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The Almighty Buck Bitcoin

Mt. Gox Gone? Apparent Theft Shakes Bitcoin World 695

Posted by timothy
from the repercussions-will-repurcate dept.
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.
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Mt. Gox Gone? Apparent Theft Shakes Bitcoin World

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  • Vive le Galt! (Score:4, Insightful)

    by Shadowmist (57488) on Tuesday February 25, 2014 @09:48AM (#46333197)
    Waiting for the libertarians here to demonstrate why this shows how Bitcoin is such a wonderful idea.
    • Re: (Score:3, Funny)

      by arisvega (1414195)
      MONEY ALLTOGETHER is not a good idea. Think for yourself, instead of waiting for some authority to think for you.
      • Re: (Score:3, Insightful)

        by Loughla (2531696)

        So, I assume you propose a barter system then?

        Be less ridiculous.

        • by Mitchell314 (1576581) on Tuesday February 25, 2014 @10:18AM (#46333507)
          No, the next digital and final system: LOLcat picture trading.
      • by beelsebob (529313)

        How would you propose that we distribute resources to people in a way that's fair, and gets the resources to the most in need and most capable?

      • by MaWeiTao (908546)

        The fundamental reason why humans have developed currency is because no other system is equipped to properly cope with the complexities of goods and services. Bartering already was not feasible thousands of years ago on a large scale, and it's even less realistic a model today.

        Let's say you want to buy a car. How do you barter for that? Drive up with a truck load of corn? Or do you take a job at Ford and build your own car? Are you also going to stamp your own steel, mix your own paint, manufacturer your ow

    • by Sockatume (732728) on Tuesday February 25, 2014 @09:55AM (#46333265)

      For maximum irony, the strategy doc states that they're toying with "we're too big to fail" as a PR angle, going cap-in-hand to other bitcoin exchanges to get bailed out.

    • by Joce640k (829181) on Tuesday February 25, 2014 @10:01AM (#46333333) Homepage

      It's as if a million bitcoin owners suddenly cried out in terror and were suddenly silenced.

    • by Anonymous Coward on Tuesday February 25, 2014 @10:02AM (#46333351)

      Yeah, I suppose you'd rather have a fiat currency. Well whatever the economist say, a currency based on nothing except shitty Italian cars is worthless and personally I only accept canned food as any form of payment because I know the big crash is coming.

    • Re:Vive le Galt! (Score:5, Insightful)

      by Chrisq (894406) on Tuesday February 25, 2014 @10:03AM (#46333355)

      Waiting for the libertarians here to demonstrate why this shows how Bitcoin is such a wonderful idea.

      Where else would a bank be free to disappear with your money ..... Oh wait ... apart from Madoff, Icelandic banks, BCCI, ....

      • Re: Vive le Galt! (Score:5, Interesting)

        by O('_')O_Bush (1162487) on Tuesday February 25, 2014 @10:10AM (#46333425)
        Madoff is an excellent example of why handing your money to an individual or small group (just like the ameteurs at Mt. Gox) to keep in your trust is an awful idea. Real banks, the ones with experience not losing all of your money or that are regulated and insured by the U.S. gov't, by comparison, are stable, secure, and at least reliable enough for an economy to run on.
        • by Enry (630)

          And many of your deposits in traditional banks are insured against failure by the government.

    • It looks like a classic market capitulation. If no-one buys the low now, then Mt.Gox is finished as a Bitcoin exchange.

      Unless BitCoin is backed by a tangible asset, then it must fail eventually.

      • Re: Vive le Galt! (Score:2, Insightful)

        by Anonymous Coward

        There is no "low" if you can't ever withdraw your BTC. If there were any chance of buying at MTGOX extra-low prices and being able to sell elsewhere, the arbitrage opportunity would have attracted enough interested parties to equalize the market prices (the law of one price). MTGOX doesn't actually have the BTC to sell you; if you buy from them, you're buying scrip that's worse than fiat.

    • by Arancaytar (966377) <arancaytar.ilyaran@gmail.com> on Tuesday February 25, 2014 @10:37AM (#46333719) Homepage

      Waiting for angry libertarians to demand that the government pass regulations to stop this from happening again.

    • by RogueyWon (735973) on Tuesday February 25, 2014 @04:11PM (#46338161) Journal

      Another person making a snarky comment about Atlas Shrugged while clearly never having read it.

      John Galt is a major proponent of the gold standard. As in, seriously major. It's one of the main economic themes of the book. Bitcoin would have horrified him (had he been real).

