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BTC Stolen from Poloniex

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Re: BTC Stolen from Poloniex

#111

Post by mpyne »

o_nate wrote: post #89
tptacek wrote: post #86

Earlier quoted context omitted.

I don't think you should handwave this. Companies have hot bitcoins because they need them to cover transaction volume. Their "hot" liability scales with their business. When you're six months old, a 50k loss (more accurately: the requirement to redeem BTC that start with a market value of 50k) kills your company (or the rational incentive to continue pursuing your company). When you're a year old, 100k does the tric…

I didn't mean that to come off as hand-waving. I think this is a very serious issue that is going to require a complete rethinking of security practices. Perhaps it won't ever be solved satisfactorily, but I wouldn't rule out ingenuity of developers to at least reduce the risk to manageable levels.

Well I think the problem is that if we take the assumption of "being owned" at face value (and that seems justified by the evidence) then "reducing risk to management levels" doesn't stop these disastrous events from happening. It only makes it more disastrous once the black swan finally lands in your pond.

It seems that the only way for this line of business to be feasible in the long term is for the hot wallet :: total assets ratio to be as low as possible. Your income to build assets is proportional to transaction volume, but so is the required size of the hot wallet.

Maybe a massive up-front investment to allow for start-up assets to be suitably large in comparison to hot wallet size... but even then you'd need to be careful not to grow too quickly and to ensure that you proportionally build up your reserves for when your hot wallet gets wiped out.

But this means that you have those stored assets that you can't invest elsewhere, so are you even making a profit now? The only way to reduce assets needed is probably some kind of insurance arrangement, but why should the insurance company offer low fees for this with the risk profile we currently see?

Re: BTC Stolen from Poloniex

#112

Post by mpyne »

aestra wrote: post #103
danielweber wrote: post #92

Earlier quoted context omitted.

Most credit card purchases, like almost everything in the financial system, are reversible. Things that aren't reversible are the exception, and those are the places where, pun intended, the buck stops. If someone gets my credit card, they can't get $50,000 out of it and disappear. It's very very hard to buy cash equivalents via credit card, and this is not an accident. Nothing in Bitcoin is reversible. Everyone work…

>Things that aren't reversible are the exception For thousands of years the only way to pay for something was with non-revertible mediums, either cash or bartering for other goods. Reversible transactions are new in the grand scheme of things. If I ran a bank and didn't bother to lock the doors or keep the money in a safe and someone comes in and steals the money, I don't get to do a chargeback and get the cash back.

> If I ran a bank and didn't bother to lock the doors or keep the money in a safe and someone comes in and steals the money, I don't get to do a chargeback and get the cash back.

That would be one thing if physical security were just as hard (or harder) than cyber security.

But it's in fact the complete and polar opposite; physical security is much easier and much better understood by the actors who need to engage in defense.

Re: BTC Stolen from Poloniex

#113

Post by mpyne »

jnbiche wrote: post #91
bunderbunder wrote: post #82

Earlier quoted context omitted.

My suspicion is that simply removing barriers to entry for more cautious folks would not effectively resolve this sort of problem. Methodical people who take their time in engineering ironclad software systems backed by rock-solid accounting practices don't get first mover advantage, and they might not have bottom lines capable of supporting the kind of fee structures that would allow them to compete effectively with…

Perhaps, in the case of the most cautious developers. But right now, I'd be happy with just competent developers. And to me, at least, it's pretty clear why competent, responsible developers are not participating in this space -- we're too frightened by possible government sanctions.

> And to me, at least, it's pretty clear why competent, responsible developers are not participating in this space -- we're too frightened by possible government sanctions.

I don't think that's clear at all.

In fact I think bunderbunder has it right. Those who make the best products will require a large enough expense for formal design, implementation, secure hardware acquisition, physical security (i.e. no simply running your exchange on someone else's cloud without a lot of oversight), the works. This requires tons of time and resource investment.

Because if any part of that chain is improperly coded, designed, implemented, etc. it will eventually be exploited and you'll be no better than the Poloniex type exchanges of the world.

In the meantime there will be those "incompetent" developers you mention with a shipping product already on the market. And theirs will be much cheaper as they don't need to devote "Space Shuttle computer software" levels of development design and implementation effort. So you'll be both late to market and more expensive.

If you're talking about financial security here then you effectively need to be building a Bentley instead of a Pinto. But you'll be competing in that unregulated market with Pintos with a consumer base full of people willing to take the risk of driving in a Pinto instead of a Bentley they can't afford anyways.

And this has nothing to do with the government yet, either sanctions or regulations.

In fact this type of "tragedy of the commons" is exactly why there is government regulation. They help ameliorate the inevitable "race to the bottom" by artificially limiting where the bottom may be.

But government regulation probably won't help too much here since you can always run your exchange out of a country that doesn't care and people can make their transactions with whatever identity they wish.

Who knows, maybe the industry will self-create and self-adopt appropriate regulation as a market differentiator. But that still would open the question of who does the enforcement; if competitors discover their competition isn't actually following the regs then they'd be forced to "streamline" themselves and then the whole thing goes to pot again.

Re: BTC Stolen from Poloniex

#114

Post by jarek »

kot-behemoth wrote: post #54
smacktoward wrote: post #29

Earlier quoted context omitted.

This is the most fascinating part of the Bitcoin story: watching a group of people who are philosophically opposed to most elements of the modern economy discover, one by one, why all those elements exist.

I wonder if perhaps a similar thing is going to happen to the meal replacement products, such as Soylent and Ambro and others. Maybe in their attempt to "hack" human nutrition they, too, will rediscover why human nutrition research exists. Except perhaps with more serious consequences involving health issues.

I can't wait for the marketing copy that will go out when Uber starts a jitney or a city bus line.

