Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Peter R’s Theory on the Collapse of Mt. Gox

bitcointalk.org

Post reply on HN
Print view View original

41–50 of 125 posts

Re: Peter R’s Theory on the Collapse of Mt. Gox

#41

Post by GigabyteCoin »

sqs wrote: post #36

The risk that something like this is what happened is why Bitcoin companies (and other companies that deal with money) should have mandatory vacation policies for employees. With a mandatory vacation policy, it's much harder to a single person to commit fraud, since keeping up a fraudulent scheme requires daily attention to create fake books and records. https://sourcegraph.com/blog/mandatory-vacation

That's an interesting idea.

A mandatory vacation sure would have put a stop to "Brian Molony"'s systemic theft from CIBC much earlier. iyww Biran Molony was the real life person behing the movie "Owning Mahowny".

Re: Peter R’s Theory on the Collapse of Mt. Gox

#43

Post by joe_the_user »

TrainedMonkey wrote: post #29
glesica wrote: post #24

Earlier quoted context omitted.

Which is why government insuring bank deposits isn't such a crazy idea. If the government collapses and can't stand behind the policies, then you have some really big problems on your hands and it is likely that private insurers wouldn't have fared much better. If the government doesn't collapse, everyone gets made (more or less) whole again. Basically, when the government is your insurer, there is no "Who insures th…

Right, because if government does not collapse there is nothing stopping them from printing all the money they need to cover their obligations.

Exactly,

The first point that's not quite understood is that this generally stops the bank run because people don't feel worried about their money anymore (or not all given existing state insurance).

The second point is that the "inflation of funds" actually didn't happen at the point when government printed money but at the point when the private institution multiplied the perceived amount of money in the system. Think about it, people that are withdrawing their money during a bank run don't suddenly feel richer.

The third point is that banks can and have operated fractional reserve systems using gold just as MtGox seems to have done with bitcoin. 19th century US banks printed their own gold certificates and failed on a regular basis.

Re: Peter R’s Theory on the Collapse of Mt. Gox

#44

Post by rodgerd »

GigabyteCoin wrote: post #41
sqs wrote: post #36

The risk that something like this is what happened is why Bitcoin companies (and other companies that deal with money) should have mandatory vacation policies for employees. With a mandatory vacation policy, it's much harder to a single person to commit fraud, since keeping up a fraudulent scheme requires daily attention to create fake books and records. https://sourcegraph.com/blog/mandatory-vacation

That's an interesting idea. A mandatory vacation sure would have put a stop to "Brian Molony"'s systemic theft from CIBC much earlier. iyww Biran Molony was the real life person behing the movie "Owning Mahowny".

It's not just an interesting idea - it's very much the norm in much of the banking industry in my neck of the woods. It's generally considered one of the best ways of picking up internal fraud.

One example that springs to mind from Australia was a branch staffer who had managed to rack up A$5 million dollars in fake mortgages. Went on holiday, the stand-in noticed dozens of mortgages to the same PO Box, did some digging...

Re: Peter R’s Theory on the Collapse of Mt. Gox

#45

Post by pktgen »

patio11 wrote: post #28
gpcz wrote: post #14

Earlier quoted context omitted.

It also shows what happens in an environment without insurance. If Mt.Gox was insured, this catastrophe would have been avoided for the customer by either the insurance company paying out or by Mt.Gox never getting hacked due to the security controls that the insurance company would have demanded. This, of course, raises the questions of "who insures the Bitcoin insurance company" and "how do the insurance companies…

Mt. Gox tried to secure insurance of customer deposits. Japanese insurance companies asked them about the specifics of their business and then said, to paraphrase, "Oh HELL no." One of the issues was that they were awaiting guidance from the Financial Services Authority, because insurance companies hate uncontrolled regulatory risk. The other issues were the sort of thing which will get your Errors and Omissions insu…

I'm curious if this is due to Mt. Gox not trying hard enough. Recently a Bitcoin startup was able to obtain insurance from Lloyd's: http://arstechnica.com/business/2014/01/backed-by-lloyds-of-....

If this theory is true, presumably Karpeles would not have done this after the 2011 hack, because that would be insurance fraud (falsely obtaining insurance on the theft of coins that have already been stolen). It's possible that it would have been more difficult at that point because of Bitcoin being less mature.

Re: Peter R’s Theory on the Collapse of Mt. Gox

#46

Post by bunderbunder »

TrainedMonkey wrote: post #29
glesica wrote: post #24

Earlier quoted context omitted.

