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Mt. Gox Files for Bankruptcy Protection

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Re: Mt. Gox Files for Bankruptcy Protection

#171

Post by panarky »

enscr wrote: post #115

I feel bad for Mark Karpeles but the way MtGox communicated & lied to its users makes me sad. It's those nameless individuals who believed in him, whose trust was betrayed - those are the ones that deserve the affection of the community. I've been following the news and I think MtGox was handling so much money that they should have focused on better security practices and audits. Few examples of their lackadaisical a…

"There was some weakness in the system, and the bitcoins have disappeared."

They've "disappeared". Curious choice of words.

Karpeles didn't say they were stolen, or misplaced, or destroyed. And he didn't say when the mysterious disappearing act occurred.

The most likely explanation is that Gox's crappy system lost the private keys to cold storage long ago, and they've been running fractional reserve since then, hoping to close the gap.

Transaction malleability was probably an insignificant fraction of the loss.

Re: Mt. Gox Files for Bankruptcy Protection

#172

Post by nadaviv »

M4v3R wrote: post #149
JumpCrisscross wrote: post #71

When you make a deposit you are extending credit. In the case of Mt. Gox, or any other Bitcoin exchange, that credit is secured by nothing and insured by noöne. Advice, going forward, for managing counterparty risk: (1) Split a $100 transaction into 10 $10* transactions executed incrementally (send $10 of BTC to Mt. Gox, exchange it, transfer it out, and only then send the next $10 of BTC over). This keeps exposure a…

Mt. Gox and many other exchanges have put into people's minds that you HAVE to forfeit your rights to your Bitcoin when using online services. It doesn't have to be that way, though. You could just use a system like we use at Bitalo [1], where fractional reserves or funds misuse are impossible because of use of multi-signature Bitcoin addresses, which means funds are specifically tied to user wallets and exchange ope…

This isn't realistic for an exchange. They have an enormous transaction volume, which is represented as internal/off-chain transaction in an internal accounting system.

Using multi-signature transactions requires every fund transfer to be represented as a Bitcoin transaction, which the Bitcoin neAtwork simply can't handle.

Re: Mt. Gox Files for Bankruptcy Protection

#173

Post by cyphunk »

M4v3R wrote: post #149
JumpCrisscross wrote: post #71

When you make a deposit you are extending credit. In the case of Mt. Gox, or any other Bitcoin exchange, that credit is secured by nothing and insured by noöne. Advice, going forward, for managing counterparty risk: (1) Split a $100 transaction into 10 $10* transactions executed incrementally (send $10 of BTC to Mt. Gox, exchange it, transfer it out, and only then send the next $10 of BTC over). This keeps exposure a…

Mt. Gox and many other exchanges have put into people's minds that you HAVE to forfeit your rights to your Bitcoin when using online services. It doesn't have to be that way, though. You could just use a system like we use at Bitalo [1], where fractional reserves or funds misuse are impossible because of use of multi-signature Bitcoin addresses, which means funds are specifically tied to user wallets and exchange ope…

Why would bitalo ever require users ID themselves or provide bank details? multisignature scheme already adds a latency on transaction. just not clear how this exchange works. Is it P2P where users transact between each others bank accounts. If so the AMA/KYC seems unnecessary.

Re: Mt. Gox Files for Bankruptcy Protection

#174

Post by [deleted] »

jellicle wrote: post #156
ck2 wrote: post #9

It's easy to be angry at them and/or see how stupid they were about accounting, security, etc. But I guess on the other hand we do have to realize they are victims of massive theft, as far as we know this massive loss was not due to their own profiteering or internal theft, it was an organized outside force targeting them. It occurs to me it is like blaming someone for getting mugged, although they were stupid enough…

Almost all theft at financial institutions is internal theft. There is not one single official statement from anyone to the effect that there has been an external theft from Mt. Gox. No one has reported a theft to police. There is zero basis to believe an external theft has occurred. If Mt. Gox does file a police report, at least then someone has done something (with official penalty for false statement) indicating t…

[deleted]

