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

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

#61

Post by tempestn »

joering2 wrote: post #35
tlrobinson wrote: post #16

tl;dr: Mt Gox had a lot of coins stolen in 2011 and has been running a fractional reserve ever since. Mark tried to delay the inevitable insolvency by creating a bot to manipulate the price, and eventually tried to cover it all up by blaming "transaction malleability" attacks. One of many plausible explanations. It's going to be really interesting seeing how this actually plays out.

Im sorry but what is there to "play out"? The show is over. There is a bankrupcy filed protection that will decide what to give to whom but thats about it. We will never find out the truth. Even after extensive investigation, if any, you dealing with anonymous wallets over period of years that been sicking coins out of gox. Definite answer who did it, who knew it, even how they did it, will never come.

There's likely still a whole criminal investigation to come. Plenty of people to interview, records to review, pieces to put together. I think it's pretty likely that more information will come out.

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

#62

Post by meowface »

rheide wrote: post #18
bdcravens wrote: post #13

Earlier quoted context omitted.

rheide was talking about the Bitcoin source control.

No actually, I meant the MtGox source code that deals with transactions. The malleability issue was known long before MtGox announced the exploit. It's possible that MtGox initially handled transactions correctly, but later introduced the malleability issue so they can blame their problems on that. Like I said before, I don't believe that's the case though.

Mark was the CEO, the lead developer, the lead business guy, the lead operations guy, and nearly everything else you can think of. He likely had unlimited power to doctor anything he liked, and probably in a way that would not make it easy for other employees to notice. Even if they did use source control, he could probably mask those commits.

Honestly I'm not even sure how many other technical employees they had. I would assume only a few.

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

#63

Post by meowface »

josh2600 wrote: post #6

The question for me after all this is simple: Is it that 'Everything is a Ponzi scheme until it isn't' or is it that 'Nothing is a Ponzi scheme until it is'?

I think in the real world, there is a large mix of both. Hard to know the true percentages of either category, though.

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

#64

Post by smsm42 »

glesica wrote: post #24
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…

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…

>>> it is likely that private insurers wouldn't have fared much better.

Why is it likely? There are many private companies controlling amounts of money comparable with amounts of money controlled by some governments. I'm not talking US government of course but there are many smaller ones. Such companies are usually multinational corporations carrying much less local political risks and less prone to engaging in stupid things like trying to build communism or invade neighboring country to steal their supply of goats.

>>> If the government doesn't collapse, everyone gets made (more or less) whole again.

That is certainly not so, since unless you are controlling world reserve currency (read: US government) your resources are limited unless your deposits are nominated in your local currency. If you have monetary crisis, local currency quickly becomes worthless. Thus, you have very limited resources for making your citizens whole. On the contrary, big multinational corp would usually have balanced deposits in many major currencies - and usually good political ties with US and EU governments - which would ensure any local currency risk would be survivable for it. Thus, for a private corporation it would be much easier to make everyone whole - unless we're talking about US government.

So, for most governments out there which are smaller than US government, it is not true that their form of insurance is preferable for those reasons. The only reason it may be preferable is that the government has monopoly on violence (at least until overthrown) and thus can extract money by coercion, which private corporation usually can't. But if your government has to resort to robbery, are you sure it's a good insurance?

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

#65

Post by Geee »

pygy_ wrote: post #56
jamesaguilar wrote: post #49

Earlier quoted context omitted.

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.

Yes, you can, as long as you have an address (Public key). A wallet is just a private key. The transaction history, and thus the ballance of an address is held in the blockchain, in the ether. To spend the coins, you must have at hand: * the current blockchain * the private key * a connection to the network.

However, these can be on different devices. Transactions can be signed on an offline machine. Also, you need just the unspent transactions to sign a new transaction, not the whole blockchain. Bitcoin Trezor works this way, http://www.bitcointrezor.com/

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

#66

Post by ahlatimer »

tempestn wrote: post #61
joering2 wrote: post #35

Earlier quoted context omitted.

