How would one perform investigative journalism on a Japanese company? One way might be "write down everything they say", "identify the subset of these statements that an external actor has signal on", "identify the subset of those statements that the external actor would have a social or legal obligation to confirm or deny", and "write some on-dead-tree letters."
Mt. Gox said lots of things, including some things which were, ahem, very effing improbable and yet which alleged very specific facts about people outside of the building. "We're totes solvent; all of our assets are on deposit at Mizuho", "All of our problems are due to banking partners", "The Financial Services Agency said we're compliant with all their regulations", "Japanese banks can't send more than 10 wire transfers per day; it's physically impossible because they're technologically backward", etc etc.
This is sort of similar to "But how do you know that their application is vulnerable, $SECURITY_RESEARCHER?" The answer "I bothered to look" might be unsatisfying, but it is not inaccurate.
We understand you bothered to look. We're asking "What are the specific actions you took, so that in the future, we may take them? What did you discover that led to your tweet? Was it hard evidence, or was it more of a list of worrying signs?"
Writing on-dead-tree letters is a flowery way of describing what you did, but it gives no actionable signal.
I'm sorry you lost money, sincerely. One of the reasons that I'm so vocal about my opinions on Bitcoin is that I think that, when it achieves its true value of 0, it will wipe out a lot of geeks of good will.
I cannot agree that you had insufficient notice from me regarding my opinions of Bitcoin or operations in the Bitcoin economy. That tweet went as close to the line as I could without risking arrest, contemporaneously. It was preceded by probably a few hundred comments on HN and Twitter about Bitcoin and businesses in the ecosystem.
I appreciate that you want a list of steps you can take in the future. I have described a way to reproduce the unpaid, unpublished original research project which I did, in sufficient detail for any competent researcher to reproduce it.
You think that that series of steps is not actionable. I respectfully submit that you are not capable of reproducing it; these are two different things. You are illiterate in the language that the research was conducted in. I'm sorry; that is true, and it is the nicest possible way to phrase it unambiguously.
You should, in the future, not make investments which you are incompetent to evaluate the risk factors of. If you must, you should secure the advice of competent professional advisors. If you believed yourself competent to evaluate the risks of doing business with Mt. Gox or believed the quality of the advice you had to be adequate, you should be skeptical of your self-assessments of your competence or your ability to evaluate competence in a professional advisor, and apply this skepticism to your reasoning process about future investments.
(For context, I edited out "if you'd made a ruckus on HN, you could've prevented a lot of suffering" from my previous comment. Mostly because I disagreed with myself that it was up to Patrick to do that.)
Patrick, I respect your writing. But your answers are rarely straightforward. Even now, when you risk nothing, you refuse to reveal precisely what you knew and how you came to know it. I'm skeptical that you knew anything of consequence, and I think this is a way for you to appear prescient. But if you say you discovered something, we have no choice but to believe you on reputation alone. I wish you'd share with us what the Great Sages know, but who can blame you for wanting to stay a member of their ranks? It's only through secrecy and obfuscation that you can maintain the aura.
> you refuse to reveal what precisely
> you knew and how you came to know it
I see, in his previous comment:
> Mt. Gox said lots of things, including
> some things which were, ahem, very effing
> improbable and yet which alleged very
> specific facts about people outside of the
> building
and then a list of those facts that could be fact-checked.
What could he, as an outsider, possibly have written to a bank that would let him determine whether Gox was solvent?
The simplest answer is "nothing," but we're meant to believe otherwise.
We could go through each item on that list and try to reverse engineer which entity he wrote and what he asked, but this indicates he isn't being straight with us. That's fine; it's his right. But it's a little odd. If someone performed some badass investigative journalism that could've blown the whistle on the Gox case long before anyone knew about it, who wouldn't want to brag about it after the fact? Especially when it'd be so easy to illustrate the steps taken.
We're talking basic questions like "What did you write?" and "What did they say?" But we're meant to guess.
I think a large part of the problem of "verifying" Gox was that people desperately wanted the story to be true.
If a big-name bank operated a bitcoin exchange that was repeatedly hacked, came up with a mountain of excuses about why people can't withdraw, made nonsensical claims about doing business (e.g. 10 wires/day, not trading in the USA etc.), no-one would use them.
(edit: in The Real World, I imagine they'd have been shut down in seconds flat thanks to regulations, but for the sake of convenience let's pretend regulations don't exist)
Instead, we had a plucky new underdog that people wanted to believe was creating history.
You see a business destined to fail, I see a line of incompetent exchanges playing Russian roulette. One of them died and the rest got lucky.
Bitstamp, Bitfinex, Cryptsy, more I've forgotten, were the competitors really more reliable?
I've been in a position to see some absolutely insane stuff happen on exchanges [most of it gets quietly buried), and I really don't think MtGox was anything remarkably different.
