This should be a warning to anybody that ends up amassing X00K in a digital currency to be very very careful to keep your money secured and in your control.
Yes, the fact that one has to do business with a Japanese company because it is impossible to open a Bitcoin exchange in the US is a very valuable lesson about regulation.
Is Coinbase following the law? They are registered as a money services business with FinCEN, but I checked a couple of states that their FinCEN registration says they operate in (California and Washington), and did not see them listed there. As a control, I checked both those states for PayPal to make sure I was looking at the right list, and it was there.
Merely thinking about the absolute lack of trust for everybody and everything in a Libertarian world, and what that would mean for day-to-day life, exhausts me.
Not trusting anybody / anything does not mean that you can not risk a relationship. It's a cost/benefit analysis. In the case of MtGox, a libertarian would trust it with a small percent of their holdings, no more.
Because a libertarian recognizes that the world is inherently risky/hostile, as a basic strategy he is not willing to risk too many eggs on a single basket. Whatever the basket - specially if it is a basket guaranteed by the state with a business plan based on a pyramid-scam, like, "we are guaranteeing all bank accounts although we have absolutely no money to do that".
It is not a cost/benefit analysis. It is an explosion of cost/benefit analysis. It is replacing a tree structure (government) with a directed graph with no further constraints (agreements between individuals and groups). Sure, it is more flexible but at a cost of a huge reduction in efficiency.
That is why it seems exhausting to me. A base level of trust that we rely on every day, a system of trust that works so well most of the time that we don't even realize it is there unless we think about it, would not exist.
Well, I think there would be a level of interpersonal trust. That wouldn't go away.
But there is much in day-to-day life that we all trust to at least a Lowest Common Level that would no longer exist in a Libertarian world.
For example, did you visit an office building today? How do you know it won't fall in on you? Today you know because it was built to certain specifications set forth in regulation. You know the builders were certified and that the inspectors made sure no corners were cut (at least in a well functioning system as we generally have in the U.S.) In a Libertarian world that might be taken over by some sort of for profit certification body...or it might not. The onus would be on you to find out before you walk through the door and put your life in the hands of people you've never met.
The typical rejoinder to which is "enlightened self-interest!" That you can trust people to do the right thing because in the long term that works out for the best.
But it turns out we tried that on a massive scale with the best and brightest, and it got us the Great Recession. Even St. Greenspan had to admit it didn't work. There's a great section on that here:
Although, you credit them too highly believing they will "learn".
AND, I take Internet Libertarians to refer to the new hoards of ignorant wankers who thing Libertarianism == "Don't tax me bro". Social Libertarians can keep on keeping on.
We're getting a little off topic here, but where Libertarianism ended up has always made me a little sad. When I ran across some Libertarians manning a table on my college campus in the late 80s, they were such reasonable and sincere people. Now, most of what I see is either the political equivalent of a 14-year-old shouting, "You're not my DAD" or oligarch-fluffers who seem to be perfectly ok with stepping over the bodies of the elderly in the street as long as the Koch brothers get what they want.
It's definitely not the Libertarian movement I dreamed of in college.
No consumer lost money in a US bank in 2008. The FDIC and its related organizations protected depositors for $100,000 per person per bank. That was upped to $250,000 during the crisis.
Anybody interested in what happened from that perspective should read Shelia Bair's "Bull by the Horns". It's a readable and engaging account of the financial crisis from her experience as the head of the FDIC. She's a Republican and along the way makes a great Republican case for the value of strong financial regulation as necessary to an effective market economy.
It is ridiculous. Do you realize that "regulation" is not really a solution? If the problem is "I cannot trust these guys", then "trust instead those guys (who are even more opaque and more powerful)" is a joke. If we cannot trust some random competing companies with our money, then the last thing we want is to trust one gigantic monopoly with the thickest walls and all the guns in the world.
Real solution: spreading the trust. Either store your coins on your devices, or spread them in multisignature scripts (M-of-N) between your own trusted friends. Even if some of your friends defect or lose their keys, you are still safe. That's the real security solution, regardless of your political outlook. Just saying "lets vote for some cops to enforce stuff" is only making initial problem of trust bigger, not smaller.
