4 ms·

I really wonder who is the person whose coins were being sold off. I mean, that's the real story here: somebody had many tens of thousands of BTC that were stol

by watt 15y ago

I really wonder who is the person whose coins were being sold off. I mean, that's the real story here: somebody had many tens of thousands of BTC that were stolen from his MtGox account and were sold off at a very low price. (The story that people were buying BTC at very low prices is a distraction, the real story is that somebody was SELLING at this low price.) The other thing is that MtGox did not suspend trading once market moved 20%. I think if it had such failsafe it could have prevented this fiasco. (Should shut down the marketplace once market moves 20% in any direction to reassess the situation and check if there is technical error or panic, or similar event that requires additional intervention. Any mature market requires such failsafe.)

thanasop 15y ago
The amount sold was over 500000 BTC - more that all estimated deposits on MtGox. The likely explanation is that these were just virtual BTCs added through SQL injection. The alternatives are that a single person was keeping that much on an exchange rumored to be insecure and used insecure password (easily cracked from leaked md5 hashes), or the person decided to sell half his BTC for $0.01 - an extra $2500 in addition to hundred thousands.
- IsaacL 15y ago
  That raises an interesting point. The nature of Bitcoin is supposed to prevent things like fractional reserve banking, since the nature of the system means you can't give people BTC you don't have. It's impossible to create bitcoins in any other way except mining. However, if people are making BTC transactions through a centralized exchange such as Mt. Gox, they are in effect moving numbers around in MtGox's database rather than actually transferring bitcoin. This means banks are able to effectively create BTC as they can with fiat currencies, leading to problems like the current case - problems that Bitcoin was designed to solve.
  - alttab 15y ago
    How would MtGox effectively "create BTC"? There is a difference between moving coins around in a database and creating new coins. All coins are deposited from users. The only way BTC would be "created" in MtGox is if MtGox was mining on their own. Coins need to be "mined" to be created - so MtGox couldn't even loan coins they didn't have.
    - burgerbrain 15y ago
      MtGox could effectively "create" BTC by simply selling more than they actually had. This would of course only work as long as people were actually withdrawing less than MtGox had available to them. Until you attempt to withdraw the BTC from the exchange, you wouldn't necessarily actually know that they in fact exist.
      - swishercutter 15y ago
        The flaw here is there is typically more BTC sellers than buyers due to mining/dark pool. That combined with BlockExplorer tracking makes it pretty much impossible. Unless you are seeing something I am not. I guess your theory will be tested when a large majority pulls their money from Mt.Gox...that is if that happens...we will all know in the next few days.
        burgerbrain 15y ago
        BlockExplorer won't help you in this hypothetical case because as I understand it MtGox doesn't even pretend to preform actual BTC transactions until you withdraw. Before you withdraw your "BTC" are only numbers in MtGox's internal system. They could be selling you additional of these numbers without having the actual BTC behind them available. Anyway, I'm not saying they have sold more than they actually have, just that it is a technical possibility.
    - tedunangst 15y ago
      MtGox is a bank. When you put money in a real bank, it doesn't go into a box labeled "alttab's money", it goes in a box labeled "everybody's money" and there's a piece of paper called "alttab's account" with a number on it. When the bank robbers come, they take the box with money in it, but they don't take the piece of paper. Then when you try to withdraw your money, the bank manager opens the box of money and says "oops."
  - lifty 15y ago
    Indeed, if people would keep the money inside the exchange all the time, they would be able to artificially create more bitcoins in their system without being noticed. In case all people would try to take all their money out, the exchange would be left with a deficit of money, practically not being able to return it to their users. In anyway, it would be risky for an exchange to create more money than they actually have. For users, it would be best to keep as little money for as little time possible in exchanges, thats the whole point of bitcoin.