Re: BTC Stolen from Poloniex

#115

Post by anigbrowl »

gatehouse wrote: post #79
anigbrowl wrote: post #70

Earlier quoted context omitted.

Those things are called crises because they actually happen quite rarely. When such episodes become a regular occurrence people tend to abandon the system in question. I keep seeing this attitude among Bitcoin fans. Of course, there have been many financial crises with regular currencies and banking systems. But that doesn't mean they're the norm. When you look at the number of crisis against the number of different…

I agree that most Bitcoin service providers are total bullshit. Satoshi does backflips to create a decentralized system, and the first thing these idiots do it to try to centralize it in all sorts of ways. If the people doing the transaction can agree on a trusted 3rd party, then you don't need Bitcoin. But credit card fraud happens every day, large bankruptcies happen every year, and sovereign default happens every…

You're quite right, but we should view the incidence of fraud, bankruptcy, and default in the context of the economy within which they take place. Like there may be thousands of credit card fraud attempts every day within the US, but the number is fairly insignificant compared to the number of legitimate transactions by honest users. Likewise there are a few bank failures every month, but institutional failures where large chunks of depositors' money disappears are fortunately quite rare).

Re: BTC Stolen from Poloniex

#116

Post by tlrobinson »

Hold on, did anyone read their proposed "solution"?

"Right now, all markets and withdrawals are still frozen, and they will remain that way until the negative balance watcher is written and in place and balance deductions are calculated."

A "negative balance watcher" sounds like a horrible idea. Isn't this a solved problem? Atomic database transactions.

Does not inspire confidence.

Re: BTC Stolen from Poloniex

#117

Post by RogerL »

aestra wrote: post #103
danielweber wrote: post #92

Earlier quoted context omitted.

Most credit card purchases, like almost everything in the financial system, are reversible. Things that aren't reversible are the exception, and those are the places where, pun intended, the buck stops. If someone gets my credit card, they can't get $50,000 out of it and disappear. It's very very hard to buy cash equivalents via credit card, and this is not an accident. Nothing in Bitcoin is reversible. Everyone work…

>Things that aren't reversible are the exception For thousands of years the only way to pay for something was with non-revertible mediums, either cash or bartering for other goods. Reversible transactions are new in the grand scheme of things. If I ran a bank and didn't bother to lock the doors or keep the money in a safe and someone comes in and steals the money, I don't get to do a chargeback and get the cash back.

This is why banks are FDIC insured (in the US).

Re: BTC Stolen from Poloniex

#118

Post by unclebucknasty »

danielweber wrote: post #83
rmc wrote: post #55

Earlier quoted context omitted.

In practice bitcoin's very anonymity makes it a more attractive target for theft Also the fact that the people making software seem incompetant when it comes to technology.

Eh, I'm not sure they are incompetent. They are, however, swimming in a sea where the slightest mistake is lethal. Some people see these stories and think "ha, I could do better than that!" Other people see these stories and think "can I really be sure that I haven't made even one fatal mistake?" All software engineers write bugs. All software engineers write security holes. For most of us, the fatal flaw doesn't irr…

>Eh, I'm not sure they are incompetent.

Some of these guys are indisputably incompetent with regard to the software and services they are building. While it's true that all software can have bugs, these are extraordinarily unsophisticated attacks that any non-hacker can exploit by, say, refreshing his browser in rapid succession.

That is, there is a sliding scale with regard to the level of competence imputed to, say, a certain type of bug. And, this wasn't a simple coding error (which, can be more easily forgiven). This was a fundamental oversight in the overall approach to the software, with regard to a critical operation. And it involves such basic concepts as transactions and race conditions. While eliminating the latter can be difficult to get right, it appears that they didn't even consider the fact that they could occur.

I am one of the guys in your group who thinks "have I considered everything?" In fact, I would be inclined to believe that I haven't. Perhaps that's pessimism or just realism, given what I've seen from determined hackers attacking my business over the years. So, I can certainly give a pass to oversights or errors. But, at a certain point, the nature of some oversights or errors are indicative of the fact that the developer(s) are not competent, at least with regard to the domain.

Re: BTC Stolen from Poloniex

#119

Post by gnaritas »

spiralpolitik wrote: post #69
drakaal wrote: post #25

If BTC is going to survive there needs to be insurance against loss. An FDIC for Crypto. The exchanges take a cut on every transaction, so Poloniex should have self insured for the first 3% (or what ever their transaction fee is). After all they made that money on the transaction. They should carry insurance for the rest. The 12.3% deducted from everyone's account is "wrong" in my view because Poloniex absorbed none…

A better solution would be for the Bitcoin Foundation (or some other entity) to certify exchanges and online wallets as being compliant with a well defined code of practice and audit them regularly. Consumers could look for the mark as indicating that the exchange is a well run outfit rather than a bunch of cowboys.

Then you end up with what happened with the housing market in 08, ratings agencies rubber stamping things for profit. Why should I trust what they say?

Re: BTC Stolen from Poloniex

#120

Post by dsleno »

smacktoward wrote: post #29
patio11 wrote: post #15

I made a comment on an earlier thread about the security properties of hot/cold wallet and the security properties of separating the matching and settlement systems. ( https://news.ycombinator.com/item?id=7340505 ) This incident is an example of the Bitcoin community's best practices "working." They lost 12.3% rather than 100%. That's actually a considerable accomplishment in Bitcoin, but not a success condition for…

This is the most fascinating part of the Bitcoin story: watching a group of people who are philosophically opposed to most elements of the modern economy discover, one by one, why all those elements exist.

So you think we should never tear down anything because there's no possible way we could ever rebuild it better than it is? Our financial system couldn't ever be any better than right now?

And I thought I was a pessimist.

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