The protagonist felt that his "wealth" was tied up in MT. Gox.
Surely that is/was an illusion. Wealth is rather more tangible than some encrypted code in (wow this will upset some folks but it is still true) a glorified ponzi scheme.
I don't think you upset anyone although it seems you hope you did. Many businesses accept Bitcoins for legal or illegal goods. Whether you think these transactions are moral or not doesn't cause Bitcoin to become a "ponzi" scheme. Maybe you're relating it to one since those who got in really early had potential to become millionaires? The same thing can be said about stocks. Bitcoin has actually gone the opposite direction of a ponzi scheme for quite some time now.
A dictionary might define wealth as "an abundance of valuable possessions or money".
We who are working on start-ups of various kinds, seek wealth for ourselves perhaps but certainly if we are successful to increase the total wealth of the world.
At least the fairy dust of the dollar or euro is backed by the wealth of nations.
Agreed! But at one point there was a 'gold standard' which was backed by an actual thing. Although that thing was to a great extent backed by guns and ammo as well.
Serious question: Could a 'crypto-currency' run on a gold standard? IE MtGox (or whoever) having enough of an actual thing to cover all of the coins? I hadn't thought about that but it is an interesting thought to me.
It wouldn't work in the major current cryptocurrencies, as you'd have to have some way of mtgox issuing new coins for gold deposits. That would seem to be against the current sets of rules, which only allow miners to create coins.
I'd assume it would be possible to have a cryptocurrency where a central authority stores gold/dollars/etc, and allows people to exchange it for coins and vice versa - basically, have special transactions that can create coins. Miners would have to mine for transaction fees, or maybe they could be paid out of the interest produced by the giant money pile.
It would require a lot of trust in the central authority - and once you have that trust, it's not clear you need a cryptocurrency at all.
tangible
ˈtan(d)ʒɪb(ə)l/
adjective
1. perceptible by touch.
Not all wealth is perceptible by touch.
Its value is a lot more connected to other people's trust in there being an underlying economic process supporting a value, than it is to do with it being something you can perceive with your hand.
If you have two million dollars in your bank account, that is also an intangible asset. Its physical representation is a series of numbers in the bank's database (and perhaps a number of backups of this database). You certainly can't touch it. Or I suppose, more accurately your wealth in this case is your bank's debt to you of two million dollars, which is an abstract notion of which the numbers in the bank database are the physical evidence.
Either way, whether you can touch this source of value seems like a moot point ;) Any economy is deeply based on trust.
There are very good procedural reasons for not paying out to random people that turn up at your offices. Try going to your bank's office building (not branch) and demanding cash. Proper withdrawal processes should be designed to protect both parties from fraud / risk while remaining convenient.
I'm not saying I think mtgox's actual procedures aren't batshit insane (they are), but trying (and failing) to operate outside of those procedures doesn't really prove anything.
While the attempt to contact the CEO in person does push the issue, it is sort of ridiculous to think that they keep 'cash on hand' at the office to cash people out.
As pointed out there are a bunch of reasons to keep withdrawal processes within process especially with a semi-anonymous currency of this type.
Because if a customer with a lot of coins flies to Japan to confront the CEO while being video-taped and _still_ doesn't get his coins back... people will believe things must be very bad.
I'm convinced that it's one of 2 things.
a) A criminal investigation + gag order.
b) MtGox really screwed up and/or got hacked. The funds are just plain gone and they're in the process of winding down the company into bankruptcy or something.
Flying to japan is a publicity stunt, nothing more. The public statement was that all withdrawals are halted since they need to consolidate their accounting. So why would they hand out bitcoins for people that show up in person? I'd be more concerned if they gave in and cashed out everyone that shows up in person and not online.