    - swishercutter 15y ago
      This is impossible...every bitcoin has to be verified every time it is transferred...there is tracking no matter what anyone says. http://blockexplorer.com/ http://blockexplorer.com/ You can see any and all transactions. Any bitcoin in/out of Mt.Gox has to be verified by the network...a "fake" bitcoin would never get out and it would not benefit Mt.Gox to transfer fake BTC around internally. A bitcoin cannot be counterfeited easily...hence the beauty of the system. People can claim that there was never 500k bitcoin in Mt.Gox but the fact still remains there was a transfer of 500k just days before this incident that was discussed as possibly being Mt.Gox moving their internal wallet around. Now if someone controlled over 50% of the network hashing capability that would be a different story...possibly they could inject false info or something like that (I admit I know very little about this part, just briefly reviewed it enough to know its bad) but that's why you see postings in the forums telling people to switch "guilds" to spread things out. Deepbit approached 50% last month and there was a mass exodus. Most of the people involved in this know the risks and work very hard to self regulate.
      - lifty 15y ago
        My point exactly. I guess my explanation is lacking, but what I meant when I said that the exchange would be left with a deficit in bitcoins, is that they would not be able to create more "real" bitcoins, than there were initially deposited by its users. It's a zero sum game(if you ignore the fees). But, that does not mean that MtGox could not create "fake" bitcoins inside their system, and extract their value by selling real bitcoins from the bitcoin pool that the users contributed to. For such a thing to pass under the radar, MtGox would need to keep enough real bitcoins in the system to satisfy the bitcoin liquidity the exchange needs. That would not qualify that much as an exchange anymore, but it would be more similar to a ponzi scheme.
- danssig 15y ago
  >The amount sold was over 500000 BTC Source? I hope you're not quoting the guy from the "I'm the one who bought them" forum thread who accidentally add all numbers including dates to determine how many BTC were traded. He was almost instantly debunked.
  - wiredfool 15y ago
    And he came up with 51 million. 500KBTC is a pretty solid number, or at least, it's as solid as anything else that the public's been told.
gst 15y ago
Why should a panic require intervention? If somebody wants to sell his Bitcoins way below the market price - why stop him?
- wladimir 15y ago
  Not a panic in itself is the problem. But as the grantparent mentions, there might be a technical issue (such as a hack, in this case) if such an irrational thing happens. Safest action in that case is to halt the market temporarily (as well as delay withdraws) and investigate.
- lysol 15y ago
  Circuit breakers give the exchange a chance to cool off and think things over. It isn't really intervention. It's just a halt to trades and they could take their BTC to Tradehill if they really feel like selling. Bitcoin fans like to pretend that all aspects of it should be unregulated, but when you take a decentralized currency and then place it in a centralized exchange, that mentality is no longer applicable and you have to deal with it like any other traded commodity. This includes security measures and circuit breakers on the exchanges.
  - swishercutter 15y ago
    In this case circuit breakers were not needed...it crashed down to .01 and was on its way to recovering (back up to $14) within minutes before the exchange was shut down...all this situation did for me was steel my resolve that it can handle a 2% market selloff at virtually zero. I was in the forums and watching the Mt.Gox ticker while the "crash" happened.
    - lysol 15y ago
      If it wasn't a stolen balance then I would agree with you. A massive sell-off of BTC could've happened at any time. But in terms of self-preservation it would've been in MtGox's best interest to have a circuit breaker. I'm contradicting myself a little here, but I've been having a lot of cognitive dissonance over Bitcoin anyway :)
gwern 15y ago
A 20% trigger wouldn't have been a good idea. Bitcoin moved 20% many times over the last few months without a flash crash happening.