Which is why government insuring bank deposits isn't such a crazy idea. If the government collapses and can't stand behind the policies, then you have some really big problems on your hands and it is likely that private insurers wouldn't have fared much better. If the government doesn't collapse, everyone gets made (more or less) whole again. Basically, when the government is your insurer, there is no "Who insures th…

Right, because if government does not collapse there is nothing stopping them from printing all the money they need to cover their obligations.

Yup.

And if they print so much money that it becomes worthless, then that'll have a similar impact on lenders than if they just default, which is the government's first option and everyone else's only option. The government's only option, too, if the debt is denominated in someone else's currency.

To that extent, governments having the option to print money to satisfy debts is a good thing. As soon as there are two evils to choose from, it becomes possible to select the lesser of them.

In other words, don't think of lending money to a government in a currency it can't debase as if it were somehow less risky. There's still plenty of risk, it's just that it comes entirely in the form of default risk rather than as a mix of default risk and exchange rate risk.

Re: Peter R’s Theory on the Collapse of Mt. Gox

#47

Post by joe_the_user »

anigbrowl wrote: post #38
joe_the_user wrote: post #32

Earlier quoted context omitted.

It also shows what happens in an environment without insurance. I'm not sure why you raise this issue considering it's effective meaninglessness. There are a raft of private insurance entities for things like pension funds and stock brokers (there used to be ones for state level "Thrift" banks. There used a mortgage bond insurance company too - it became insolvent in 2008. The pension and stock broker ones stay solve…

Insurers buy insurance from reinsurers, and this works quite well most of the time. Sure, government is the insurer of last resort in situations like the 2008 financial crisis, but that sort of systemic failure tends to only occur at generational intervals. In the meantime, governments also impose things like capital adequacy ratios and so forth to avoid bailout situations, even though banks don't like those very muc…

I think you're taking the example of a systemic failure to mean that all such insurance is a waste of time. But most failures aren't systemic or massive.

It seems implausible that systemic failures for bitcoin in particular are going to be generational.

Insurance for entities subject to systemic failure is about having many hands looking the process and having the appearance of solidness. Appearance really is as important as reality for keeping such entities afloat.

You gotta admit "Insurance works most of the time" is kind of like a tight rope walker saying "that net that's there to catch me works most of the time, meaning that it definitely works when I don't fall and it makes people happier".

And my main point would be that state regulation and guarantees are the more serious measures and private insurance is not nothing but fairly weak affair. I'd trust regulation on a financial entity much more than I'd trust insurance on such an entity.

Re: Peter R’s Theory on the Collapse of Mt. Gox

#48

Post by smoyer »

I'm thinking about opening up an exchange for crypto-currencies with a guarantee that deposited coins are put directly into a cold wallet. The only drawback I can see is that (so far) I don't see an easy (and secure) way to make withdrawals instantaneous.

Perhaps my background in hardware systems leads me to solutions that use physics to solve certain security problems, but to me, sending bitcoins to an unconnected computer over a unidirectional link seems trivial.

Re: Peter R’s Theory on the Collapse of Mt. Gox

#49

Post by jamesaguilar »

smoyer wrote: post #48

I'm thinking about opening up an exchange for crypto-currencies with a guarantee that deposited coins are put directly into a cold wallet. The only drawback I can see is that (so far) I don't see an easy (and secure) way to make withdrawals instantaneous. Perhaps my background in hardware systems leads me to solutions that use physics to solve certain security problems, but to me, sending bitcoins to an unconnected c…

You can't put money directly into a cold wallet, if I understand correctly. If you can manipulate it directly then it's hot by definition.

Re: Peter R’s Theory on the Collapse of Mt. Gox

#50

Post by dublinben »

pacofvf wrote: post #30
jheriko wrote: post #27

i'm just (still) glad i didn't buy into the latest fad because of common sense. all stories aside i believe that bitcoin is unsafe - and that this has been /blatantly/ obvious since i first encountered it as a suggested method to launder money and fund criminal activity. don't buy unregulated 'currencies' with a strong history and incentive for money laundering and facilitating the black market. its violates the spir…

some people, which probably use tin hats, thinks that bitcoin was made by the government because it makes the flow of money more traceable, since all the operations are public. The government will never use bitcoin or bitcoin-based currencies because then they couldn't cover their own traces.

Serious organized crime operations would also never use Bitcoin for the same reason. Physical cash still offers superior anonymity and obfuscation to BTC. Also, when you're laundering hundreds of billions of dollars, you can use real banks and the legitimate world financial system, not some fishy online currency.
Post reply on HN