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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

#111

Post by hnal943 »

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?

Yes. But from what I understand, this is because Lloyd's is a marketplace and not a traditional insurance company. They put wealthy entities in contact with people with peculiar insurance needs and let them work it out.

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

#112

Post by stcredzero »

Mark decided that he would do what he thought was right: he would slowly earn back the lost bitcoin with MtGox trading fee profits and eventually make his customers whole again. He still had over 500,000 BTC left—he moved 424242.42424242 BTC between bitcoin addresses and convinced the community that MtGox was solvent.

So, bitcoin is actually a hybrid fiat+cryptocurrency? Since there is little transparency, a significant fraction of the BTC market capital might actually exist as fiat!

Version 2 of a cryptocurrency protocol needs to protect against incompetently implemented exchanges as well.

EDIT: Apparently, there is a BTC scheme for proving solvency. Making this mandatory for exchanges would go a long way to improving things.

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

#113

Post by dragontamer »

stcredzero wrote: post #112

Mark decided that he would do what he thought was right: he would slowly earn back the lost bitcoin with MtGox trading fee profits and eventually make his customers whole again. He still had over 500,000 BTC left—he moved 424242.42424242 BTC between bitcoin addresses and convinced the community that MtGox was solvent. So, bitcoin is actually a hybrid fiat+cryptocurrency? Since there is little transparency, a signific…

Its what economists have been trying to tell the BTC community for years. Some people get it, some people don't. Think about the money supply.

http://en.wikipedia.org/wiki/Money_supply

There is not only the MB money supply (total number of paper dollars that exist), there is also the M1 money supply (MB + number of Traveler's Checks, and other highly liquid bank inventions), and M2 (which includes deposits).

The true size of the monetary base can artificially grow and shrink in ways completely uncontrollable by the central-authority. This is true with both the USD and Bitcoins.

The ultimate reminder is... the US implementation of fractional reserve banking forces banks to do no worse than 10%. In unregulated markets, the "banks" (ie: MT. Gox) will tend to lie and cheat, and will have ratios at far far worse rates.

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

#114

Post by stcredzero »

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…

It also shows what happens in an environment without insurance.

If one thinks long and hard about this, one might conclude that the entity insuring such exchanges needs an entire agency of men in black, a standing army, some nuclear missile subs, and hundreds of billions, if not trillions, in reserves. Or, it could be another kind of organization of comparable power.

If I were the leader of an oil-rich state, I'd look into a system of bearer bonds based on cryptocurrency. Some alliance of nations might be able to become the virtual Switzerland of the 21st century, not with mountains to protect it, but complete dispersion and redundancy of its financial resources instead.

Actually, the entity best suited to back, insure, and police a cryptocurrency is the United States. A hybrid fiat/cryptocurrency with those kind of resources behind it would be invulnerable. However, this would just increase the hegemony of the US. (Ironic, that the US could further cement world domination by losing control of individual transactions.)

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

#115

Post by stcredzero »

hnal943 wrote: post #111
hangonhn wrote: post #85

Earlier quoted context omitted.

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

Yes. But from what I understand, this is because Lloyd's is a marketplace and not a traditional insurance company. They put wealthy entities in contact with people with peculiar insurance needs and let them work it out.

That's the classic move: outsource the risk to other people's money, and pocket some fees. Lloyd's seems a little like a bookie.

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

#116

Post by stcredzero »

dragontamer wrote: post #113
stcredzero wrote: post #112

Mark decided that he would do what he thought was right: he would slowly earn back the lost bitcoin with MtGox trading fee profits and eventually make his customers whole again. He still had over 500,000 BTC left—he moved 424242.42424242 BTC between bitcoin addresses and convinced the community that MtGox was solvent. So, bitcoin is actually a hybrid fiat+cryptocurrency? Since there is little transparency, a signific…

Its what economists have been trying to tell the BTC community for years. Some people get it, some people don't. Think about the money supply. http://en.wikipedia.org/wiki/Money_supply There is not only the MB money supply (total number of paper dollars that exist), there is also the M1 money supply (MB + number of Traveler's Checks, and other highly liquid bank inventions), and M2 (which includes deposits). The true…

Yes, but the BTC infrastructure itself provides a cryptographically strong method of proving reserves. If a large nation decided to implement its own hybrid fiat/cryptocurrency, it would basically be an unstoppable juggernaut, assuming no one ever broke the crypto protocols in a widely exploitable way. (And even then, the fiat currency might survive.)

