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MtGox Files For Bankruptcy Protection 465

Posted by Soulskill
from the all-about-the-bitjamins dept.
Sockatume writes "The beleaguered MtGox bitcoin exchange has officially filed for bankruptcy protection in Tokyo. According to the Wall Street Journal, Bitcoin held an impromptu press conference that addressed recent rumors. They state that they have over $60m in liabilities against just $30m in assets, and confirm the loss of over $500m worth of Bitcoins, split between customers' balances (750,000 BTC) and company assets (100,000 BTC). Owner Mark Karpeles said, 'There was some weakness in the system, and the bitcoins have disappeared. I apologize for causing trouble.'"
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MtGox Files For Bankruptcy Protection

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  • Re:"some weakness" (Score:5, Informative)

    by abigsmurf (919188) on Friday February 28, 2014 @10:05AM (#46366935)
    The weakness was apparently down to the site treating a txid (transaction ID) field as a unique identifier. Turns out not only was it not actually a unique transaction identifier, it could also be spoofed easily without altering the (real) destination for the transaction. Made it trivial to make fake deposits and real withdrawals.

    MTGox's fault for not understanding a spec whilst using it to move vast sums around but it probably highlights the importance of good naming practices when creating a spec.
  • Re:Bitcoin did what? (Score:5, Informative)

    by Sockatume (732728) on Friday February 28, 2014 @10:07AM (#46366955)

    This one's on me and not the editors, somehow I went from "the exchange's owner so-and-so" to "the exchange" to "Bitcoin" in the space of about half a cup of coffee. Although the image of the bitcoin network showing up in person is an amusing one.

    I'm annoyed with myself because the misconception that this is a Bitcoin issue and not a MtGox issue is one I try to dispel.

  • Re:Legitimization (Score:5, Informative)

    by pla (258480) on Friday February 28, 2014 @10:28AM (#46367123) Journal
    This is like the 4th or 5th exchange that has gone bust, right?

    Actually more like 18 [], but MtGox counts as the first major exchange to fail. The rest of those amount to you or I throwing up an "exchange" as our CompSci101 project and then vanishing when they lost their shirts.

    The loss of MtGox definitely counts as a blow to Bitcoin, but as others will no doubt point out, it had already started "failing" months ago (when you have a good 20% price spread vs the next highest exchange and you don't see arbitrage occurring on a massive scale, you know you have a problem). Any fools with either USD or BTC left in Gox since the beginning of the year (and even before that) pretty much stopped paying attention and deserve what they got.

    And the effect on the BTC market since then bears that out - The price initially plummeted, but has already stabilized at 2/3rds its previous stable value. If anything, this counted (and still does, IMO) as a great opportunity to get in during a market correction and load up on deeply discounted BTC.
  • MtGox (Score:2, Informative)

    by pitchpipe (708843) on Friday February 28, 2014 @10:35AM (#46367181)
    I, for one, am shocked that MtGox (Magic the Gathering: online exchange) has failed at handling huge sums of money.

    Ht Charles Stross []

  • Re:"some weakness" (Score:2, Informative)

    by Anonymous Coward on Friday February 28, 2014 @10:42AM (#46367251)

    No, that's exactly what OP is describing. The fact that a single transaction can have different binary formats owing to variations in zero-padding on the txid is called "transaction malleability".

  • by Anonymous Coward on Friday February 28, 2014 @10:55AM (#46367365)

    So what you're saying is that everyone is supposed to magically learn from this how to defend against the next exchange which does a better job of handling its theft so no one gets any red flags until its too late and they've take ALL of the money rather than just half of it? Is that what you're saying?

    YES! Well, not the "magically" part.

    Here is the lesson: You do not store a crypto-currency on someone else's server. You maintain control of it yourself.

    Now, you might need to convert that crypto-currency into a local currency, or vice versa. And to do that, you will need to find an individual or an exchange with a solid reputation (because you can not inherently trust them). But once that transaction is complete, you immediately take back control of your crypto-currency. You DO NOT leave it in someone else's control, ever.