      Atlas Shrugged may not be "right", but it is much harder to dismiss than the average college undergrad leftie assumes.

  • The paper trail (Score:2, Interesting)

    by Anonymous Coward

    https://blockchain.info/address/1Drt3c8pSdrkyjuBiwVcSSixZwQtMZ3Tew?offset=0&filter=0

  • by Wireless Joe (604314) on Tuesday February 25, 2014 @09:50AM (#46333215) Homepage
    Oh, that's right. Unregulated currency free from government interference. Enjoy!
  • by JcMorin (930466) on Tuesday February 25, 2014 @09:52AM (#46333235)
    Mt.Gox is like a bank, it's not because one big bank fail (Lehman Brothers for instance) that the whole currency is bad. Mt Gox was poorly managed, bad software code, bad PR, often DDOS. They couldn't stand the #1 place they hold for too long. I'm very sorry for everyone who lost money with Mt. Gox but don't get me wrong. Bitcoin ecosystem still exist and many other exchanges services will emerge as of that. Users and investors will have to be very careful about where they hold their money. In my case, I trust my on own encrypted devices.
    • by Sockatume (732728)

      I thought the take-home message from Lehman Brothers was "the whole [economy] is bad".

    • Many people seem to forget, bitcoin is not inherently an investment vehicle. It is a currency. Using it as an investment is risky.
      • by bunratty (545641) on Tuesday February 25, 2014 @10:04AM (#46333367)
        If it's risky as an investment, how useful is it as a currency? I would expect a currency to be one of the least risky forms of property to be useful.
        • by Dunbal (464142) *
          He obviously thinks a "currency" whose actual value against other currencies regularly swings 100% or more in a day is useful. Frankly I want to hear about the guy who sank money into Bitcoin ATMs and how he's doing at the moment...
        • by Sockatume (732728)

          Depends on what it's being used for. For small-scale transactions in time and value - e.g. turning $7 into BTC to immediately buy a CD - a relatively unstable currency is fine. Frankly, the while decentralisation of bitcoin made me assume that's the only way it would ever be used.

          For anyone holding any significant amount of cash for any significant amount of time - e.g. a Bitcoin exchange - the instability is a nightmare.

        • You are right, which is the fundamental problem with it, right now, and the reason why it is floating on such an enormous bubble. Until it stops being speculated, it won't be stable, and if it isn't stable, it won't be a practical currency, and if it isn't a practical currency, it is subject to speculation. That is the cycle that is keeping prices high, and once the trigger is big enough, (or someone starts dumping the currency, which there are lots able to) the cycle will reverse. And it will reverse, give
        • by AudioEfex (637163)

          That is precisely the scam of BitCoin.

          It has pretended to be an "alternative currency" when in fact, it just was an investment scheme based on theoretical nothingness.

          Otherwise educated folks bit on it as a "get rich quick" scheme hook, line, and BitCoin - because a bunch of techno-babble and theory that sounded like smart folks knew what they were talking about lured them in, coupled with the "The Man" view of the government held by (mostly) young and inexperienced people who think the sky is going to

      • by Alioth (221270)

        Pity it's nearly useless as a currency. The wild swings in value on a minute-by-minute basis make it impossible to use as a currency for anything other than black market goods.

    • Mt.Gox is like a bank

      Where do you need a bank for when you have Bitcoins?
      The principle behind Bitcoin is that it is a distributed system, and payments can be made in a "peer-to-peer" fashion.

      • by JcMorin (930466) on Tuesday February 25, 2014 @10:25AM (#46333599)
        You don't need a bitcoin IF you have bitcoin, but the exchange service like Mt.Gox is doing exactly that, changing your cash to bitcoin and bitcoin to cash. Once you have Bitcoin you should remove them from the exchange service and store them on your own device to avoid any potential lost.
        • by Dr_Barnowl (709838) on Tuesday February 25, 2014 @10:47AM (#46333825)

          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.

