Skip to comments.Tokyo bitcoin exchange files for bankruptcy
Posted on 02/28/2014 9:21:04 AM PST by xzins
The Mt. Gox bitcoin exchange in Tokyo filed for bankruptcy protection Friday and its chief executive said 850,000 bitcoins, worth several hundred million dollars, are unaccounted for.
The exchange's CEO Mark Karpeles appeared before Japanese TV news cameras, bowing deeply. He said a weakness in the exchange's systems was behind a massive loss of the virtual currency involving 750,000 bitcoins from users and 100,000 of the company's own bitcoins. That would amount to about $425 million at recent prices.
The online exchange's unplugging earlier this week and accusations it had suffered a catastrophic theft have drawn renewed regulatory attention to a currency created in 2009 as a way to make transactions across borders without third parties such as banks.
It remains unclear if the missing bitcoins were stolen, voided by technological flaws or both.
"I am sorry for the troubles I have caused all the people," Karpeles, a Frenchman, said in Japanese at a Tokyo court.
Karpeles had not made a public appearance since rumors of the exchange's insolvency surfaced last month. He said in a web post Wednesday that he was working to resolve Mt. Gox's problems.
The loss is a giant setback to the currency's image because its boosters have promoted bitcoin's cryptography as protecting it from counterfeiting and theft.
(Excerpt) Read more at news.investors.com ...
Apparently not as secure as all the hype tried to make out...
So, how stole it? The Fed?
No big deal. It is very obvious that the Obamacare people developed the system. Give them time and they will fix it completely (NOT!!!)
Unfortunately, unlike the Fed, they can’t just print more bitcoin to cover it up.
There is a well known bug in the Bitcoin protocol which enables the same coin to be transferred more than once. Every exchange knows about it and they all defend against it. Except evidently Mt. Gox did not. It’s an absolutely stunning failure. It’s a bit like a bank manager not bothering to lock the vault at night.
Great, now a Frenchman has surrendered to the Japanese.
“Mooooshi waki gozaiimasen deshiter”
People, I fear, are looking at this stuff as some ordinary investment, but as a different kind of money. In which case what happened at Mt. Gox is viewed as a bank getting robbed, rather than the Madoff-esque scheme it looks like.
What is pitiful is that people still consider this more worthy of investment than traditional currencies. I’m not hearing of runs on Mt. Gox, at least not yet.
To be fair, this kind of misplaced trust is why libertarian ideas of government failed long ago. Who’s going to sue Mt. Gox and where? You can’t. So regulators are going to step in, and even the GOP will be copacetic with that.
Each such failure like this is also an interesting study in human folly.
A few hundred of them leaked out of my computer last month. Now I know where they came from. Darn things are hard to clean up.
This lady is also a writer at Salon.com. Maybe I can get few in Kabukicho with her and see what’s up.
Anybody that thought this was a good idea is going to be in for a rude awakening.
I could never figure out what exactly a bit coin was supposed to be other than a way for somebody to get rich quick. It turns out that instead this is a road for many to get poor quick.
There are some Freepers who are going to lose their shirts over this scheme. A lot of Freepers were excited about this as an alternative to the shrinking dollar. It doesn’t look like this motherload is going to pan out. It looks more like a pot of turds at the end of this rainbow.
I actually have a friend from France who is the best chef I’ve ever had the pleasure to eat a meal with, and he speaks Japanese just like that. Thank God he can make brilliant beef brisket and loves to drink chartreuse with us.
Many of the bit coins are still there, but they will be taken by the “creditors” and lawyers. The investors will get stiffed.
“There is a well known bug in the Bitcoin protocol which enables the same coin to be transferred more than once”
Gosh, don’t you just hate it when your money catches a protocol bug?
“I could never figure out what exactly a bit coin was supposed to be other than a way for somebody to get rich quick. It turns out that instead this is a road for many to get poor quick.”
But ALL get rich schemes involve a few getting rich quick at the expense of a great many more getting poor quick.
I worked hard to get my Japanese to become accentless and the “gaijin Japanese” really cracks me up, especially if they know a great deal of Japanese.
Most European Japanese speakers can’t seem to lose their accent.
Best eternal investment: Jesus Christ (only eternal investment)
Best earthly investment: My ideas do not include bitcoin, equities, bonds, CDs, or PAPER of any kind.
bitcoin is just one crypto-currency. There are plenty of others out there as well. Crypto currency is in its infancy and you better believe many governments do not like it at all. Those who are “investing” in crypto will be in for some shocks, some ups and some downs. The technology overall however can have a significant impact against government eroding our rights.