Edit: Parent stealth-edited, so I'll rephrase my comment. Original preserved here:
And then, the next one comes and want his bitcoins on the spot. And then someone makes a video of a withdrawal online that fails. The video on youtube does not add anything negative to the current situation: Withdrawals are not possible, in no way.
>>The video on youtube does not add anything negative to the current situation: Withdrawals are not possible, in no way.
If you think this video does not negatively impact MtGox's public image or cause people with funds stuck in there to become even more concerned, then I don't agree with you.
Oh, I do believe that the video is damaging to MtGox's public image, but paying out this guy would have been at least as damaging. They hit rock bottom and are damned whatever they do.
I sort of doubt if their public image matters at the moment: They either fix the problem and then can communicate that "yes, it was unfortunate but we could no do any payouts since we needed to fix the bug for all of you, instead of a nutcase that went to japan to pester us." or they can't fix it and go bankrupt at which point the video on youtube won't do any harm either. Nor do the concerns of their users: You can't withdraw funds, not at all, no way, no matter how concerned you are and how often you show up at their office. Be more concerned, go ahead. If I had any money on MtGox I'd be writing it off right now and throw a party when I get it back.
But you can't get neither (1) money nor (2) bitcoins from MtGox, so what does it matter what people believe? It's not like they can do much, or that releasing coins for privileged customers would help MtGox...
>> or that releasing coins for privileged customers would help MtGox...
I don't agree with that. If this person got his coins back, people would have gained a little faith that MtGox might actually get back on its feet. So at least that'd be positive PR for them. The fact that this guy did not get his coins back suggests to me that the situation, whatever it is, must be very serious and lowers my faith that MtGox will recover.
As pointed out by another reply, if this user had gotten his withdrawal processed, it would show that you more or less have to fly to Japan in person to get your money. If that precedent were set I believe that would negatively impact MtGox's PR in a pretty substantial way.
I'm not disagreeing with what you're saying. It would show that they at least 'have funds' to pay out, rather than what looks like them not having anything (or enough) to cover the coins. I just think that the realization that you need to fly to Japan would also cause a lot of negative PR for them.
Oh, definitely there'd be some people saying "Hey! That's not fair! We can't all fly to Japan", but I suspect the overall effect would be a net-positive. At least, after the the people yelling "unfair!" calm down. Might take a week or 2.
Honest question: why are people using online wallets to keep big amount of bitcoins? Isn't it risky per-se?
And just to make sure I understand this: a personal wallet (in a USB, my laptop, my dropbox, whatever), would not be susceptible to these risks, right? (of course, other risks apply, like somebody accessing your wallet, or losing it)
I guess the users of the online wallets have no direct access to their wallets, so they can not order a transfer to a private wallet to recover their money. Probably there is not even a per-user wallet, but a wallet for the pool of MtGox clients?
Foolishness. People will give you all kinds of excuses as to why they'd do something as stupid as that, but the reality is that there's no reason to keep massive amounts of BTC in an online wallet. The only reason that comes close to being realistic is trading and even then you'd only need to keep the amount you trade.
So on a site like btc-e.com, if you're buying & selling on little peaks & valleys you can make significant income. If you buy 400 litecoin for 14 then the price goes up 3 bucks after 5 hours, you've just made over $1,000. You can't make these plays with an offline wallet. I day trade on btc-e.com but always move my coins to an offline wallet when they grow to an uncomfortable amount. Because of my fear of hacks though, I'm only making $30 or $40 bucks. I could dump 7 or 8k into the system and daytrade making over $1,000 a day... but then I'd be taking up the risk that a hack empties my account. Some people take that risk. I'm willing to risk up to 7k on crypto, but I don't want to risk losing it to a random online-wallet hack. However, if I unexpectedly got 5k out of thin air(say H&R Block found some tax deductions never noticed before) I'd day-trade that and risk losing it to hack.