    • by elgholm (2746939)
      Kind of sad that a new currency - whose main idea was that it should be easy for private people to transfer money over the internet, free of charge - actually need these big "exchange-places" who not only takes out a charge (=makes money on your transaction) but actually becomes more and more as a regular bank. What's the point then? If the current usage continues we will have big online bitcoin-banks, who then will employ traders and whatnot, and start speculating on/with the currency, and, yes, we'll be
      • by Dunbal (464142) *
        Because the problem never was the currency, the problem is with human beings and their behavior.
      • Re:Sad (Score:4, Interesting)

        by Lord Apathy (584315) on Tuesday February 25, 2014 @10:32AM (#46333679)

        I agree. I still like the idea of bitcoins. I still think there might be a future in it once all the bugs have been gotten out of the system. The reason that we still need the exchange-places is because, like it or not, bitcoin are not a legitimate currency. As long as they are not recognized as one you will all ways need someone willing to take the risk of converting bitcoins in to cash.

        People wanted bitcoins to be free from any kind of government oversight or interference. Well that is never going to happen. As long as there is anything acting like money you are going to need some kind of oversight to keep things like this from happening. Bitcoins are a great idea if everyone is on the same level and is honest about it. But not all people are honest.

        As we have seen the need for exchanges have turned out to be the weak point in the bitcoin system. Until that need is eliminated or is under some kind of regulation, you will always having someone gaming the system and stealing from other people.

        Regulation is a must, not an option.

  • by NotDrWho (3543773) on Tuesday February 25, 2014 @09:56AM (#46333273)

    I've never personally been part of a Ponzi scheme collapsing before. But as the proud owner of a fraction of a Bitcoin, I guess this may be my big chance.

  • by rmdingler (1955220) on Tuesday February 25, 2014 @09:58AM (#46333293)
    More and more, mainstream media outlets are covering bitcoin stories.

    What I'm saying is there is a slew of non-tech money out there about to prop up the price.

    Even gold is worthless in a famine, but if enough people covet something it will hold value.

  • by seebs (15766) on Tuesday February 25, 2014 @09:58AM (#46333295) Homepage

    A programmer who would implement an ssh server in PHP [reddit.com] may be part of the problem?

    BTW, the article linked from that reddit comments thread really is beautiful. In the absence of the later disasters, I might have speculated that this was parody.

    • That's a face palm. He mentioned he wrote his own half-ass DNS server so that he could use MySQL as storage too. Apparently he didn't take five minutes on Google to discover PowerDNS. Pdns is used by major sites like Wikipedia, has a MySQL backend, and takes security seriously. I found and reported a security flaw in Pdns once and their response was textbook perfect.

  • by vinsci (537958) on Tuesday February 25, 2014 @09:59AM (#46333313) Journal

    From mtgox.com:

    <html> <head> <title>MtGox.com</title> </head> <body> <!-- put announce for mtgox acq here --> </body> </html>

  • Most people around me say it's better to keep your coins in an online wallet because it's easier to set-up, but I didn't do that, because then it would be the exchange that controls my money.

    If people had kept their bitcoins in offline wallets, Mt. Gox wouldn't have been able to take them.

  • For some reason only Slashdot reported no money was lost. In the phantom transactions obviously bitcoins were transferred, yet cancelled before cash could come.

    On other sites like neowin it is reporting the values are sinking below $300 a coin!

  • Long Term Con? (Score:5, Interesting)

    by Lord Apathy (584315) on Tuesday February 25, 2014 @10:05AM (#46333381)

    Sounds to me like someone was running a long term con here. Act like a legitimate business for a few years, get people to trust them. Maybe think of them as a bank and a safe place to actually cash, not bitcoins. Then once that trust is built up and you have a nice supply of money sitting in some off shore bank. Vanish like a thief in the night.

  • Well, you can't say it was unexpected. There have been problems with Mt. Gox for months now, ever since dollar withdrawals were stopped, so anyone using them was doing it at their own risk.

    Cautious people would have sold their trapped dollars at a discount while they still could, and taken out all their bitcoins, so they wouldn't have lost too much. The unwary... well, they'll pay some stupid-tax.

  • by nimbius (983462) on Tuesday February 25, 2014 @10:13AM (#46333455) Homepage
    1. new currency emerges, becomes significant
    2. reigning system of currency/government considers it a threat.
    3. coordinated attacks on the stock exchange
    4. bankruptcy, uncertainty, disappearance
    5. 'Maybe X currency isnt so bad after all!"

    the fact stands that shifting major trade away from the dollar is dangerous, but the bitcoin midel would be catastrophic. its a world where international financial sanctions cant work, and in which America would need to do more than just show up to security council meetings in the UN for a rubber-stamp vote against $evil_dictator. Iraq and Iran serve as real-world examples of this in action. both countries have in the past attempted to shift oil trade away from the dollar. Nothing says monetary supremacy like de-stabilizing the competitions government.
    http://www.hks.harvard.edu/fs/... [harvard.edu]
    http://www.projectcensored.org... [projectcensored.org]
    • Re: (Score:3, Informative)

      by Alioth (221270)

      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.

