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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

#101

Post by Create »

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?

In the Eastern Bloc, in the '80s there was a new small fab being built to produce PROMs, PLDs and clone CPUs. Although the country in question was never charged with computing (as opposed to, say DDR, Bulgaria) it actually was onto FPGAs in stealth.

Obviously, it was burnt to ashes the next day, and Lloyd's paid out. One wonders, if somebody was funding Lloyd's, because this was practically guaranteed to happen given the circumstances. Today in the free market, you can freely choose between Altera (San Jose, California, U.S.) and Xilinx (San Jose, CA, USA).

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

#102

Post by psykovsky »

Create wrote: post #101
hangonhn wrote: post #85

Earlier quoted context omitted.

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

In the Eastern Bloc, in the '80s there was a new small fab being built to produce PROMs, PLDs and clone CPUs. Although the country in question was never charged with computing (as opposed to, say DDR, Bulgaria) it actually was onto FPGAs in stealth. Obviously, it was burnt to ashes the next day, and Lloyd's paid out. One wonders, if somebody was funding Lloyd's, because this was practically guaranteed to happen given…

Any links to the full story, or maybe just some keywords I can use to search the google?

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

#103

Post by danielweber »

GigabyteCoin wrote: post #39
dangrossman wrote: post #15

Of all the speculative explanations so far, this one would make the best plot for a movie script.

He's certainly a great writer. The thing that was lacking were the sources.

It's of course a theory. But "I'm going to make up this accidental shortfall today by making bigger bets tomorrow" is how a lot of fraud starts innocently.

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

#104

Post by mathattack »

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…

Insurance only helped so far in the Mortgage market... Most of the monoline (Mortgage-only) insurance companies went belly up.

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

#105

Post by simias »

mkonecny wrote: post #9
rheide wrote: post #8

Assuming that MtGox (let's say MtGox, not Mark) did indeed introduce transaction malleability as a feature, that should be very easy to prove with source control commit logs. But if the malleability vulnerability was already there to begin with, it would be very hard to prove indeed that MtGox was taking advantage of it. Edit: I should also add that Mark in particular has not proven himself smart enough in my eyes to…

MtGox didn't use source code control.

I'm curious, how do you know that? It sounds completely crazy to me.

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

#107

Post by draugadrotten »

psykovsky wrote: post #102
Create wrote: post #101

Earlier quoted context omitted.

In the Eastern Bloc, in the '80s there was a new small fab being built to produce PROMs, PLDs and clone CPUs. Although the country in question was never charged with computing (as opposed to, say DDR, Bulgaria) it actually was onto FPGAs in stealth. Obviously, it was burnt to ashes the next day, and Lloyd's paid out. One wonders, if somebody was funding Lloyd's, because this was practically guaranteed to happen given…

Any links to the full story, or maybe just some keywords I can use to search the google?

I too was intrigued. Googling for UNITRA-CEMI, I found a reference to a fire in a east block factory in Hungary in 1985.

> Hungary had even less success with integrated circuits in the Soviet Era. Hungarian IC production was initiated in > 1985 under licenses from the Soviet Union and East Germany, > but the factory burned down the following year, destroying all the equipment.

http://brie.berkeley.edu/publications/WP126.pdf

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

#108

Post by lucb1e »

TerraHertz wrote: post #80

When bitcoin started it was touted as anonymous, reliable and secure against fraud and theft by central authorities (especially government.) I had some doubts (and other interests) so didn't bother getting into bitcoins. Now we find out that bitcoin definitely isn't secure, and fraud by central authorities is just as possible as with any complex system of representing monetary value. I really think it's a universal L…

> Now we find out that bitcoin definitely isn't secure

If Bitcoin is not secure because an exchange got hacked, then bank accounts are not secure because phishing exists. Or cash is not secure because it can be stolen.

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

#109

Post by dredmorbius »

joe_the_user wrote: post #84
dredmorbius wrote: post #54

Earlier quoted context omitted.

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 prob…

I'd just note the money effect doesn't have to be fraudulent

You're pretty much precisely inverting Galbraith's insight.

First: the whole point of the bezzle is that it is fraudulent. It's that during the period before you realize this, everything looks hunky-dory. It's Wile E. Coyote running off the edge of the cliff, before looking down and realizing he's suspended in the air.

The other is that an expansion in the money supply, in the short run, leads to consequences generally seen as favorable: those whose apparent financial wealth is increased suddenly have the ability to make claims on (purchase) resources they wouldn't have been able to previously. There's a model of money as exchange particles, and the concept of virtual particles which can be created under certain circumstances, which I'm finding increasingly compelling. The problem is when the wavefront collapses -- that's when misery sets in.

As for '29 and '07: yes, individual institutions were allowed to fail (mostly) during the Great Crash. Again, Galbraith goes into detail on this, I recommend his book. Where addressing the situation failed was in not creating liquidity elsewhere in the system to make up for this resulting in tremendous deadweight losses as the economy simply tanked.

In 2007, an institution was allowed to fail (Lehmann Brothers), but the consequences were so severe that politicians stepped in to staunch the collapse. The manner in which they did this was both useful (the liquidity was absolutely needed) and utterly flawed (the very individuals and institutions which had, in large part, assisted in creating the problem were greatly enriched by the intervention). And yes, getting into a business in which profits are privatized and losses socialized is very much the modern mantra.

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

#110

Post by natdempk »

Blahah wrote: post #10
rheide wrote: post #8

Assuming that MtGox (let's say MtGox, not Mark) did indeed introduce transaction malleability as a feature, that should be very easy to prove with source control commit logs. But if the malleability vulnerability was already there to begin with, it would be very hard to prove indeed that MtGox was taking advantage of it. Edit: I should also add that Mark in particular has not proven himself smart enough in my eyes to…

Do we even know if they used version control? Given the hectic organisation of the code I've seen so far, wouldn't be surprised if it wasn't controlled.

An anonymous dev who interviewed there posted on reddit saying that they didn't use version control, and that all code changes had to go through Karpeles.
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