8 ms·

The Final Goxing

105 points by pmorici 13y ago

gkoberger 13y ago
This doesn't say what did happen (theft? lost key?) or why it happened now (feds? out of money?); it just says what didn't happen (collusion). We still don't know where the 750k bitcoins are. Two interesting theories, the second being my favorite (but both agreeing there's no way 750k bitcoins could have been stolen): http://jesse.forthewin.com/blog/2014/02/unilateral-statement-regarding-fucked-up-shit-and-the-greater-good.html?cpm=329 http://jesse.forthewin.com/blog/2014/02/unilateral-statement... http://letstalkbitcoin.com/somethings-not-right-at-gox/#.Uw6btIWrFsw http://letstalkbitcoin.com/somethings-not-right-at-gox/#.Uw6...
- snitko 13y ago
  The second link is actually a pretty great speculation. My only objection is that it is rather improbable to lose all 788k BTC. How dumb you should be to keep all the coins in a single stash? Or to keep keys to different stashes in one place? I'm willing to believe Gox lost some, but all? Oh man, Mark's gonna be a nominee for the Darwin award of the century then.
  - nwh 13y ago
    If you have some stupid custom software that's making bad private keys you would never notice until you go to use them (or test them). Even more plausibly, they mention in 2011 to be using a custom system like Shamir's Secret Sharing, maybe they suddenly realized that their shared secrets are all bad? Not saying that's what happened, but it's not an unreasonable thought. It's more reasonable than losing 750,000BTC to an issue that could have been picked up by even the most basic accounting.
- fchollet 13y ago
  The second scenario (lost access to 2nd tier of cold storage) seems the most likely. It is also compatible with Mark's statement that the coins are "technically speaking [...] not 'lost' just yet, just temporarily unavailable". [1] [1] http://www.wickedfire.com/shooting-shit/179038-my-conversation-mark-karpeles-mtgox-2.html#post2164682 http://www.wickedfire.com/shooting-shit/179038-my-conversati...
  - anonymoushn 13y ago
    It looks to me like a more likely reading is "I believe I have not lost my coins, although Gox does not have them, because Gox will make customers whole using future profits."
  - vesinisa 13y ago
    That would seem more plausible also because in that case the coins were not stolen, but simply lost. I would think that someone should have found the blockchain trail of the 750k BTC by now, if they were indeed stolen. It anyway took only few hours after the raid that people figured out the address[1] where FBI had deposited the coins seized from Silk Road. [1] https://blockchain.info/address/1F1tAaz5x1HUXrCNLbtMDqcw6o5GNn4xqX https://blockchain.info/address/1F1tAaz5x1HUXrCNLbtMDqcw6o5G...
snitko 13y ago
So now, the only way in which someone would buy Gox is if the crisis strategy posted earlier is not very accurate. That is, if coins are NOT lost, but indeed are inaccessible for some reason and there is a chance of recovering them. No one would ever touch Gox if they had to return 770k BTC while the public actually knows those coins were lost. And now you also have authorities involved... If they could keep it secret - then maybe a buyer would be optimistic enough he could convince customers everything is going to be fine. But not now. Unfortunately for Mark, he's going to be in a lot of trouble now if all this is true. I lost all my savings with Gox, but one thing I'm certain - I wouldn't want to be in his shoes now.
deleted 13y ago
[deleted]
- gkoberger 13y ago
  He's Ryan Selkis, a well-known Bitcoin blogger who leaked the original Mt Gox insolvency documents. This could be wrong, however he has the best track record so far.
  - nwh 13y ago
    This persons responses to other people is not encouraging to say the least. https://twitter.com/twobitidiot/status/438873855479009280 https://twitter.com/twobitidiot/status/438873855479009280
    - gkoberger 13y ago
      His recent tweets have made me question him as well, however he's had a large number of threats over the past 24 hours (for allegedly destroying an impending a buyout of Gox by leaking fraud, which if true would have cost Gox patrons money). I think he's just wrapped up in it, and maybe a bit scared.
      - nwh 13y ago
        Inviting somebody from Twitter to your physical address in order to assault them with a baseball bat doesn't seem "scared" to me.
        tdfx 13y ago
        I don't think internet bravado has ever been very intimidating to anyone.
        nwh 13y ago
        Perhaps not, but it's indicative of the mindset of the person behind the pseudonym.
panarky 13y ago
... engaging in an arbitrage scheme that leveraged the depressed Mt. Gox price to reap gains on other exchanges. This was allegedly happening well before the exchange’s breaking point ... Step 1: Drive the Gox price into the basement Step 2: Buy devalued Gox-BTC using the fiat you have left Step 3: Sell those coins on other exchanges at full price Step 4: Rinse and repeat until solvent What could possibly go wrong?
- conroe64 13y ago
  This would only work if the coins were still there. If the Gox coins are stolen/lost, then what are you buying? A worhtless claim to coins that don't actually exist, and that you can't sell.
  - zwily 13y ago
    The assumption is that there are still some coins left to bootstrap the scheme.
    - conroe64 13y ago
      Even if there are some coins left, there is nothing to repeat. You sell them, and the plan is over... it doesn't bootstrap anything.
  - tlrobinson 13y ago
    IIRC, Gox was accepting deposits (both bitcoins and fiat) until very recently.
    - conroe64 13y ago
      Who would deposit bitcoin in an exchange where the average price is a fifth of what is was in other exchanges? Fiat deposits wouldn't matter for this plan.
      - tlrobinson 13y ago