This is, of course, completely different than a bank loaning out ten times the amount of actual cash it has in its vaults...
Unless you know of something new, this is a misrepresentation of an issue known as transaction malleability. Yes, exchange and wallet software developers need to be aware of it, but it does not allow the same coin to be transferred more than once.
If you know something new, we'd like the details.
Ultimately, no investment is safe against a corrupt government. If they can't control it, they'll just take it.
Anyone seen Jon Corzine around this one?
Or Bernard Madoff?
Yeah, I know the feeling. Sometimes I forget where I lay my pocket change too.
“Quick, dump the bit coins and buy me a ton of tulip bulbs!”
I’m not ready by any means to write off electronic currency, but tangibility has its advantages.
I want you to think long and hard about the statement you just made. Each of the words you used as a precise definition. I want you to pay particular attention to the words "worthy", "investment" and "currencies".
What is a currency?
What makes a currency worthy?
What does it mean to invest?
What kind of person invests in currency?
The answers are that "currency" is simply a medium of exchange. It can be anything that two parties agree to use as the medium.
The characteristics that make a currency "worthy" can only be defined by the user of the currency. Some different aspects that different users may consider are it's usability in a particular country, it's privacy, it's ease of use, it's portability across borders, it's amount of fees, it's security, it's vulnerability to manipulation, who is able to manipulate it, etc, etc, etc....
To "invest" is to take capital and place it in a position to grow. Do you trade capital to acquire Federal Reserve Notes in the hopes that their value will grow?
The person that hopes to get rich by "investing" in Bitcoin is a fool. The person that uses Bitcoin as a tool to conduct transactions because they value it's use as a means of conducting transactions is not a fool. At least no more than someone who finds value in engaging in political discussions on the internet.
I agree that tangibility has an advantage. Currencies are not tangible value unless they contain some kind of metal, and even then, it must have a type and quantity of medal equivalent to the exchange being made.
Everything fluctuates in value, I suppose. But some things do so wildly, and other things have no intrinsic value.
From the article...
In MtGoxs case, it appears that what happened is that the site was expecting transactions to show up in the public ledger under the specific transaction ID it had recorded. When those transactions didnt show up because the thief had edited the ID the thief could then complain that the transaction had failed, and the system would automatically retry, initiating a second transaction and sending out more bitcoins.
Transaction malleability is a flaw in bitcoin itself, and its not MtGoxs fault that transactions can be renamed in this way. But its also a flaw which has been known about since 2011, and one which can be rendered harmless with software which accurately reports balances and transactions.
Bitcoin is just another example of how the world separates the weak from whatever wealth they somehow acquire. If it hadn’t been Bitcoin, it would have soon been something else.
It is probably deemed sexist today but one piece of valuable, common-sense advice that remember from my youth:
Never invest in a scheme that you can't explain to your grandmother in a way that she can understand.
And once upon a time, Tulips were the new medium of exchange in Europe. Many invested in the new medium, there was a weird tulip inflation and then, poof. Crash of the Tulips. Many bankruptcies of people and firms that should have known better.
I believe that is what the pitiful investment comment meant. Buying up a new and rather strange medium of exchange was a tulip fad bound to fail.
“This is, of course, completely different than a bank loaning out ten times the amount of actual cash it has in its vaults... “
Well, it IS actually completely different if two (or more) people claim actual ownership of the same dollar (or bitcoin).
What are some of the concerns you have over Bitcoin besides the fact that it is "new" and "strange"?
I remember when people thought debit cards were "new" and "weird". Do you realize that most of the "dollars" you think you own are no more than 1's and 0's in a database? Your ledger balance with your financial institution is your store of capital. Your debit card or any Federal Reserve Notes you withdrawal is your transaction currency.
When you think you are taking your "dollars" and giving them to McDonalds by swiping your debit card, you are actually authorizing your financial institution to decrease some 1's and 0's in your ledger and increase some 1's and 0's in McDonald's while transacting through a mutually trusted network owned by VISA who charges a fee. If you think that system of exchange is efficient and beneficial to you then you can keep using it. If someone else would rather retain control of the entire transaction between the two interested parties and pay a minimal amount in fees they can choose Bitcoin.
Again, I would restate that normal people don't "invest" in currency. The people who do so are speculators or commodity traders. There is some amount of risk inherent in any occupation and I won't criticize them for their chosen profession as long as they face the consequences.
