Posted on 02/28/2014 6:08:07 AM PST by Red in Blue PA
TOKYO (Reuters) - Mt. Gox, once the world's biggest bitcoin exchange, filed for bankruptcy protection in Japan on Friday, saying it may have lost nearly half a billion dollars worth of the virtual coins due to hacking into its faulty computer system.
The collapse caps a tumultuous few weeks in which the company has remained virtually silent after halting trades of the crypto-currency, shaking the nascent but burgeoning bitcoin community.
Wearing a suit instead of his customary T-shirt, Mt. Gox's French CEO Mark Karpeles bowed in contrition and apologised in Japanese at a news conference at the Tokyo District Court, blaming his firm's collapse on a "weakness in our system", but predicting that bitcoin would continue to grow.
(Excerpt) Read more at finance.yahoo.com ...
You are right, I misunderstood what the headline claimed. Big difference, to say the least.
It does show just how vulnerable bitcoin owners are.
OK, it’s like finding a dollar bill on the street. I have no way of knowing where it came from (backward), but I can spend it wherever dollars are accepted (forward) without leaving any audit trail. Right? Sounds a lot like a cash transaction.
Thanks, but for right now I’ll trade in dollars, not bitcoins. Possession is 9/10 of the law where I came from.
I have just two words for you: Bernard Madoff
Investing in new technologies aren't the only way to lose money...
The TSA has proven that, including taking away our dignity.
If you give your money to an exchange to hold in an account you are ultimately trusting they will keep that money safe.
Are you familiar the collapse of MF Global? They dipped into customer accounts to continue making failing prop trades on European debt. They lost 1.6 BILLION dollars, but Jon Corzine collected enough money for Obama that an 18 month investigation by the FBI found he committed no crime, despite his own employees saying he ordered the transfer of funds from customer accounts.
Did that individual firms mis-mangement and collapse lead to an indictment of the dollar as a failed medium of exchange, or to soybean futures contracts being a crazy thing for a farmer to have an account to purchase?
As I read comments on bitcoin it is obvious many of the detractors haven't honestly taken the time to explore what they deride.
The spreading of fear, uncertainty, and doubt from a position of ignorance is not something I expect or enjoy seeing on a site like Free Republic.
An "inch" is conjured out of thin air as well, but when we agree as to what an inch is, we can all use it measure things.
Bitcoin exists as a medium of exchange because it is a fixed unit of measure. Unlike dollars and other fiat currencies the total pool that can ever exist is 21 million.
What the hackers did was take advantage of MtGox's flawed wallet implementation. MtGox treated the transaction ID associated with a transfer request as a valid index (a unique value).
The bitcoin verification network does not allow the 'double spending' of bitcoins because it is essentially a giant ledger tracking all transactions between wallets. What the hackers did was submit two withdrawal requests. Think of it as check #101 and #102. If check #102 was verified first by the network then the copy transaction (check #101) would be rejected as an attempt to double spend coins.
The hacker then contacted MtGox and said, "Hey, my check #101 didn't clear - what's up?"
Because MtGox searched their records for check number #101, didn't find it, they decided to re-issue the withdrawal. This wasn't a true 'double spend' of the original bitcoins because they initiated a new transaction that would not conflict with 'check #102' and fail verification.
If they:
A) knew not to trust the transaction ID as a unique and valid index (and this was documented in 2011, so they should have know it wasn't)
B) checked the customer's wallet balance via the blockchain instead of relying on their own flawed internal ledger
this wouldn't have happened.
They screwed up, and lost people's money.
Whether it was an inside job by people who knew details of their code, or just discovered by an enterprising hacker who looked to see if anyone was misusing the transaction ID, that's supposedly what the FBI would be looking into.
There are also claims on the internet that the FBI has put a gag order on MtGox an frozen some of their wallets related to Silk Road transfers. If true, this coupled with a hacker could have left them insolvent. The fact they've blamed hackers from the beginning makes the gag order conspiracy unlikely in my view.
But if they can trade them, isn’t there any audit trail or history referencing the previous owners.
To put it in cash terms:
Imagine I rob a bank. I write Bank Robber on one of the 20 dollar bills I stole and then spend it at a gas station.
The gas station deposits the money at his bank, who later fills an ATM with those 20s.
You withdraw $100 from the bank, including the $20 I wrote Bank Robber on. If the government finds you holding that note, do they have the bank robber? Is it fair for them to take the bill from you?
Bitcoins are safe if you keep them in your possession. But as with dollars in an account run by Jon Corzine, when you hand them to someone else for anyone purpose, his possession means they're not really yours anymore until he gives them back.
Thank you, thank you, thank you, for the great explanation and answering my questions. I can understand the underlying issues much better now.
There is so much crap about bitcoins floating around the Internet it’s difficult to understand what the real issues are anymore. I will reserve any criticism of bitcoins at this time until the known issues are resolved.
Now if we could just get a clearer view of the issues affecting the Obamacare websites and its subsystems in similar terms, it might awaken (or scare) more liberals as to how f**ked and out of control their project has become.
At least the bitcoin digital banking idea wasn’t DOA. And I don’t think taxpayer money is being spent to develop bitcoins and digital banking systems. I could be wrong on the latter. Someone correct me if I am.
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