teraflop 13y ago
Even if this scenario is correct, and the private keys have been lost, there's no law of physics that says the coins can never be recovered. The set of legal transactions on the blockchain is determined entirely by what the majority of miners will accept. So far that has always meant executing and verifying the transaction's script, but a currently-illegal script could be declared valid by persuading enough miners to treat it as an exception. In particular, suppose MtGox can produce an audit trail showing that a particular set of addresses corresponds to their inaccessible cold wallet, and nobody else challenges their claim by signing a message from one of those addresses. Then they could petition miners to grant an exception and have the coins transferred to a new address by fiat. (ha!) It would certainly be an unprecedented intervention by the core Bitcoin community. But if it would restore public confidence in the protocol and economy, then it would be in enough people's interest that I think there's a slim chance it could be made to happen. EDIT: it's not quite that simple; see the discussion below.
- hoopism 13y ago
  There's an irony in "Too Big To Fail" for a decentralized currency.
- snitko 13y ago
  This is beautiful and would show how the community could deal with a critical situation without any kind of government intervention or regulation. Upd. Also, in this case, I think an acquisition is a very probable option.
- atgm 13y ago
  > But if it would restore public confidence in the protocol and economy It actually scares me. If any private body or group could somehow amass 51% of the miners in some way, they would then control the currency.
  - snitko 13y ago
    It's not one private body. I think in this case one might say all MtGox customers would be asking miners to do that.
andrewljohnson 13y ago
"Sources also tell me that multiple investors who were approached restricted their own employees from buying or selling bitcoin themselves as soon as they realized the extent of the damage at Mt. Gox." I wonder how many employees felt all that "restricted," given that it would be very hard to enforce such a dictate.
- waterlesscloud 13y ago
  There was obvious insider trading, with large dumps of coin just before bad news broke. Someone was doing it.
iandanforth 13y ago
This is Mt. Gox getting thrown to the wolves. I think there is a constant undercurrent of fear, and rightly so, in the bitcoin community that regulation will mean the end of bitcoin. Also, for those who are speculating heavily on BTC, anything that undermines confidence is a direct threat to their holdings. So here we have a potential massive fraud (or fear-compounded incompetence) and publicity discussing fundamental security flaws with the BTC system. A double threat. It's a perfect rationaly-self-interested reaction to try to distance ones self from threats as quickly and thoroughly as possible, but I can't bring myself to think of this as anywhere near altruistic or civic minded.
- ossreality 13y ago
  good for self regulation. they should burn for what they've done to bitcoin, and just simply for being an egregious way of treating customers. >publicity discussing fundamental security flaws with the BTC system huh? no? by every account by everyone, this was always a bug on their part in implementing the protocol. and a bug in the implementation of their cold storage protocol if they were literally being drained of coins via any TM vuln.
ghshephard 13y ago
The interesting thing is that MtGox failing should have zero impact on the USD value of the Bitcoin, particularly if those Bitcoins were stolen and still in circulation. Indeed, if the hypothesis in http://letstalkbitcoin.com/somethings-not-right-at-gox/#.Uw7y-_RdVvB http://letstalkbitcoin.com/somethings-not-right-at-gox/#.Uw7... is true, that the Coins were actually LOST from the Cold-wallet because of a EC bug, or other error - then it's possible that losing 740K coins will drive up the value of the remaining coins.
- ProblemFactory 13y ago
  Price depends on the balance of both supply and demand. Even if there are less coins to go around: * Many existing bitcoin users have had their coins and conventional currency holdings wiped out - and don't have enough money left to buy them back. * Many users who lost their money would not want to re-invest after getting burned. * Many potential new casual users will be (rightly) scared away by the news. It seems to me that even if 6% of the coins are gone, demand could drop more than 6% and still lower the price.
deleted 13y ago
[deleted]
pakitan 13y ago
I'm curious if any sane investor would be interested in acquiring Gox and promising to pay, say, 20% of its debts. In that case, a large percentage of customers may simply sue and the investor will be in a real bad position. So, if the 700K BTC figure is correct, this scenario is basically impossible as you can't buy that much BTC for reasonable price, right? Much better for potential investors would be to just wait for Gox bankruptcy and pick up the pieces. I'm not familiar with bankruptcy law, just theorizing.
- danielweber 13y ago
  IANA banktupcy L, but this seems like what can happen in bankruptcy, with the blessing and protection of a judge. You don't assume massive risk just on our own, you get a court to approve your takeover and attempt to make debtors partially whole.
interstitial 13y ago
TL;DR: Blah Blah Blah --- never trust the consultancy firm Mandalah with private documents. Got it.
- berberous 13y ago
  The way I read the situation is that while Mandalah prepared the documents, MtGox deliberately called meetings where they showed participants the documents in an effort to get emergency funding/bailout, and then failed to ensure they did not keep a copy. But who knows what really happened.

