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 ...
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.
A Bitcoin can be exchanged in real time for goods or services the same way a dollar on a credit card can only cheaper, more securely and more privately.
The real question is: If you don't like Bitcoin, what is a better system? Is it better to have a currency completely controlled by the private Federal Reserve? Is it better to have the government control it by tying it to gold at some ratio which they can change at a moment's notice?
All money is nothing more than a mutual agreement. Whether it is gold, tulips, gold backed paper, fiat paper, Bitcoin, Pesos, sea shells, etc.. it doesn't matter. What is important to look at are the specific mechanisms of the various currencies. The design of Bitcoin is brilliant. It can only be "managed" by the market. It is exempt from centralized manipulation.
The same aspects of USD that you claim are positive (regulation by the US treasury) are also it's vulnerability.
You claim that the USD has a predictable, stable value. So tell me, how much gold will a dollar buy in 10 years? How much .22 ammo will it buy? How much gas will it buy?
I am not able to tell you how much a Bitcoin will purchase in ten years but I can tell you what factors will determine the value. The market. Nothing else. Can you tell me what factors will determine the value of a dollar in ten years?
You may need to “invest” in a dictionary.
You were incorrect. Someone found a flaw in the way Mt Gox delivered and verified Bitcoin orders and tricked them into sending more than they were entitled to.
Are you saying that if you were trying to send $2.99 to Amazon to stream a movie online and there was a glitch with your financial institutions’s system which mistakenly allowed the transaction to be double posted, the US dollar should no longer be considered a valid currency?
Uh? Of course not. Where's you get that impression?
At the end of the day, all that happened was someone found a flaw in Mt Gox verification system and tricked them into sending more Bitcoin.
You say it is nit picking when someone clarifies that it is not the same thing as a fundamental flaw in the Bitcoin system.
I know that a dollar next year will be worth 1.02 to 1.04, depending upon inflation. I know that in ten years it will be around 1.38-1.40. I know that because the factors of inflation are mitigated by the large number of people using the dollar and their confidence to use it for decades. People buy dollars with their labor and produced goods because they have confidence in a consistent value over time.
I can never know that with a bitcoin because it trades as a speculative commodity, one with no intrinsic value at that. A bitcoin I use to buy a book today may be worth enough to buy a dozen books by the end of the week or not even enough to buy a stick of gum.
The factor that affects the price of a bitcoin is simple. Gambling mania. People buy Bitcoins because they gamble lots of people will try to buy Bitcoins and the value will keep going up because of demand. But like every Ponzi scheme, there comes a time when you run out of gamblers. The number of fools is limited and the bubble bursts.
There is zero consistency of value. It is not money or currency.
Back to reliable medium of exchange and reliable stored value - central point, people use dollars because a dollar will provide equal return of value over time. People buy Bitcoins because they hope it's value will increase. You don't buy pizzas with Pepsi stock or pork futures. That point has to be driven in because it is the fallacy of Bitcoins. I can put ten dollars in my wallet and buy a pizza today or two years from now. Stored value. I can put ten dollars in a bank and know that there are guarantees that it will remain there. Ten bitcoins may buy a used a car today or in two years, a new car or a small soda. Nobody can predict the value. Bitcoins fluctuate by the hour. A bitcoin payment of $100 value may increase to 500 or fall to 20 just in the time it takes to fill an order. Retailer and customer lose. Moreover as recent events show, I can't save my Bitcoins with much confidence that they will be there next year and I have no guarantees or protections.
Bitcoins do no provide a reliable medium of exchange if the value oscillates drastically during exchange.
Bitcoin is speculation. Its oscillations of value deny consistent value and prevent reliable exchange.
It is a tech stock in a company that pays no dividends, has no product, and no assets. If I asked you to invest in a company that makes nothing, has no offices or staff or equipment, has no source of income other than other investors, would you invest? Would you invest if I just showed you that the stock went from two dollars to one hundred in a week and was predicted to hit one thousand in a month? Many do. And they lose their real money.
If bitcoin wants to be a real currency, then its creators and supporters need to learn what real money is.
Nope. I don't seem to be saying that at all. Please show me where I said anything of the kind.
At the end of the day, all that happened was someone found a flaw in Mt Gox verification system and tricked them into sending more Bitcoin.
Pretty much what I did say. See post #6.
You say it is nit picking when someone clarifies that it is not the same thing as a fundamental flaw in the Bitcoin system.
No again. What I called nit picking was the disagreement over whether the same exact coin was sent twice or whether two different coins were sent. What matters is that the transaction was double paid.
I also believe that you are looking at Bitcoin through the eyes of the MSM. As a conservative, I would think you should know better. There are $80 million worth of Bitcoin transactions per day. Compare that to $280 million Discover Card transactions. The vast majority of transactions are well below 1Btc. It is actually used by most people who own it as a currency to conduct transactions for goods or services. There are Bitcoin services which allow merchants to cash out their bitcoins daily and move the day's proceeds into USD or Euros or whatever. You can purchase $50 worth of bitcoin to keep in a wallet so that you can use them when you find a merchant who accepts them. Your insistence that Bitcoin is only used as an investment is just factually wrong.
I am under no illusion that Bitcoin is currently as stable as USD. However, I am saying that it will be.
You have a very myopic view. If you were dropped on to an island with 5000 other people (and computers and internet...come on this is hypothetical) would you rather set up a currency that is easily manipulated by those who have the power to do so for any purpose they want (personally financial, political, to help one industry over another, etc..) or one that is immune to political manipulation? You are also supposing that USD will always be the world's reserve currency and will always maintain a more consistent value. I don't know that to be the case. I envision 10- 20 years down the road that the BRICS nations will achieve what they are trying to do and supplant the USD with a basket of currencies.
It is interesting that all critiques of Bitcoin deal with things other than the Bitcoin protocol. It is, "not enough people accept it" or "the value that humans assign to it went up too quickly" or "it is too difficult to obtain it" or "there is no intrinsic value" which happens to be the case for EVERY OTHER CURRENCY. It is never an actual criticism of Bitcoin itself. As someone who seems to understand money, I implore you to look into the theory and technology behind Bitcoin and tell me why, if we must choose a currency that has no intrinsic value, is backed by nothing and is only as good as the faith people have in it, the currency we choose shouldn't be Bitcoin.
I am not saying that I am anywhere close to changing all of my USD to Bitcoin. What I am saying that if you were to design a system of currency from scratch, Bitcoin is far superior to USD. And as time moves on, the markets have a way of rewarding superior systems. It will become more stable. It will become more accepted. We will have more control or our money.
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