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Why Mt. Gox, the World’s First Bitcoin Exchange, is Dying

69 points by beniaminmincu 13y ago

cromwellian 13y ago
Looks like a Bank Run? Bitcoin exchanges that engage in some kind of fractional scheme need insurance coverage. I don't know if Mt Gox is doing that, but it kind of smells like they don't have enough BTC on hand to allow withdrawls. On the upside, Bitcoin seems like a perfect laboratory to re-run the experiments in banking leading up to the 1930s when you know, the "communist" FDR imposed banking regulations which are still hated today by some. :)
- bpicolo 13y ago
  How would they not have enough BTC on hand? It's not like they loan it out like banks.
  - DelightfulScone 13y ago
    By taking it.
  - asdfs 13y ago
    Some could have been stolen from a compromised server.
  - jonknee 13y ago
    > The US Department of Homeland Security and the Secret Service seized three accounts linked to Gox containing more than $5m. As research from The Genesis Block shows, the executed seizure warrant was dated 19th June, the day before Gox announced it would halt dollar withdrawals. Not to mention they're a huge hacking target.
  - ericd 13y ago
    It might be non-trivial to get large amounts of cold storage BTC up and running? This could be a good thing in the case of cold storage coins, for security reasons.
  - foobarqux 13y ago
    They can have it stolen. They can covert it to USD and spend it on operations.
- jzwinck 13y ago
  First we liked Bitcoin because it had low transaction costs. Then Bitcoin became more valuable, and we decided that we "need insurance coverage." Now we are headed back where we started: insurance isn't free, and it's sort of the main reason why other payment systems have higher costs.
gaius 13y ago
Because it's Magic the Gathering Online eXchange.
- shiftpgdn 13y ago
  Wow what an insightful comment I'm glad you made your way to this thread.
  - gaius 13y ago
    Thanks. It's a complete mystery why people think that a website set up to trade playing cards can act like a bank. And completely unsurprising that it finds itself embroiled in all these hilarious situations.
    - mkr-hn 13y ago
      Just because software is weird and niche doesn't mean it's poorly engineered.
Larrikin 13y ago
I never had any problems withdrawing money, but I live in Japan
gojomo 13y ago
There's plenty to warrant suspicion, but it turns out there is a credible explanation for the seize-up in BTC payouts being a technical problem that will take some time to resolve: http://www.reddit.com/r/Bitcoin/comments/1x93tf/some_irc_chatter_about_what_is_going_on_at_mtgox/cf99yac http://www.reddit.com/r/Bitcoin/comments/1x93tf/some_irc_cha... This analysis describes a Bitcoin transactional defect of which I wasn't previously aware. However, from a vaguely-similar much-smaller incident involving the default client, I know that having a local wallet confused about what prior transactions are truly spendable can take significant time and custom effort to unwind.
- coldtea 13y ago
  >There's plenty to warrant suspicion, but it turns out there is a credible explanation for the seize-up in BTC payouts being a technical problem that will take some time to resolve Would you be as OK with your bank holding money like that?
  - gojomo 13y ago
    Who said they were "OK" with anything? It's just information for understanding the situation. I'm unhappy when ATM outages or erroneous fraud alerts prevent me from using my cash or credit, but I understand that such situations are different from dishonesty or insolvency.
    - coldtea 13y ago
      >Who said they were "OK" with anything? The casual tone by which people (including you) were discussing this. If a bank had even week long issues like that people would be frothing at the mouths (and rightly so). >It's just information for understanding the situation. Yes, it's the "understanding" part that I don't get (except if it's pure technical curiosity, but from the excuses people make in this thread it doesn't seem so). They messed up, they are not a worthy exchange, that kind of fiasco is insurmountable -- end of story. I wouldn't try to "understand" a restaurant that served my cochroaches in my pizza, I'd just avoid it and bad mouth it to everybody I know.
sillysaurus2 13y ago
This is FUD. As incredible as it seems, MtGox's problems are, in fact, technical. And it was quite a relief to realize this. Also, there is minimal danger of a bank run. MtGox makes a profit off of every transaction. Therefore they control more BTC than users are able to deposit. Hence, since Magical Tux (the owner) is motivated not to go to jail, he will not run off with people's BTC. For anyone who wants the truth, rather than speculation, here it is: http://www.reddit.com/r/Bitcoin/comments/1x93tf/some_irc_chatter_about_what_is_going_on_at_mtgox/cf99yac http://www.reddit.com/r/Bitcoin/comments/1x93tf/some_irc_cha...