105 points by pmorici 13y ago

This doesn't say what did happen (theft? lost key?) or why it happened now (feds? out of money?); it just says what didn't happen (collusion). We still don't know where the 750k bitcoins are. Two interesting theories, the second being my favorite (but both agreeing there's no way 750k bitcoins could have been stolen): http://jesse.forthewin.com/blog/2014/02/unilateral-statement-regarding-fucked-up-shit-and-the-greater-good.html?cpm=329 http://jesse.forthewin.com/blog/2014/02/unilateral-statement... http://letstalkbitcoin.com/somethings-not-right-at-gox/#.Uw6btIWrFsw http://letstalkbitcoin.com/somethings-not-right-at-gox/#.Uw6...

snitko 13y ago
The second link is actually a pretty great speculation. My only objection is that it is rather improbable to lose all 788k BTC. How dumb you should be to keep all the coins in a single stash? Or to keep keys to different stashes in one place? I'm willing to believe Gox lost some, but all? Oh man, Mark's gonna be a nominee for the Darwin award of the century then.
- nwh 13y ago
  If you have some stupid custom software that's making bad private keys you would never notice until you go to use them (or test them). Even more plausibly, they mention in 2011 to be using a custom system like Shamir's Secret Sharing, maybe they suddenly realized that their shared secrets are all bad? Not saying that's what happened, but it's not an unreasonable thought. It's more reasonable than losing 750,000BTC to an issue that could have been picked up by even the most basic accounting.
fchollet 13y ago
The second scenario (lost access to 2nd tier of cold storage) seems the most likely. It is also compatible with Mark's statement that the coins are "technically speaking [...] not 'lost' just yet, just temporarily unavailable". [1] [1] http://www.wickedfire.com/shooting-shit/179038-my-conversation-mark-karpeles-mtgox-2.html#post2164682 http://www.wickedfire.com/shooting-shit/179038-my-conversati...
- anonymoushn 13y ago
  It looks to me like a more likely reading is "I believe I have not lost my coins, although Gox does not have them, because Gox will make customers whole using future profits."
- vesinisa 13y ago
  That would seem more plausible also because in that case the coins were not stolen, but simply lost. I would think that someone should have found the blockchain trail of the 750k BTC by now, if they were indeed stolen. It anyway took only few hours after the raid that people figured out the address[1] where FBI had deposited the coins seized from Silk Road. [1] https://blockchain.info/address/1F1tAaz5x1HUXrCNLbtMDqcw6o5GNn4xqX https://blockchain.info/address/1F1tAaz5x1HUXrCNLbtMDqcw6o5G...