Do you think the folks in Ukraine who's currency has cratered and who are subject to currency controls value some of the aspects of Bitcoin right now?
Do you mean that someone hacked Mt Gox database and moved Bitcoin from someone else's account to their own? Or do you mean that someone actually compromised the blockchain and fooled the entire network into believing that they owned Bitcoin that were not actually theirs?
There is a huge difference between these two things.
Hold on a second. It sounds like you are saying the thieves took possession of the first Bitcoins that were sent, said they didn’t get them and Mt Gox sent more. Is that right?
If so, no Bitcoin was owned by two people.
How is that different from someone buying something online with a Visa and then calling up Visa saying “I dispute the charges. The item was never mailed to me” and having Visa withhold payment from the merchant? It happens all the time.
When constructing a transaction, coins (transaction outputs in Bitcoin parlance) are gathered together from the sending account to cover the amount needed. When the transaction is confirmed, these coins can never be spent again. If they appear in another transaction, they will be recognized as spent and the new transaction is rejected. As your referenced article points out (just after the quoted section), MTGox sent out additional bitcoin, not the same coin.
The article correctly describes the malleability problem, and makes it clear that MTGox had to have been excessively lax on accounting procedures to allow this to go on for any length of time. I would add that it was MTGox's responsibility as an exchange software developer to understand and properly deal with the Bitcoin system. As the article points out transaction malleability was a known issue in 2011 (May of that year). MTGox had plenty of time to address the issue in their system. If they had been watching their accounts with any diligence, they would have known they had a problem and should have dealt with it then.
OK, I stand corrected. But you are totally picking a nit. Whether it is the same specific coin or two different coins couldn’t be less relevant. What matters is that the protocol has a flaw that facilitates double payment.
Actually, coins usually trade at a higher value than their precious metal content. This is because gold or silver in coin form is more useful, and hence more valuable, than say bullion.
Unless you exchange your dollars for something else, you are "investing" in the dollar. There is no way to avoid "investing" so long as you own anything.
Whoops someone stole the “tulip bulbs”, oh darn...
“This is the first I have heard of this.
Do you mean that someone hacked Mt Gox database and moved Bitcoin from someone else’s account to their own? Or do you mean that someone actually compromised the blockchain and fooled the entire network into believing that they owned Bitcoin that were not actually theirs? “
Based on all the articles that I’ve read, it’s not exactly clear what happened because Mt. Gox is either not being forth-coming or do not themselves know what happened exactly. I think it’s still open as to whether ordinary theft took place or whether the blockchain has been compromised or some other issue occurred. Perhaps more definitive information will be available as the bankruptcy proceeds. BTW, I’m not an expert, but am just summarizing from the various articles that I have read.
As to why, consider how currency develops. Once, it was a symbol for concrete value. One dollar once meant one dollar's worth of gold securely held. As the need for currency outstripped the pace of gold aggregation, currency became backed by the faith and credit of the issuing government. Hamilton instinctively knew this hence his plan of rapid payment of the revolution debt coupled with a stable and controlled central treasury. This convinced the world that a dollar was not an arbitrary piece of paper but a monetary note of value.
Bitcoins, on the other hand, are not backed by anything. When tulips were introduced in Holland, they were a novelty item that quickly became desired in an stunning crowd movement. The value of one bulb became extremely high and people started trading in tulips. The problem was - it was a tulip bulb. Anyone could set up shop as a tulip grower and dealer, much like Bitcoins. They are simply created by software (referred to as mining), have no backing, no protections, many mining trojans exist. Anybody can create them. Bitcoins simply had value because somebody convinced another that they did.
A dollar on a debit card can be exchanged at any time for a predictable amount in “real” dollars or goods and services. A dollar on a debit card has the backing of the US Treasury. It has the protections of a dollar, the regulations of a dollar. This is key for a currency - a predictable value and historical worth.
Bitcoins have gone from $2 to $1000 in a single year and now plummeted to $300. That is not a currency. No predictability, no historical consistency of value, no way to transfer and exchange for goods at a known, predictable rate. There is no division of labor. Anyone with the right algorithm can let a computer churn them out.
Bitcoins are very similar to a massive ponzi type scheme. A few people initially created something of limited availability with no intrinsic value, convinced others of its worth, traded like mad to drive prices up, and are now walking away with real dollars while many will be left with worthless software.