- jonknee 13y ago
  > Also, there is very minimal danger of a bank run. MtGox makes a profit off of every transaction. Therefore they control more BTC than users are able to deposit. Hence, since Magical Tux (the owner) is motivated not to go to jail, he will not run off with people's BTC. What if the technical problems lead to a situation where they are short BTC? Your link mentions they could have double paid people which would lead to that situation. Then there's the issue of seizure which apparently has happened at least once. Relying on your unlicensed money changer to be fair because "he is motivated to not go to jail" is precarious. Madoff's client's probably said the same thing... That's the beauty of the FDIC and the terrifying part about BTC exchanges.
  - sillysaurus2 13y ago
    The only reason I have confidence is because two years ago Magical Tux began transferring around 440k bitcoins in order to prove ownership of those coins: http://www.reddit.com/r/Bitcoin/comments/n4a2o/someone_has_been_transferring_around_440k/ http://www.reddit.com/r/Bitcoin/comments/n4a2o/someone_has_b... If he had 440k coins then, imagine how many he has now. Yes, he could have lost a lot, but on the other hand we'd probably have heard if someone pulled off that kind of heist. Here's how I expect things will happen: Gox will refund all "stuck" withdrawls. (Mine have already been refunded.) Then they will fix the technical problem, hopefully by Monday, but certainly within a couple weeks. Then they'll re-enable bitcoin withdraws. At that point, everybody will yank their bitcoin out of Gox. But then people will realize that there is value in trading on Gox as a platform, and Gox will be used for what it's meant to be used for: Trading, not storage. EDIT: To clarify, I don't believe it's possible they had a technical problem that led to them losing more bitcoins than the profits they've made from trading fees. (This is me being hopeful that people can't be that incompetent.)
captainchaos 13y ago
Reading this thread on Reddit actually puts in perspective how hard it must be for governments to design and implement effective economic regulations. It's a real balancing act.
dgreensp 13y ago
Dear god, I hope so. Mtgox is the giant raging zit on the face of Bitcoin. The software and service are so terribly, inexcusably bad, and they have always been that way. The market price on Mtgox has been artificially high ever since I can remember, because no one can withdraw their money. Users wait for their withdrawals for weeks, and sometimes months. As a result, a dollar in your Mtgox account is worth less than a dollar. Now it is artificially low, because people can't transact Bitcoins either! The other exchanges, meanwhile, tend to agree pretty closely, because it is actually possible to move bitcoins and dollars between them. Imagine if ETrade, say, was so bad at moving money that you had to pay an extra $100 for a share of Google stock. That's what it's like. Or if everyone used Google's DNS servers but they typically took 3 seconds to respond. And yet people use Mtgox, and talk about it, and it's listed on all the sites and apps that track the market price on different exchanges. At first, everyone chalked up Mtgox's problems to the sheer difficulty of running a Bitcoin exchange, and then, to the difficulty of running the biggest. Well, now it's no longer the only or the biggest exchange, and no one else is having the same problems, at least at this service-destroying level. I can't comment on the difficulty of establishing relationships with banks to move millions of dollars -- I'm sure it's hard -- but Mtgox has also had a lot of plain old scaling issues, and the transaction load is not even that high by web scaling standards. Last time I checked it was 30 per second or so. Their security is nothing special; they've been hacked before. I have heard only negative things about their engineering competence. I'm a casual fan of Bitcoin but a big hater of bad software, bad customer service, and companies that act in a sleazy manner. I hope Mtgox dies.
- omilu 13y ago
  coinbase is just as bad
deleted 13y ago
[deleted]
Tenoke 13y ago
I can't really feel sorry for anyone who is having troubles with Mt Gox. People have known for ages now that Mt Gox is unreliable and they kept using it to take advantage of the higher prices which come with the higher risk. Hell, If anything, they are the problem since things would've likely been better right now if more people had moved away from Gox from before instead of waiting for the ship to start sinking.
Techskeptic 13y ago
I'm ignorant as to how BTC exchanges work. Is there a market maker providing liquidity or do the exchanges take inventory themselves? Any info for this would be appreciated. Insofar as uneducated guesses go, I suspect they are facing a "bank run" liquidity crisis based on them taking inventory and not having the capital to accommodate withdrawals.

