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

bitcointalk.org

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

#81

Post by laichzeit0 »

thenmar wrote: post #77
laichzeit0 wrote: post #74

Earlier quoted context omitted.

If you've been in the bitcoin world since at least before the first MtGox "crash" at $40 then it would be obvious which events he's talking about. Granted it's being being turned into a narrative but the history is spot on. I wouldn't have bothered putting in sources if I were him either, it's time consuming and those who know the history of the events wouldn't need it.

Tone down the superior attitude. Sources benefit everyone.

It's not about being superior he's posting on bitcointalk the audience would be very familiar about the sequence of events. It's posted in "speculation" I.e. It's a hypothesis based on what everyone in the bitcoin world observed and he created a plausible yet possibly completely fictional technical hypothesis for what happened behind the scenes. There's no "sources" to back it up.

It's like when HN goes offline. It's an observable fact. Writing what you "think" happened to explain this fact is the speculation part.

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

#82

Post by sseveran »

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…

E&O is almost impossible to get if you are considered to be trading.

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

#83

Post by CatMtKing »

meowface wrote: post #62
rheide wrote: post #18

Earlier quoted context omitted.

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 also explain why he never grew the team out more -- would make it more difficult to control the situtation.

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

#84

Post by joe_the_user »

dredmorbius wrote: post #54
joe_the_user wrote: post #43

Earlier quoted context omitted.

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. Th…

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. J.K. Galbraith refers to this as the "bezzle" in The Great Crash: 1929 . It's the monetary surplus created by fraudulent transactions, and, he notes, nobody has a problem with it until reality asserts h…

Great post!

I'd just note the money effect doesn't have to be fraudulent (though I'm sure it helps).

Just the simple effect of banks being able to loan the funds under their care creates an effect where people have access to more money, even if it isn't there and they act accordingly (and certainly adds to the pure embezzlement as well).

Also, this highlights to me the contrast between '29 and 2008. In 2008, the problems up past a certain were covered up, effectively insolvent banks were supported and whole industries were bailed out. So one presumes the position of the embezzlers has been different, though some certainly were caught. Indeed, I would imagine that today's embezzler is trying to steal as much as possible as quickly as possible so as to get into and remain in the too-big-to-fail mafia.

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

#85

Post by hangonhn »

pktgen wrote: post #45
patio11 wrote: post #28

Earlier quoted context omitted.

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 possib…

But isn't Lloyd's famous for insuring what most other companies won't insure?

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

#86

Post by singlow »

oscilloscope wrote: post #79
pktgen wrote: post #45

Earlier quoted context omitted.

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 possib…

Insuring Bitcoin in 2011 sounds like a scam already.

It is not insuring the value of bitcoins, but the operation of the company. Regardless of the legitimacy of bitcoins or their value, the company is providing a service and it can be insured against lawsuits for its own mistakes. In 2011 the potential losses for its mistakes were much lower.

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

#87

Post by paps »

whyenot wrote: post #78
pygy_ wrote: post #56

Earlier quoted context omitted.

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.

Is that true even if you only spend some of coins and not all the coins? I seem to remember there being something very tricky about this if you are using a paper wallet.

You can add coins to a paper wallet many times.

What is considered risky is spending only a fraction of the paper wallet, for the following reasons:

- you just used the private key for creating a transaction, so the chances of it being compromised increases

- the client you used might have sent the change to another address while you're thinking the remaining coins are still in the paper wallet

But if it's done well, yes, it's possible to spend a fraction of a paper wallet.

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

#88

Post by pktgen »

hangonhn wrote: post #85
pktgen wrote: post #45

Earlier quoted context omitted.

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 possib…

But isn't Lloyd's famous for insuring what most other companies won't insure?

I'm not sure, but if that's the case I wonder why Karpeles didn't go there (again presuming this attempt was made before the theorized 2011 theft).

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

#89

Post by leoc »

jamoes wrote: post #57
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…

Many poker sites do this for their fiat reserves. They hold player funds in a separate bank account that is regularly audited by a trusted third party. For the exchanges crypto-currency reserves, a trusted third party isn't even necessarly. The exchange can use gmaxwell's "prove how (non)-fractional your Bitcoin reserves are” scheme [1], which allows them to cryptographically prove they are not fractional reserve. Th…

In the longer term (assuming Bitcoin survives so long) the question is whether exchanges will start to openly fractionally reserve their deposits. It might seem crazy today, but if and when the exchanges develop a strong reputation for financial soundness it may be very hard for them to resist the profits from a small, very safe under-reserving. Customers are likely to go along with this because 1) after all, the BTC exchanges have a strong reputation for safety and competence! and 2) some will likely share in the profits through interest on their deposits. Of course, these small, very safe overcommitments will likely turn out to be the first step on a slippery slope, but so it goes.

(I am not an expert on anything.)

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

#90

Post by leoc »

Spooky23 wrote: post #72

This shouldn't be surprising. The same sort of things would happen back in the good old days when we were on the gold standard. Usually the catalyst in those days was some sort of financial stress at moment of weakness for the bank. In the 19th century, Typically this was in the fall before the receipts from the harvest came in. Small banks would have minimal reserves, and failures could easily cascade. I'm surprised…

Apparently the gold market is still heavily fractionally reserved today, too.
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