snitko 13y ago

So now, the only way in which someone would buy Gox is if the crisis strategy posted earlier is not very accurate. That is, if coins are NOT lost, but indeed are inaccessible for some reason and there is a chance of recovering them. No one would ever touch Gox if they had to return 770k BTC while the public actually knows those coins were lost. And now you also have authorities involved... If they could keep it secret - then maybe a buyer would be optimistic enough he could convince customers everything is going to be fine. But not now. Unfortunately for Mark, he's going to be in a lot of trouble now if all this is true. I lost all my savings with Gox, but one thing I'm certain - I wouldn't want to be in his shoes now.

deleted 13y ago

[deleted]

gkoberger 13y ago
He's Ryan Selkis, a well-known Bitcoin blogger who leaked the original Mt Gox insolvency documents. This could be wrong, however he has the best track record so far.
- nwh 13y ago
  This persons responses to other people is not encouraging to say the least. https://twitter.com/twobitidiot/status/438873855479009280 https://twitter.com/twobitidiot/status/438873855479009280
  - gkoberger 13y ago
    His recent tweets have made me question him as well, however he's had a large number of threats over the past 24 hours (for allegedly destroying an impending a buyout of Gox by leaking fraud, which if true would have cost Gox patrons money). I think he's just wrapped up in it, and maybe a bit scared.
    - nwh 13y ago
      Inviting somebody from Twitter to your physical address in order to assault them with a baseball bat doesn't seem "scared" to me.
      - tdfx 13y ago
        I don't think internet bravado has ever been very intimidating to anyone.
        nwh 13y ago
        Perhaps not, but it's indicative of the mindset of the person behind the pseudonym.

panarky 13y ago

... engaging in an arbitrage scheme that leveraged the depressed Mt. Gox price to reap gains on other exchanges. This was allegedly happening well before the exchange’s breaking point ... Step 1: Drive the Gox price into the basement Step 2: Buy devalued Gox-BTC using the fiat you have left Step 3: Sell those coins on other exchanges at full price Step 4: Rinse and repeat until solvent What could possibly go wrong?

conroe64 13y ago
This would only work if the coins were still there. If the Gox coins are stolen/lost, then what are you buying? A worhtless claim to coins that don't actually exist, and that you can't sell.
- zwily 13y ago
  The assumption is that there are still some coins left to bootstrap the scheme.
  - conroe64 13y ago
    Even if there are some coins left, there is nothing to repeat. You sell them, and the plan is over... it doesn't bootstrap anything.
- tlrobinson 13y ago
  IIRC, Gox was accepting deposits (both bitcoins and fiat) until very recently.
  - conroe64 13y ago
    Who would deposit bitcoin in an exchange where the average price is a fifth of what is was in other exchanges? Fiat deposits wouldn't matter for this plan.
    - tlrobinson 13y ago

teraflop 13y ago

Even if this scenario is correct, and the private keys have been lost, there's no law of physics that says the coins can never be recovered. The set of legal transactions on the blockchain is determined entirely by what the majority of miners will accept. So far that has always meant executing and verifying the transaction's script, but a currently-illegal script could be declared valid by persuading enough miners to treat it as an exception. In particular, suppose MtGox can produce an audit trail showing that a particular set of addresses corresponds to their inaccessible cold wallet, and nobody else challenges their claim by signing a message from one of those addresses. Then they could petition miners to grant an exception and have the coins transferred to a new address by fiat. (ha!) It would certainly be an unprecedented intervention by the core Bitcoin community. But if it would restore public confidence in the protocol and economy, then it would be in enough people's interest that I think there's a slim chance it could be made to happen. EDIT: it's not quite that simple; see the discussion below.