  • by bigmattana (646048) on Friday February 28, 2014 @10:55AM (#46367369)

    It is impossible for a Bitcoin to be copied or duplicated, but not stolen. Yes, the blockchain keeps track of ownership of each fraction of a coin as it travels from address to address. So the transactions are public but the addresses are fairly close to anonymous unless someone like the NSA or your ISP recorded internet traffic to attach it to an IP address. (You can see which addresses hacked or stolen funds went to but it is harder to figure out who is tied to those addresses.) If someone gains access to your private key, the blockchain has no way of knowing they are not the rightful owner. This is why most people with large amounts in their wallets keep it on an offline machine only or print it out on a paper wallet so there is absolutely no way of someone hacking in and stealing their private key.

    Now in the case of Mt. Gox, it is not clear if they were actually hacked or if they lost so much because of this "transaction malleability issue", which is basically like receipt fraud in which people would make withdrawals and claim they were not paid, so Gox would pay them again. This is more like Gox getting "conned", not "stolen". Either way, it is looking like it was an inside job. There is just no way they could slowly lose this much money of this long of time period and not notice it.

  • by Anonymous Coward on Friday February 28, 2014 @10:57AM (#46367385)

    > a great opportunity to get in during a market correction and load up on deeply discounted BTC.

    Sounds just like those stock pump-and-dump spam emails I get.

  • Re:Ha ha (Score:5, Informative)

    by AmiMoJo (196126) * <> on Friday February 28, 2014 @11:01AM (#46367423) Homepage

    When declaring bankruptcy you have to declare assets and liabilities. If the liabilities are in other currencies you have to declare them too, usually in the local currency equivalent.

  • Re:Ha ha (Score:5, Informative)

    by SpankiMonki (3493987) on Friday February 28, 2014 @11:25AM (#46367599)

    And next time someone comes in and robs them blind, will the perpetrators be buttpirates?

    Already been done by "pirateat40" (aka Trendon Shavers). []

    Dude was offering 1% per week returns on an "investment" that he refused to give any information about because of his "proprietary business model".

    There was no shortage of dupes lining up to give him their coins.

  • by Kjella (173770) on Friday February 28, 2014 @12:42PM (#46368199) Homepage

    No, client funds are not company funds. If you run a parking lot and a car gets stolen from the lot you're not liable for replacing the car. You might get that liabilty if your valet wrecked the car, but not in general. Same with deposit boxes, storage lockers, mail packages and so on if you want to get your money back in case of theft you need insurance. Which is what FDIC is for bank accounts. No insurance, then you might not even have a claim against MtGox. First you'd have to take them to court and win to make them liable for damages. And even if you do, well there won't be any money to collect there anyway.

  • by DaveV1.0 (203135) on Friday February 28, 2014 @01:44PM (#46368769) Journal
    You underestimate the possible downside. People who sold things for BitCoins (BTC) and haven't moved them into a hard currency have just lost two thirds the value which may very well be greater than their margin. This should cause every single retailer to rethink accepting BTC. And, just think what will happen if retailers go out of business because they had money tied up in MtGox? If that kind of news gets play, it will be hard to get new retailers to accept BTC, especially small business.

    That completely skips over the idea that shareholders may demand companies not accept or stop accepting BTC calling it fiduciary irresponsibility.

    And, what if the governments get involved? Governments could start regulating the exchanges. Governments could issue onerous orders concerning BTC transactions. Imagine being a business and selling something for 1BTC and having the value drop by half before you have shipped the item. Do you continue the transaction as is, ask for more money, or cancel it? What if the government says you must continue with the transaction?

    Now, image buying something for 1BTC and then having to pony up another the next day because the value dropped over night and the company will not ship unless you pay for the change in value? What if the government says you either pay or the transaction is canceled AND the business can charge you a fee for cancelling the transaction?

    Finally, anyone who got BTC back in November have lost about 1/2 the value. Think about the people who have been talking up BTC to their family, friends, etc. who now get to answer about how this has effected them.

If I'd known computer science was going to be like this, I'd never have given up being a rock 'n' roll star. -- G. Hirst