69 points by beniaminmincu 13y ago

Looks like a Bank Run? Bitcoin exchanges that engage in some kind of fractional scheme need insurance coverage. I don't know if Mt Gox is doing that, but it kind of smells like they don't have enough BTC on hand to allow withdrawls. On the upside, Bitcoin seems like a perfect laboratory to re-run the experiments in banking leading up to the 1930s when you know, the "communist" FDR imposed banking regulations which are still hated today by some. :)

bpicolo 13y ago
How would they not have enough BTC on hand? It's not like they loan it out like banks.
- DelightfulScone 13y ago
  By taking it.
- asdfs 13y ago
  Some could have been stolen from a compromised server.
- jonknee 13y ago
  > The US Department of Homeland Security and the Secret Service seized three accounts linked to Gox containing more than $5m. As research from The Genesis Block shows, the executed seizure warrant was dated 19th June, the day before Gox announced it would halt dollar withdrawals. Not to mention they're a huge hacking target.
- ericd 13y ago
  It might be non-trivial to get large amounts of cold storage BTC up and running? This could be a good thing in the case of cold storage coins, for security reasons.
- foobarqux 13y ago
  They can have it stolen. They can covert it to USD and spend it on operations.
jzwinck 13y ago
First we liked Bitcoin because it had low transaction costs. Then Bitcoin became more valuable, and we decided that we "need insurance coverage." Now we are headed back where we started: insurance isn't free, and it's sort of the main reason why other payment systems have higher costs.

gaius 13y ago

Because it's Magic the Gathering Online eXchange.

shiftpgdn 13y ago
Wow what an insightful comment I'm glad you made your way to this thread.
- gaius 13y ago
  Thanks. It's a complete mystery why people think that a website set up to trade playing cards can act like a bank. And completely unsurprising that it finds itself embroiled in all these hilarious situations.
  - mkr-hn 13y ago
    Just because software is weird and niche doesn't mean it's poorly engineered.

Larrikin 13y ago

I never had any problems withdrawing money, but I live in Japan

gojomo 13y ago

There's plenty to warrant suspicion, but it turns out there is a credible explanation for the seize-up in BTC payouts being a technical problem that will take some time to resolve: http://www.reddit.com/r/Bitcoin/comments/1x93tf/some_irc_chatter_about_what_is_going_on_at_mtgox/cf99yac http://www.reddit.com/r/Bitcoin/comments/1x93tf/some_irc_cha... This analysis describes a Bitcoin transactional defect of which I wasn't previously aware. However, from a vaguely-similar much-smaller incident involving the default client, I know that having a local wallet confused about what prior transactions are truly spendable can take significant time and custom effort to unwind.

coldtea 13y ago
>There's plenty to warrant suspicion, but it turns out there is a credible explanation for the seize-up in BTC payouts being a technical problem that will take some time to resolve Would you be as OK with your bank holding money like that?
- gojomo 13y ago
  Who said they were "OK" with anything? It's just information for understanding the situation. I'm unhappy when ATM outages or erroneous fraud alerts prevent me from using my cash or credit, but I understand that such situations are different from dishonesty or insolvency.
  - coldtea 13y ago
    >Who said they were "OK" with anything? The casual tone by which people (including you) were discussing this. If a bank had even week long issues like that people would be frothing at the mouths (and rightly so). >It's just information for understanding the situation. Yes, it's the "understanding" part that I don't get (except if it's pure technical curiosity, but from the excuses people make in this thread it doesn't seem so). They messed up, they are not a worthy exchange, that kind of fiasco is insurmountable -- end of story. I wouldn't try to "understand" a restaurant that served my cochroaches in my pizza, I'd just avoid it and bad mouth it to everybody I know.

sillysaurus2 13y ago

This is FUD. As incredible as it seems, MtGox's problems are, in fact, technical. And it was quite a relief to realize this. Also, there is minimal danger of a bank run. MtGox makes a profit off of every transaction. Therefore they control more BTC than users are able to deposit. Hence, since Magical Tux (the owner) is motivated not to go to jail, he will not run off with people's BTC. For anyone who wants the truth, rather than speculation, here it is: http://www.reddit.com/r/Bitcoin/comments/1x93tf/some_irc_chatter_about_what_is_going_on_at_mtgox/cf99yac http://www.reddit.com/r/Bitcoin/comments/1x93tf/some_irc_cha...