by watt 15y ago

thanasop 15y ago

The amount sold was over 500000 BTC - more that all estimated deposits on MtGox. The likely explanation is that these were just virtual BTCs added through SQL injection. The alternatives are that a single person was keeping that much on an exchange rumored to be insecure and used insecure password (easily cracked from leaked md5 hashes), or the person decided to sell half his BTC for $0.01 - an extra $2500 in addition to hundred thousands.

IsaacL 15y ago
That raises an interesting point. The nature of Bitcoin is supposed to prevent things like fractional reserve banking, since the nature of the system means you can't give people BTC you don't have. It's impossible to create bitcoins in any other way except mining. However, if people are making BTC transactions through a centralized exchange such as Mt. Gox, they are in effect moving numbers around in MtGox's database rather than actually transferring bitcoin. This means banks are able to effectively create BTC as they can with fiat currencies, leading to problems like the current case - problems that Bitcoin was designed to solve.
- alttab 15y ago
  How would MtGox effectively "create BTC"? There is a difference between moving coins around in a database and creating new coins. All coins are deposited from users. The only way BTC would be "created" in MtGox is if MtGox was mining on their own. Coins need to be "mined" to be created - so MtGox couldn't even loan coins they didn't have.
  - burgerbrain 15y ago
    MtGox could effectively "create" BTC by simply selling more than they actually had. This would of course only work as long as people were actually withdrawing less than MtGox had available to them. Until you attempt to withdraw the BTC from the exchange, you wouldn't necessarily actually know that they in fact exist.
    - swishercutter 15y ago
      The flaw here is there is typically more BTC sellers than buyers due to mining/dark pool. That combined with BlockExplorer tracking makes it pretty much impossible. Unless you are seeing something I am not. I guess your theory will be tested when a large majority pulls their money from Mt.Gox...that is if that happens...we will all know in the next few days.
      - burgerbrain 15y ago
        BlockExplorer won't help you in this hypothetical case because as I understand it MtGox doesn't even pretend to preform actual BTC transactions until you withdraw. Before you withdraw your "BTC" are only numbers in MtGox's internal system. They could be selling you additional of these numbers without having the actual BTC behind them available. Anyway, I'm not saying they have sold more than they actually have, just that it is a technical possibility.
  - tedunangst 15y ago
    MtGox is a bank. When you put money in a real bank, it doesn't go into a box labeled "alttab's money", it goes in a box labeled "everybody's money" and there's a piece of paper called "alttab's account" with a number on it. When the bank robbers come, they take the box with money in it, but they don't take the piece of paper. Then when you try to withdraw your money, the bank manager opens the box of money and says "oops."
- lifty 15y ago
  Indeed, if people would keep the money inside the exchange all the time, they would be able to artificially create more bitcoins in their system without being noticed. In case all people would try to take all their money out, the exchange would be left with a deficit of money, practically not being able to return it to their users. In anyway, it would be risky for an exchange to create more money than they actually have. For users, it would be best to keep as little money for as little time possible in exchanges, thats the whole point of bitcoin.
  - swishercutter 15y ago
    This is impossible...every bitcoin has to be verified every time it is transferred...there is tracking no matter what anyone says. http://blockexplorer.com/ http://blockexplorer.com/ You can see any and all transactions. Any bitcoin in/out of Mt.Gox has to be verified by the network...a "fake" bitcoin would never get out and it would not benefit Mt.Gox to transfer fake BTC around internally. A bitcoin cannot be counterfeited easily...hence the beauty of the system. People can claim that there was never 500k bitcoin in Mt.Gox but the fact still remains there was a transfer of 500k just days before this incident that was discussed as possibly being Mt.Gox moving their internal wallet around. Now if someone controlled over 50% of the network hashing capability that would be a different story...possibly they could inject false info or something like that (I admit I know very little about this part, just briefly reviewed it enough to know its bad) but that's why you see postings in the forums telling people to switch "guilds" to spread things out. Deepbit approached 50% last month and there was a mass exodus. Most of the people involved in this know the risks and work very hard to self regulate.
    - lifty 15y ago
      My point exactly. I guess my explanation is lacking, but what I meant when I said that the exchange would be left with a deficit in bitcoins, is that they would not be able to create more "real" bitcoins, than there were initially deposited by its users. It's a zero sum game(if you ignore the fees). But, that does not mean that MtGox could not create "fake" bitcoins inside their system, and extract their value by selling real bitcoins from the bitcoin pool that the users contributed to. For such a thing to pass under the radar, MtGox would need to keep enough real bitcoins in the system to satisfy the bitcoin liquidity the exchange needs. That would not qualify that much as an exchange anymore, but it would be more similar to a ponzi scheme.
danssig 15y ago
>The amount sold was over 500000 BTC Source? I hope you're not quoting the guy from the "I'm the one who bought them" forum thread who accidentally add all numbers including dates to determine how many BTC were traded. He was almost instantly debunked.
- wiredfool 15y ago
  And he came up with 51 million. 500KBTC is a pretty solid number, or at least, it's as solid as anything else that the public's been told.

gst 15y ago

Why should a panic require intervention? If somebody wants to sell his Bitcoins way below the market price - why stop him?

wladimir 15y ago
Not a panic in itself is the problem. But as the grantparent mentions, there might be a technical issue (such as a hack, in this case) if such an irrational thing happens. Safest action in that case is to halt the market temporarily (as well as delay withdraws) and investigate.
lysol 15y ago
Circuit breakers give the exchange a chance to cool off and think things over. It isn't really intervention. It's just a halt to trades and they could take their BTC to Tradehill if they really feel like selling. Bitcoin fans like to pretend that all aspects of it should be unregulated, but when you take a decentralized currency and then place it in a centralized exchange, that mentality is no longer applicable and you have to deal with it like any other traded commodity. This includes security measures and circuit breakers on the exchanges.
- swishercutter 15y ago
  In this case circuit breakers were not needed...it crashed down to .01 and was on its way to recovering (back up to $14) within minutes before the exchange was shut down...all this situation did for me was steel my resolve that it can handle a 2% market selloff at virtually zero. I was in the forums and watching the Mt.Gox ticker while the "crash" happened.
  - lysol 15y ago
    If it wasn't a stolen balance then I would agree with you. A massive sell-off of BTC could've happened at any time. But in terms of self-preservation it would've been in MtGox's best interest to have a circuit breaker. I'm contradicting myself a little here, but I've been having a lot of cognitive dissonance over Bitcoin anyway :)

gwern 15y ago

A 20% trigger wouldn't have been a good idea. Bitcoin moved 20% many times over the last few months without a flash crash happening.