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

#117

Post by dragontamer »

stcredzero wrote: post #116
dragontamer wrote: post #113

Earlier quoted context omitted.

Its what economists have been trying to tell the BTC community for years. Some people get it, some people don't. Think about the money supply. http://en.wikipedia.org/wiki/Money_supply There is not only the MB money supply (total number of paper dollars that exist), there is also the M1 money supply (MB + number of Traveler's Checks, and other highly liquid bank inventions), and M2 (which includes deposits). The true…

Yes, but the BTC infrastructure itself provides a cryptographically strong method of proving reserves. If a large nation decided to implement its own hybrid fiat/cryptocurrency, it would basically be an unstoppable juggernaut, assuming no one ever broke the crypto protocols in a widely exploitable way. (And even then, the fiat currency might survive.)

Agree'd. Although, to reach this conclusion, you have to first shed the commonly idiotic notions of anti-government anti-social stupidity, and recognize the utility of a public-private partnership.

Anyway, I think from a "infrastructure" point of view, BTC is not good enough yet. I'm finding proof-of-stake systems (peercoin / NXTcoin) far more technically useful than BTC... in particular, the fact that they're "greener" and don't waste electricity like the current mining rigs do.

The ideal system probably would be a decentralized proof-of-stake cryptocoin with regulated exchanges.

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

#118

Post by baddox »

etherael wrote: post #96
_delirium wrote: post #94

Earlier quoted context omitted.

Murray Rothbard is probably the most influential example. He argued that fractional-reserve banking is fraud and should be effectively outlawed by regular tort law (not by government regulation). He had a bit of a running disagreement with Von Mises over it: http://www.garynorth.com/public/9714.cfm

That article was interesting about the utilitarian Mises vs the natural law Rothbard, but it was completely wrong about the 100% reserve clause Rothbard insisted as essential being necessarily enforced by the state. It sounds like the writer has not heard of Rothbard's proposed anarchocapitalist systems, polycentric laws and competitive arbitration and enforcement organisations.

Yeah, here's the relevant quote where he gets it wrong, or at least uses misleading wording:

> Mises openly rejected the idea that government should have any role in setting a specific percentage of gold and silver or other assets, including bank deposits, in relation to their issuance of what he called fiduciary media, but which hard money advocates refer to as fiat money. In contrast, Rothbard called for 100% reserves.

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

#119

Post by Someone »

smoyer wrote: post #98
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.

Let's say I have a machine that's not connected to the Internet, but I develop a serial protocol that allows the transfer of bitcoins across RS-232, and build a cable that only has the receive signals connected at my "secure" machine. If I wanted to take it further, the "secure" machine could print that wallet onto paper or could robotically insert flash drives into a USB port (in such a way that removed keys were dr…

You could still attack the stuff talking that RS232 protocol. Maybe it has a buffer overflow that allows me to gain control and change the software to write any money coming in not only to those flash drives but also out to my account (writing it to the flash drives makes it harder to detect this hack) In the limit, that doesn't require much. For example, I could flash a control LED and attempt to read it from across the street. Even if that succeeds in only a small fraction of transactions, it might still be worthwhile.

TL;dr version: anything that is connected to the outside world, no matter how small, is an attack target.

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

#120

Post by grkvlt »

anigbrowl wrote: post #67
joe_the_user wrote: post #47

Earlier quoted context omitted.

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 pr…

And indeed state guaranteed deposits are not covered against every risk. FDIC and the UK equivalent for private deposits in banks only covers up to GBP 100K or USD 250K (or at that level) anyway - good luck getting your millions of dollars back from the government when a bank collapses.
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