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If you're familiar with the Willy Report (Google it), the simplest working theory is that someone figured out a way to award themselves USD/etc balances inside
by patio11 12y ago
If you're familiar with the Willy Report (Google it), the simplest working theory is that someone figured out a way to award themselves USD/etc balances inside of the Mt. Gox system, purchased large amounts of Bitcoins with them, then transferred them out in the ordinary course of business. This caused positive improvements in the set of metrics that Gox and the community actively monitored, and the metrics in which the discrepancy would have been obvious were apparently not actively monitored. (e.g. Comparing the sum of all USD/etc liabilities as reflected in the database with the sum of balances at Mt. Gox's single-digit number of bank accounts.)
You could call it the most total failure of accounting controls in history, if one had any reason to suspect that Mt. Gox possessed meaningful accounting controls. There was no reason to suspect this, but many people were willfully blind to that, because it appeared that Bitcoiners were making money hand-over-fist.
Edit to add: One reason Gox may not have done the math on the assets vs. liabilities is because they knew they were insolvent from some point in early to mid 2013, as a result of some combination of external events, including the since-reversed freezing of their US bank accounts. The clearest publicly available evidence of insolvency was persistent unwillingness to allow people to withdraw USD/etc and ludicrous excuses for why this was the case. (At one point, the CEO alleged that their daily wire volume had overwhelmed the second largest bank in Japan. This kind of claim is very useful because it is trivially falsifiable.)
- jacquesm 12y ago> You could call it the most total failure of accounting controls in history Enron?
- hga 12y agoNah, Enron's prominence is purely political, it was useful for various narratives. There are far worse examples, and Mt. Gox sounds like it's in the running. E.g. there's cheating on your general ledger (which at 50,000 feet might be the sort of thing Enron did), then there's not keeping a general ledger at all, which is being posited in this discussion. Even I, who's never run a company, but did watch my parents run some while I was growing up, know how essential it is to keep a general ledger. Otherwise you have no real idea what your financial state is.
- gaius 12y agonot keeping a general ledger at all To be fair, you don't need a general ledger if you are setting up a website to trade playing cards. Say an Online eXchange for Magic the Gathering. Every time an Mt Gox story comes up, the most incredulous thing to me is, why was anyone even expecting these guys to act like a bank? Why did anyone even consider trusting them with actual money?
- s_kilk 12y agoBecause bitcoiners were willing to believe anything which fit their narrative, logic and diligence be damned.
- gaius 12y agoLOL Bitcoin fanboys have shown up on this thread I see judging by our down votes...
- hawkice 12y agoYou'd probably still want a ledger there, if you're trading physical goods. That way you can correlate confirmed receipts on both ends of whatever cards were traded.
- hga 12y agoNo probably. Presumably you're doing this for a cut of the action, so that's income on one side, then there's your out of pocket costs to run the system etc. Knowing how these two compare can tell you all sorts of things, including how much you can safely take out for yourself if things are going well enough, vs. knowing you'll have to pay next month's co-lo fees out of your pocket. Now, of course, at that level something as formal as a general ledger isn't quite required, but you still need to do the same things in e.g. watching the organization's bank balance.
- hawkice 12y agoI am admittedly a bit of an accounting fanboy, and may jump to more rigorous tracking of things I control or are accountable for than is needed. For instance, upon discovering a large portion of the intelligence funding in the United States is "off-budget", I was concerned about their financial rigor (your budget should include all the things you spend money on -- it's odd to think the US Government is quite a few steps and security clearances away from being able to answer "How much do you spend on pens a year?")