Another problem is that if you make profit on btc-e.com, you now have a bunch of USD sitting there[1] that you cannot transfer out. You don't want to withdraw that USD to your bank account because that's a slow process that takes more than 24 hrs. You're out of the game until all that bank stuff settles. I bought a bunch of litecoins on xmas-eve 2013, then on xmas-day the price suddenly doubled. I had to move my coins out of my offline wallet back to btc-e and sell. I made money, but now I had USD in btc-e that I can't get out. Afterall, I don't want to buy the coins I just sold for profit. I have to wait until the price drops. Now, if btc-e got hacked. The hackers would just buy whatever they could with my funds and withdraw the coins. I've lost.
___
1. Unlike coinbase.com, btc-e.com allows you to have a fiat balance. I guess think of etrade.com, where you can transfer money out of your bank to etrade. Once those funds are confirmed, you can buy stock instantly because etrade already has your money and doesn't need to talk to your bank again.
... and 78 days ago I recommended sell your Bitcoin now.
I'm not clairvoyant or an insider, rather I've seen this movie before. It's called The Bubble. This is the part of the movie where the bubble pops and remaining investors act all shocked and disappointed.
There was a Dot-com Bubble, it popped, people lost a lot money, but many of the dot-coms still exist and have grown.
There was a (US) Housing Bubble, it popped, and there's still houses being bought and sold, just at lower prices today.
... and there's still tulips for sale too.
My point is Bitcoin may still carry on past this episode, but you have to recognize that its current price is way too heavy to make it over this bridge without collapsing, and it takes a long long long time for prices to recover after a bubble pop.
IMO, the best indicator for a bubble is when people participating in some financial activity look at you like you're an idiot when you ask basic questions and can't explain themselves w/o all sorts of complicated answers and rationalizations, ultimately followed with "you just don't understand."
I get that there are superpeople who are really that smart, but in my experience 99% of you are not that person.
The hard part is guessing the limits of irrationality and maximizing your profits. I got out of the dot-com bubble over a year early.
After researching the issue for a couple days, I've turned up a few things to boost my confidence in the situation.
First, Tux (the owner of MtGox) has been participating in the Github discussion about getting a "normalized txid" implemented ASAP to address the malleability issue.
"Just to update this thread, it seems that this discussion is mostly stale now. We (at MtGox) will implement this new hash index in our transactions database and start working with it (we will announce a maintenance as we will have to stop bitcoin deposits too during the database schema update) and will start providing this new hash when customers are withdrawing bitcoins, litecoins, or any other coin based on Bitcoin we may support in the future.
We will also provide an API that will allow our customers to use this hash to retrieve the transaction hash as seen in the blockchain once the transaction is confirmed, and will hope others (blockchain.info?) will index this value one day.
We also invite other exchanges and businesses which may need to keep track of bitcoins they send to use this same method, since dealing with multiple variations of the same thing wouldn't be very productive."
Why is ntxid important? Because for most practical purposes, ntxid cannot mutate. The recent attack was possible because people were able to mutate txids by changing the signature. So, "txid" includes the signature, but "ntxid" doesn't. Therefore ntxid is immune to the previous malleability attack vectors.
So what else boosts my confidence? Well, another aspect is that Gox support personnel have been in #mtgox almost 24/7 answering questions. They often don't have answers that people are seeking, but they have been professional and helpful to the best of their ability given the current situation.
A third thing that boosts my confidence is that Gox has, conservatively, made at least 120k bitcoin in profit from trade fees. It's more likely in the range of 440k. So even if they lost an ungodly amount of bitcoin, such as 70k, they will still have more than enough to cover the losses.
To expand on this third point, people have expressed at least two concerns about whether Gox has enough coins. The first concern is whether Gox has enough coins to cover the losses they suffered. For example, perhaps they've been paying themselves a massive salary, and perhaps they lost more than the amount of profit they had remaining. People feel that the press release was designed to drive down the price of bitcoin, perhaps to sell high and buy low in order to grow their bitcoins by enough to cover the losses. But this doesn't make sense, because bitcoin's price rapidly recovered on all the other exchanges. This method wouldn't have been able to net them more than a few thousand btc. Plus, their own buy order would influence the price itself. The logic of "Gox issued an accusatory press release to drive down the price" doesn't seem to hold up.
