it. Store multiple redundant copies of the keys somewhere secure - you might even want to go as far as storing a paper wallet in a real safe deposit box, but a USB memory thumb in your desk drawer and a backup thumb somewhere else is probably secure enough - you do remember your passphrases, right? And they're not the same for each copy of the wallet, right?
Recharge your current account from currency exchanges, or from your deposit account. Transfer any balances that are too large for comfort to your deposit account. Now the only thing that can destroy the value of your coins is... oh, everyone else who's still dumb enough to value convenience over personal responsibility. Que sera.
Re:Vive le Galt! (Score:2, Informative)
Bitcoin itself is fine, if shaken. What is failing is the value of MtGox's Bitcoin balances, because it now turns out those aren't backed by actual Bitcoin anymore.
This is like a bank checking its vault and finding that someone made off with all its reserves long ago. That doesn't affect the value of a currency directly (that's still as backed or unbacked as before), but it demolishes that bank's credit, and damages people's faith in other banks too.
Re: Vive le Galt! (Score:2, Informative)
HSBC is British
Ahhh yes, the famous Hong Kong and Shanghai Banking Corporation of East Putney.
Re:Vive le Galt! (Score:5, Informative)
My bitcoins at their height, were worth about $1200. Right now, they're worth about $600. That seems closer to half to me.
At the beginning of the end of Mt. Gox, they were only worth about $800, so I only lost about 25%. Considering how bad this news is, it really doesn't seem that bad.
Re:Mt.Gox has a long history of problems, Bitcoin (Score:4, Informative)
Frankly, I'm shocked it has gone on as long as it has. I thought it was going to be a flash in the pan scam, with the original guys selling their horde of early mined coins and then leaving the suckers to hold the bag, but it seems like the suckers were much better at finding other suckers than I expected.
Re:Vive le Galt! (Score:4, Informative)
MtGox is dead (or down), so their rate is irrelevant. All the other exchanges are still trading at a little bit over $500. That's not down by 92%.
Re: Vive le Galt! (Score:5, Informative)
You realise they were set up by British corporations to handle British merchant trader funds in East Asia during the British Empires hay day, right? Just because they have foreign placenames in their name doesn't mean they are owned by entities in that locale.