I don't think patio11 is claiming he did any in-depth investigation, and is saying that when the company seemed to start having problems they made odd claims like a bank cannot process more than X payments per day sound unlikely enough that they indicate a person lying to cover their ass
you're being pretty unreasonable. he took a look at the body of evidence, including statements from the company itself, did some follow-up (i doubt the specifics actually matter), and got a really bad feeling about it. the technical term for this is 'spidey sense'. also 'bad juju'. or 'his bullshit detector went off'.
what if the answer you're looking for is, "he called up someone at mizuho, went and got a beer, and the guy let it slip that that gox is broke."
then what? hmm? haha what are you going to do about that? that's how the vast majority of insider information (note i didn't say insider trading) is passed. are you going to replicate that the next time around on a specific asset that's about to crash, or a specific company that's going to go insolvent? good luck, friend. this is how the world works; you clearly were not in on it, none of us were, that's why a bunch of people were left holding their dicks in one hand and an empty wallet in the other (i don't deal in bitcoin because i'm too dumb to comprehend it, but i saw the carnage online).
at the end of the day he believed something differently than most. it's not any more complicated than that. that's how people generally make a bunch of money, or in this case, prevent from losing a bunch of money.
also, he lived or lives in japan and speaks japanese, so that's probably going to be the major hurdle for you to grasp his process - he has a lot more day to day context of how all this stuff works in that country. unless of course, you live there too, in which case, that's even worse for you. sorry pal.
People who say that are people who don't understand fiat money's ONLY purpose is to track who owes what. It's debt-based. If Alice pays 1 unit of currency to Bob is because Bob gave her a product or service worth 1 unit of currency. Bitcoin is great at tracking "debt": universal, electronic, decentralized, robust, inflation-proof.
The "true value of 0" reflects the huge confidence of legacy providers (Patrick/Stripe) that crypto will sink. They may well be correct but for a community of "Entrepeneurs", it's entertaining to see the same patterns of technology disruption applying to the so called distruptors.
I don't understand how someone can hold the opinion that Bitcoin has no value. At the very least, it enables a lot of crime, which is valuable to criminals.
Technically, the true value of any currency as time -> infinity is zero. I have no doubt that at some point in the future, USD will be worth less then the paper it's printed on.
The problem is that most of us can't wait until time -> infinity.
Then why doesn't it say "Mt. Gox is probably insolvent"? It's also not very helpful to say "Told ya so" rather than "These are the signs to look for in general."
The adjective I would have chosen was not "probably", but being any more explicit than I was might have earned me a "What did you know, when did you know it, and what was your part in this?" from either of two government agencies who could deport me by either pressing a button or failing to press a button.
Now that no one has the power to deport you, do you mind if we pose those questions? The answers would be informative for anyone who has to weigh which exchange to be using at any given time.
I'm not patio11, but in all seriousness, it is true that just the inexperience and immaturity of the people building these exchanges is sufficient evidence on its own.
In a way, the issue here is that if you want to operate in this space, you do need to take the discussion about BitCoin being money seriously. (Even if you don't think it's "money", it's still definitely a money-like asset.)
Again: That would identify Coinbase as insolvent, right? Why or why not?
I remember how amateurish Coinbase was in the early days, and you can look up a lot of the controversy on HN. People have been coming out saying they haven't processed $5k deposits, that they haven't responded to support claims in months, and on and on. If you're looking for "This exchange is run by amateurs," look no further than Coinbase.
Yet it's not that simple. Coinbase has somehow managed to become the #1 exchange to go to if you're a US citizen that needs an easy way to convert BTC into USD. So I just don't get this line that if an exchange is run by amateurs, it's a sign of insolvency. We have evidence that demonstrates that's not true.
You're not thinking probabilistically nor in terms of risk. There's no way to know for sure that an exchange is insolvent or at risk of becoming insolvent, but there are signs that increase the probability. Being run by amateurs is one such sign. Other signs are lack of insurance, persistent withdrawal issues, persistent arbitrage opportunities, lack of security reviews, poor technological practices (there are posts about the original Mt Gox codebase's poor handling of passwords for example, before Mark took it on), and misleading public statements.
If you bought the line that traditional banks were simply unable to process more than 10 wires a day, rather than it being that Mt Gox was so risky that they refused to process 10 wires a day, then you need to work on critical thinking. Likewise, exhortations that banks were placing restrictions on exchanges because "they were scared of Bitcoin" rather than being because these partners were shady and didn't have sufficient controls should have been met with suspicion.
And yes, Coinbase was also risky. The fact that things worked out doesn't mean it wasn't risky to begin with. I didn't give them any money for the first several years they were in business specifically because I saw them as high risk.
In hindsight, Coinbase had the benefit of having backing by VCs with real business experience and subsequently hiring people with experience in the space, which reduced risk.
It's entirely possible that keeping your money out of Coinbase was the correct ex ante advice, despite their subsequent success. They may well have gotten lucky and succeeded (at least so far) despite their experience.
I don't have any particular knowledge or experience with CB or BTC in general. Just pointing out that it's possible success was despite great risk, and the advice to avoid may have been entirely correct given the evidence at the time.
Do you have evidence of Coinbase's solvency? Because it seems to me this is all based on blind trust. If there is real evidence, of course that trumps the blind trust issue, but without it, it's generally a good bet that amateurs lack the skills, experience and resources to ensure proper handling of financial transactions.
Real banks are also not trusted blindly; they get audited a lot by central banks and other regulators. And they still mess up and get flamed to hell for it. The chance that amateurs in a completely unregulated field do it better is very unlikely.
I don't think its black and white. If all exchanges are run by people who don't know what they are doing not all will fail but a high percentage than if run by more experienced players.
Having said that bankers would be part of the inexperienced group.
https://twitter.com/patio11/status/370728763790594048
Note the date. I only posted that after I was sure I could beat the libel suit; was pretty sure much earlier.