The second concern is that people believe Tux will use this as a way to get out of bitcoin entirely and retire. I don't know Japan's law, but people seem to believe Gox is the equivalent of a limited liability corp, which is of course designed to limit personal liability in the event of a massive screwup such as the one Gox has suffered. People say that since there was no malicious intent by Gox, then Gox may simply be closed down without much penalty to Tux.
But if that were the case, then Tux's behavior would become very different very quickly. It seems pretty likely that Gox has, by now, calculated how many coins they've lost. Tux knows whether they're solvent. If they aren't able to cover losses, why would he be participating in Github? Why is he seemingly working so hard to resolve the issue? In that situation, "keeping appearances" isn't valuable. His time would be better spent speaking with lawyers and crafting his legal defense. This doesn't seem to be happening.
So at this point we know the malleability exploit was real and that Gox really was bitten by it. We know they responded to the exploit in the only way that they were able: by suspending withdraws before further coins were siphoned out of Gox's systems. We know that Gox aren't making any exceptions to this withdraw suspension, not even for customers with large bitcoin holdings. (To me, this seems quite fair.) We know that Tux has been personally working with the bitcoin devs to push through a proposed fix to the protocol, and we know that the proposal has already been implemented in blockchain.info's website.
Lastly, and most persuasively, we know that the expected value for Tux to reopen Gox is the massive amount of trade fees he stands to earn in the future. This incident will shake people's faith in Gox, but people are fickle, and if just 30% of their user base sticks with Gox then that means in another few years Gox will have earned 30% of "a massive amount of profit from the trade fees." That's still quite a bit of profit, and profit is better than no profit. Since Gox stands to earn at least another $million USD in trade fees over the next few years, then that's a million reasons for him to continue operating the exchange.
Tux's behavior is roughly the opposite of what you'd expect from someone who was about to shut down their business.
I had the option to sell my bitcoins in my MtGox wallet for 80% of their value. For example, if I transfer 1 bitcoin from my Gox wallet to their Gox wallet, then they would send me 0.8 btc to my external wallet address in return. But I chose not to sell off my Gox bitcoin, because the probability of Gox closing seems much less than 20% due to all of the above reasons. I'm going to wait it out.
I definitely don't know how this will all end up. But I get the impression that if MtGox does collapse, you will be the most emotionally/financially impacted person on HN. I am absolutely not a Schadenfreude-type person. I'm rooting for you. Just remember, it's only money. Don't do anything extreme if this all doesn't work out.
If things do work out(and I hope they do), hence forth you shall always keep the vast majority of your coins in an offline wallet. :)
You're an awesome person. Thank you for your concern.
The last thread helped me come to peace with the situation. Thanks to the community's commentary, the obvious was made clear: There's no scenario in which it's ever helpful to become emotional about bad luck. It's over and done with, and there's nothing that can change it. Getting upset will only make life worse. Instead, why not choose to be content with all that hasn't been lost?
It took awhile for me to let go of what-if's and past mistakes. But what ultimately changed my perspective was reflecting that I live in a life of luxury and comfort compared to most people on the planet. That's when I realized that most of my feelings until now have been rooted in selfishness. What percentage of people have had the opportunity to even make any investments whatsoever? It was silly not to have realized how lucky I've been.
It took some soul searching, but...
If Gox turns out to close, I will lose some coins. Oh well. It's just some money, and at least I'll have served as an example of what not to do.
I can picture Bernie Madoff's clients writing a wall of text trying to convince themselves that the account statements Madoff Investments had sent them for years "couldn't have been faked".
Why would anyone trust a miniscule-sized company that was originally started as a Magic The Gathering exchange which has been catastrophically hacked into, had money seized by the feds and has repeatedly shut down their system to prevent withdrawals?
There are no trade fees in the future. Mt Gox is toast. If anyone recovers a dime out of that company they will move said dime to another company. Bitcoin is trading for half of its market value on Mt Gox right now. If that doesn't tell you something, then nothing will.