jonknee 13y ago
> Also, there is very minimal danger of a bank run. MtGox makes a profit off of every transaction. Therefore they control more BTC than users are able to deposit. Hence, since Magical Tux (the owner) is motivated not to go to jail, he will not run off with people's BTC. What if the technical problems lead to a situation where they are short BTC? Your link mentions they could have double paid people which would lead to that situation. Then there's the issue of seizure which apparently has happened at least once. Relying on your unlicensed money changer to be fair because "he is motivated to not go to jail" is precarious. Madoff's client's probably said the same thing... That's the beauty of the FDIC and the terrifying part about BTC exchanges.
- sillysaurus2 13y ago
  The only reason I have confidence is because two years ago Magical Tux began transferring around 440k bitcoins in order to prove ownership of those coins: http://www.reddit.com/r/Bitcoin/comments/n4a2o/someone_has_been_transferring_around_440k/ http://www.reddit.com/r/Bitcoin/comments/n4a2o/someone_has_b... If he had 440k coins then, imagine how many he has now. Yes, he could have lost a lot, but on the other hand we'd probably have heard if someone pulled off that kind of heist. Here's how I expect things will happen: Gox will refund all "stuck" withdrawls. (Mine have already been refunded.) Then they will fix the technical problem, hopefully by Monday, but certainly within a couple weeks. Then they'll re-enable bitcoin withdraws. At that point, everybody will yank their bitcoin out of Gox. But then people will realize that there is value in trading on Gox as a platform, and Gox will be used for what it's meant to be used for: Trading, not storage. EDIT: To clarify, I don't believe it's possible they had a technical problem that led to them losing more bitcoins than the profits they've made from trading fees. (This is me being hopeful that people can't be that incompetent.)

captainchaos 13y ago

Reading this thread on Reddit actually puts in perspective how hard it must be for governments to design and implement effective economic regulations. It's a real balancing act.

dgreensp 13y ago

Dear god, I hope so. Mtgox is the giant raging zit on the face of Bitcoin. The software and service are so terribly, inexcusably bad, and they have always been that way. The market price on Mtgox has been artificially high ever since I can remember, because no one can withdraw their money. Users wait for their withdrawals for weeks, and sometimes months. As a result, a dollar in your Mtgox account is worth less than a dollar. Now it is artificially low, because people can't transact Bitcoins either! The other exchanges, meanwhile, tend to agree pretty closely, because it is actually possible to move bitcoins and dollars between them. Imagine if ETrade, say, was so bad at moving money that you had to pay an extra $100 for a share of Google stock. That's what it's like. Or if everyone used Google's DNS servers but they typically took 3 seconds to respond. And yet people use Mtgox, and talk about it, and it's listed on all the sites and apps that track the market price on different exchanges. At first, everyone chalked up Mtgox's problems to the sheer difficulty of running a Bitcoin exchange, and then, to the difficulty of running the biggest. Well, now it's no longer the only or the biggest exchange, and no one else is having the same problems, at least at this service-destroying level. I can't comment on the difficulty of establishing relationships with banks to move millions of dollars -- I'm sure it's hard -- but Mtgox has also had a lot of plain old scaling issues, and the transaction load is not even that high by web scaling standards. Last time I checked it was 30 per second or so. Their security is nothing special; they've been hacked before. I have heard only negative things about their engineering competence. I'm a casual fan of Bitcoin but a big hater of bad software, bad customer service, and companies that act in a sleazy manner. I hope Mtgox dies.

omilu 13y ago
coinbase is just as bad

deleted 13y ago

[deleted]

Tenoke 13y ago

I can't really feel sorry for anyone who is having troubles with Mt Gox. People have known for ages now that Mt Gox is unreliable and they kept using it to take advantage of the higher prices which come with the higher risk. Hell, If anything, they are the problem since things would've likely been better right now if more people had moved away from Gox from before instead of waiting for the ship to start sinking.

Techskeptic 13y ago

I'm ignorant as to how BTC exchanges work. Is there a market maker providing liquidity or do the exchanges take inventory themselves? Any info for this would be appreciated. Insofar as uneducated guesses go, I suspect they are facing a "bank run" liquidity crisis based on them taking inventory and not having the capital to accommodate withdrawals.