    • new currency emerges, becomes significant

      Bitcoin is not a currency, it's a token on par with casino chips or the tasting tokens you'd get a beer festival. Nor is it significant, it's total current value barely approaching about three days worth of Wal-Mart's annual income. (Heck, here in the US there are city budgets bigger than Bitcoins current overinflated worth.)

      reigning system of currency/government considers it a threat

      Outside of tinfoil hat land, there's absolutely no shred of evidence this

  • by JDG1980 (2438906) on Tuesday February 25, 2014 @10:25AM (#46333597)

    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

    • Why in gods name people would leave a significant holding in a foreign web site when it is so easy to secure locally I will never understand...

    • by Srin Tuar (147269) <zeroday26@yahoo.com> on Tuesday February 25, 2014 @10:59AM (#46333971)

      > Maybe this will be an object lesson for the libertarian

      I'm sure it will be, but not the lesson you are thinking of.

      Some attributes of this problem:

      * The currency itself is not affiliated with the crashing "bank". so you have seen exchange rates dip somewhat, there is no fundamental crash for the cryptocurrency

      * Numerous exchanges and other pseudo-exchanges have stayed open and operational for this whole saga, allowing liquididty in and out of the cryptocurrency

      * Use/Exchange of cryptocurrency does not require blind trust in the fundamental sense, so those who kept their balances in trust exchanges minimal to nil, lost nothing

      * This "crash" was not sudden or mysterious. Those with the slightest modicum of common sense got out long ago. Other's with a taste for danger kept in or bought in up to the last minute. But just like playing with penny stocks, the risk was very high.

      * MtGOX itself was a form of ponzi scheme. You could also have a ponzi scheme based on chicken eggs, or bottle caps. This does not mean that eggs themselves are a ponzi scheme, and neither are bitcoins.

      On the other side of the coin, any form for exchange is backed with trust. So long as people continue to trust in the cryptographic and stability of the network itself. Those appear to remain strong, and merchants accepting the currency semi-directly continue to operate.

      The lesson learned: crypto currency can sustain major scandals denominated in itself and not be fundamentally broken. Also, its possible for exchanges and reserve banks to prove solvency cryptographically, and doing so will become the "FDIC" equivalent for the crypto currency world.

  • by DrXym (126579) on Tuesday February 25, 2014 @10:26AM (#46333609)
    I'm setting up a new exchange. It used be a Pez dispenser trading site but I'm sure it can be adapted to securely manage millions of dollars worth of financial transactions.
  • by JustNiz (692889) on Tuesday February 25, 2014 @12:51PM (#46335421)

    When bitcoins dropped below $200 and even knowing no-one could transfer anything out of Mt Gox, I transferred in some money to my Mt. Gox account (about $1500).

    I knew it was a massive risk but the potential gain was correspondingly high too.
    The money should have hit my Mt.Gox account about 8 days ago but never did. Of course I went through the formality of filing a support ticket but pretty much had already figured the money was gone.

    Since I saw MtGox website is now just a message that clearly translates to "Goodbye and thanks for all the fish" I will waste nothing on guessing if I will ever see the money again, as losing it is OK too. I went in with my eyes open, knowing this was a massive risk and therefore only spending some play money that I could afford to miss.

    Perhaps the most surprising thing to others may be that this won't change my positive view of Bitcoin itself one little bit, nor will I stop making other high-risk investments with amounts of money that I can easily afford to lose.

    You all probably think I'm nuts, especially for even sending that money to Mt.Gox in the first place, but Grestsky said it best: you miss 100% of the shots you don't take.

  • by J'raxis (248192) on Tuesday February 25, 2014 @03:45PM (#46337865) Homepage

    "Maybe the U.S. Dollar isn't so bad after all."

    Because the regulated financial institutions that deal in U.S. dollars are so much more trustworthy. Perhaps I should keep my money with these guys [wikipedia.org]. Or this company [wikipedia.org]. Or them [wikipedia.org] perhaps? This guy [wikipedia.org] looks trustworthy, doesn't he?

    Here [wikipedia.org] is what government-backed currency banks, lenders, investment firms, and the like have been up to recently. And here [rollingstone.com] is what they're up to now.

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