I wouldn't trust Mt Gox to be competent to run a bank. But their Magic the Gathering background makes me trust their honesty more. What scam artist is going to start out there?
The founder of MtGox was Jed McCaleb and he is the one that started out as a Magic the Gathering exchange. He then switched it to trading bitcoin in 2011. When it began to take off, he sold it to the current CEO Mark Karpeles.
The current owner, Mark Karpeles who oversaw the rise of MtGox, the hacking incident, the seizing of assets by the Feds and the shut down of withdrawals in both dollars and now Bitcoin never had anything to do with Magic the Gathering.
This is anecdotal evidence, but I've known MagicalTux since he wrote `libgrf` 7 or 8 years ago. He's very much someone that gives back to the communities he's involved in. This whole situation had people running for pick forks, which is the reaction I would expect from the internet, in that it's prone to polarizing extreme opinions. Waiting it out like the last dip makes complete sense.
I can't help but think of the reaction that online poker players had when first told that UltimateBet admins were cheating, or that celebrity-backed FullTiltPoker was insolvent.
When it came to UB, the common response was that the company was making money hand over fist and that cheating a few high rollers out of $50 or $100k would jeopardize the much larger legitimate source, so they clearly wouldn't do that. Except that some of the admins really were cheating individual high-rollers.
And with FullTiltPoker, the business really was as profitable as the players guessed, but the company directors weren't actually treating customer deposits as deposits, but were instead paying themselves most of the money and paying withdrawals using new deposits (which works seamlessly, so long as deposits exceed withdrawals which is the usual case for both gambling websites and bitcoin exchanges).
So, I hope you're right. But I'd note that MtGox's actions are ALSO fully aligned with the actions of an insolvent company that wants to continue operations, and realizes that it is possible that they can recover so long as sufficient confidence is maintained by depositors such as yourself.
After all, if Gox is insolvent, then Tux's best hope for a new fortune is to use your deposits as his working capital... which is exactly what you're letting him do.
Not at all. A Poker Site didn't make any claims of guaranteed returns on your 'investment.' They probably considered player deposits to become virtual Poker Dollars, that have no legal value.
>>> A Poker Site didn't make any claims of guaranteed returns on your 'investment.'
This is irrelevant. They didn't need to make any guarantees on investment, they just needed more players. Just because they didn't need to bait people to play doesn't mean it wasn't a Ponzi scheme.
"A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from existing capital or new capital paid by new investors, rather than from profit earned by the individual or organization running the operation"
That might be a too-generous interpretation. They could also be bad at business, which is pretty common. With some people it's more, "Hey, there's a pile of money in this account. I like money! Why don't I take some."
The separation of accounts is very much a learned set of disciplines. Some never learned it, and some just don't get it.
Look people. In the world we live in in 2014, financial regulation is low and headed downwards. Scams are high and rising. Even in traditional banking industries denominated in dollars, there is no appetite from government (I will not here go into the reasons) for punishing wrongdoers. Accordingly, people are behaving rationally and ramping up their cheating and fraud.
In non-traditional industries not denominated in dollars, there is even less appetite for punishing cheaters and scammers.
Every bitcoin business is a fraud. Every one. There is no one who is planning to do anything except steal as much money as fast as they can, and then use the stolen funds to pay some lawyers to "negotiate" if the government shows any interest at all, which is unlikely. Just tell your lawyer to claim "we were hacked, we're a victim too". No one can prove that isn't true.
For anyone who is ethically-challenged, this is a great business to get into.
Watching internet libertarians run smack into an entire industry that seems specifically designed to liberate them from their life savings - with no recourse - is fucking hilarious.
There are going to be a lot more people wondering where their tulip-wealth went. The answer - safely into someone else's swiss bank account - is not going to please them.
Anyone want to start a betting pool on when the first bitcoin-related death will be? The first bitcoin-bankrupt person assaulting a scammer, or something like that?
http://en.wikipedia.org/wiki/File:Flora%27s_Malle-wagen_van_...