hoopism 13y ago
There's an irony in "Too Big To Fail" for a decentralized currency.
snitko 13y ago
This is beautiful and would show how the community could deal with a critical situation without any kind of government intervention or regulation. Upd. Also, in this case, I think an acquisition is a very probable option.
atgm 13y ago
> But if it would restore public confidence in the protocol and economy It actually scares me. If any private body or group could somehow amass 51% of the miners in some way, they would then control the currency.
- snitko 13y ago
  It's not one private body. I think in this case one might say all MtGox customers would be asking miners to do that.

andrewljohnson 13y ago

"Sources also tell me that multiple investors who were approached restricted their own employees from buying or selling bitcoin themselves as soon as they realized the extent of the damage at Mt. Gox." I wonder how many employees felt all that "restricted," given that it would be very hard to enforce such a dictate.

waterlesscloud 13y ago
There was obvious insider trading, with large dumps of coin just before bad news broke. Someone was doing it.

iandanforth 13y ago

This is Mt. Gox getting thrown to the wolves. I think there is a constant undercurrent of fear, and rightly so, in the bitcoin community that regulation will mean the end of bitcoin. Also, for those who are speculating heavily on BTC, anything that undermines confidence is a direct threat to their holdings. So here we have a potential massive fraud (or fear-compounded incompetence) and publicity discussing fundamental security flaws with the BTC system. A double threat. It's a perfect rationaly-self-interested reaction to try to distance ones self from threats as quickly and thoroughly as possible, but I can't bring myself to think of this as anywhere near altruistic or civic minded.

ossreality 13y ago
good for self regulation. they should burn for what they've done to bitcoin, and just simply for being an egregious way of treating customers. >publicity discussing fundamental security flaws with the BTC system huh? no? by every account by everyone, this was always a bug on their part in implementing the protocol. and a bug in the implementation of their cold storage protocol if they were literally being drained of coins via any TM vuln.

ghshephard 13y ago

The interesting thing is that MtGox failing should have zero impact on the USD value of the Bitcoin, particularly if those Bitcoins were stolen and still in circulation. Indeed, if the hypothesis in http://letstalkbitcoin.com/somethings-not-right-at-gox/#.Uw7y-_RdVvB http://letstalkbitcoin.com/somethings-not-right-at-gox/#.Uw7... is true, that the Coins were actually LOST from the Cold-wallet because of a EC bug, or other error - then it's possible that losing 740K coins will drive up the value of the remaining coins.

ProblemFactory 13y ago
Price depends on the balance of both supply and demand. Even if there are less coins to go around: * Many existing bitcoin users have had their coins and conventional currency holdings wiped out - and don't have enough money left to buy them back. * Many users who lost their money would not want to re-invest after getting burned. * Many potential new casual users will be (rightly) scared away by the news. It seems to me that even if 6% of the coins are gone, demand could drop more than 6% and still lower the price.

deleted 13y ago

[deleted]

pakitan 13y ago

I'm curious if any sane investor would be interested in acquiring Gox and promising to pay, say, 20% of its debts. In that case, a large percentage of customers may simply sue and the investor will be in a real bad position. So, if the 700K BTC figure is correct, this scenario is basically impossible as you can't buy that much BTC for reasonable price, right? Much better for potential investors would be to just wait for Gox bankruptcy and pick up the pieces. I'm not familiar with bankruptcy law, just theorizing.

danielweber 13y ago
IANA banktupcy L, but this seems like what can happen in bankruptcy, with the blessing and protection of a judge. You don't assume massive risk just on our own, you get a court to approve your takeover and attempt to make debtors partially whole.

interstitial 13y ago

TL;DR: Blah Blah Blah --- never trust the consultancy firm Mandalah with private documents. Got it.

berberous 13y ago
The way I read the situation is that while Mandalah prepared the documents, MtGox deliberately called meetings where they showed participants the documents in an effort to get emergency funding/bailout, and then failed to ensure they did not keep a copy. But who knows what really happened.