Im sorry but what is there to "play out"? The show is over. There is a bankrupcy filed protection that will decide what to give to whom but thats about it. We will never find out the truth. Even after extensive investigation, if any, you dealing with anonymous wallets over period of years that been sicking coins out of gox. Definite answer who did it, who knew it, even how they did it, will never come.

There's likely still a whole criminal investigation to come. Plenty of people to interview, records to review, pieces to put together. I think it's pretty likely that more information will come out.

I was watching Freakonomics the other day (well, part of it, anyway), and they were talking about how the Japanese police will only really investigate crimes when they have a clear chance of getting a conviction. Take that as you will, but it seems to be that even if there's an investigation, that doesn't mean that anything will necessarily come out of it.

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

#67

Post by anigbrowl »

joe_the_user wrote: post #47
anigbrowl wrote: post #38

Earlier quoted context omitted.

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 impo…

I too think regulation (either by peer or by government) is a much better guarantor than a hard-to-evaluate insurance policy. But the fact that insurance doesn't cover every eventuality doesn't make it useless. For example, my home insurance doesn't cover me against earthquake, a potentially catastrophic risk that comes with living in California. Of course I worry about this a bit, but earthquake insurance is very pricey at the same time. however, I don't consider ht einsurance I do buy to be a waste, since it covers me against fire, a tree falling on the house (of which there are several very large ones), a guest suffering an injury while on my property, etc.

The problem for a lot of Bitcoin service providers is that once the cost of regulatory compliance and even limited insurance (up to $5000 or something) is factored in, they won't seem especially competitive with other financial vehicles. Maybe the smart thing to do would be set up a bitcoin insurance firm first and make money out of the exchanges...

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

#68

Post by gizmo686 »

joe_the_user wrote: post #40
DerpDerpDerp wrote: post #26

Earlier quoted context omitted.

Couldn't a bitcoin exchange publish a list of accounts that they use to hold coins for customers, and similarly, request that their bank confirm that the sum of customer funds is greater than X? I mean, we might not see exactly the number of things we expect, but if it's holding over 95% of the value expected (through those mechanisms), and shows a successful trend of having increases when it claims and decreases whe…

Well, Dollars are held in bank accounts that can be verified. Bitcoins are not held in bank accounts. They are long strings of numbers in essence and "storing" bitcoins involve putting these numbers on a hard disk that isn't connected to anything. I don't know enough about the bitcoin protocol to say this is possible but if an exchange could exhibit the public keys of their bitcoins without exposing the private keys,…

I can think of two ways to do this. The first way is a zero knowledge proof. This is a cryptography concept where you can prove that you know some secret (in this case the private key) without revealing the secret. I am unfammiliar with the specifics of Bitcoin, and suspect that the feasability of this method depends on the type of public/private keys they are using.

The other approach is publish a list of your public keys along with predictions of future transactions. Assuming you actually control the public keys you claim to, you should be able to make those transactions successfully.

Both of these approaches will run into some difficulty with a robbery or loss of keys kept in cold storage. Because your keys are (supposedly) in cold storage, it is not suspicious that you cannot prove control of them. However, if you were to suffer a harddrive failure (and not have backups), then you could simply claim that those keys were still in cold storage.

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

#69

Post by shitgoose »

joe_the_user wrote: post #7

Well, Regardless of how exactly it happened, I think the big thing is that anything that operates as "just an exchange" has the potential to operate as a fractional reserve bank instead (IE, just operate with enough money to cover day-to-day transactions and not-have/use-for-something the remaining funds people think you have in your vault). So basically, trusting any unregulated entity that claims to have stuff in i…

Well, Cyprus bank were rather regulated, and even had stuff in their vaults, but then regulating authority came in and took the money. Oops. The difference is that in Cyprus theft no one went to jail.

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

#70

Post by [deleted] »

gpcz wrote: post #14
joe_the_user wrote: post #7

Well, Regardless of how exactly it happened, I think the big thing is that anything that operates as "just an exchange" has the potential to operate as a fractional reserve bank instead (IE, just operate with enough money to cover day-to-day transactions and not-have/use-for-something the remaining funds people think you have in your vault). So basically, trusting any unregulated entity that claims to have stuff in i…

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…

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