Re: Mt. Gox Files for Bankruptcy Protection

#176

Post by drcode »

steven2012 wrote: post #155
JumpCrisscross wrote: post #71

When you make a deposit you are extending credit. In the case of Mt. Gox, or any other Bitcoin exchange, that credit is secured by nothing and insured by noöne. Advice, going forward, for managing counterparty risk: (1) Split a $100 transaction into 10 $10* transactions executed incrementally (send $10 of BTC to Mt. Gox, exchange it, transfer it out, and only then send the next $10 of BTC over). This keeps exposure a…

I believe MtGox users have unfortunately learned the definition of "counterparty risk". This is one of the major overlooked risks that almost took down the global financial system in 2008. People would hedge their worthless bonds using AIG as a counterparty, and once things blew up, these people realized their insurance policies were completely worthless because AIG was about to go under itself, causing them to almos…

Fortunately there's ways of proving available deposits when using bitcoin. In theory at least, this can address the issue of counterparty risk. Hopefully all the exchanges will start adopting this.

Re: Mt. Gox Files for Bankruptcy Protection

#177

Post by danielweber »

bodski wrote: post #12
ck2 wrote: post #9

It's easy to be angry at them and/or see how stupid they were about accounting, security, etc. But I guess on the other hand we do have to realize they are victims of massive theft, as far as we know this massive loss was not due to their own profiteering or internal theft, it was an organized outside force targeting them. It occurs to me it is like blaming someone for getting mugged, although they were stupid enough…

It seems it is too early to state with any certainty that MtGox are also a victim here. http://falkvinge.net/2014/02/28/the-gox-crater-crowd-detecti... http://letstalkbitcoin.com/the-ghost-in-the-machine-at-mtgox...

The allegation that an address that MtGox's controls still holds all the Bitcoins but that they've lost the key is fascinating.

If true, how can MtGox prove it lost the key? If he walks away, he can wait 10 years and then transfer the funds out and spend them.

But if false, can we demand he produce the key?

What if someone else entirely different has the key?

It's all fascinating.

Re: Mt. Gox Files for Bankruptcy Protection

#178

Post by drcode »

JumpCrisscross wrote: post #71

When you make a deposit you are extending credit. In the case of Mt. Gox, or any other Bitcoin exchange, that credit is secured by nothing and insured by noöne. Advice, going forward, for managing counterparty risk: (1) Split a $100 transaction into 10 $10* transactions executed incrementally (send $10 of BTC to Mt. Gox, exchange it, transfer it out, and only then send the next $10 of BTC over). This keeps exposure a…

It's kind of sad to me that this even needs to be written out, it should be obvious: If you can't trust somebody, you have to break any financial transaction with that person into little pieces.

To be fair, I'm guessing most people burned by MtGox in a big way were day trading, where this advice won't work.

This is part of the reason I never day traded bitcoin- The counterparty risk is (and clearly was) too great.

Re: Mt. Gox Files for Bankruptcy Protection

#179

Post by steven2012 »

drcode wrote: post #176
steven2012 wrote: post #155

Earlier quoted context omitted.

I believe MtGox users have unfortunately learned the definition of "counterparty risk". This is one of the major overlooked risks that almost took down the global financial system in 2008. People would hedge their worthless bonds using AIG as a counterparty, and once things blew up, these people realized their insurance policies were completely worthless because AIG was about to go under itself, causing them to almos…

Fortunately there's ways of proving available deposits when using bitcoin. In theory at least, this can address the issue of counterparty risk. Hopefully all the exchanges will start adopting this.

Not really. If the exchange says "We have 500,000 BTC" and they publish their wallet, but their actual customer liabilities are 2M BTC, everyone can still lose a lot of money. What they really need is to be externally audited and undergo consistent regulation.

Re: Mt. Gox Files for Bankruptcy Protection

#180

Post by kaonashi »

JumpCrisscross wrote: post #71

When you make a deposit you are extending credit. In the case of Mt. Gox, or any other Bitcoin exchange, that credit is secured by nothing and insured by noöne. Advice, going forward, for managing counterparty risk: (1) Split a $100 transaction into 10 $10* transactions executed incrementally (send $10 of BTC to Mt. Gox, exchange it, transfer it out, and only then send the next $10 of BTC over). This keeps exposure a…

True only for fixed-exchange-rate currencies.
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