Someone sold a huge amount of Bitcoins. The market acted accordingly. Expect a bounce back to the old exchange rate as soon as Mt. Gox is available again.
Of course it might be possible that the computer of the person who sold the Bitcoin was cracked. But that's not the fault of Bitcoin - if someone is not capable of taking care of the security of his local computer, it's better not to use a distributed currency where your money is basically stored inside a single file.
Exactly, someone sold a huge amount of Bitcoins. I.e., this was the first time it was hacked by someone stupid enough to call enough attention to his crime to have most of what he stole taken back from him. What do you want to bet someone smarter got in there first, and is maybe still in there? There are subtler ways to steal money than grabbing a huge amount all in one chunk and trying to cash out.
> Of course it might be possible that the computer of the person who sold the Bitcoin was cracked. But that's not the fault of Bitcoin.
Just like it's not the fault of the dollar if someone mugs you at gunpoint. Except robbing someone typically requires you to take physical risks and (threaten to) use violence. I'll be very curious to see any effective way of tracking down bitcoin thieves.
If you have to be a security expert to own more than a few dollars worth of bitcoins, the project has effectively failed already.
You don't necessarily have to be a security expert to use Bitcoins, just if you want to run the client by yourself.
If you don't have the required knowledge just pay a little bit to a "Bitcoin bank" that handles the task for you. In the real world you also don't carry your money with you all the time, but store it on a bank.
Banking eradicates many of the supposed gains of decentralized money - not all, but most. I just dig a quick Google for "benefits of Bitcoin" and it seems most people agree on the following:
- Anonymity/trackability. Gone if you are with a bank. Sure, possible to sidestep by going through the song-and-dance that is withdraw-send-deposit. We can do this IRL also, but there's a reason people do not.
- Taxability. Welp, if your BTCs are in a bank, the IRS can easily get you.
- Abusive/coercisve government action (e.g., freezing). Well, yeah, if you're with a bank that can happen too.
- Lack of fees. If banks become standard (and if BTC takes off, yes, they will become standard) then kiss goodbye to this benefit - the same way cash right now has no transaction fee, but bank transactions do.
In fact, the only major sell of Bitcoin that remains:
- Inability for government to arbitrarily expand the supply of money.
Still a win, but suddenly Bitcoins have lost a lot of charm, especially for the everyman for whom the above 4 points are much more salient than that last one.
If you have to be a security expert to own more than a few dollars worth of bitcoins, the project has effectively failed already.
Why?
It's true that key management and security are not as good as they could be in the official client, but that doesn't mean the project has failed, merely that the client needs to be improved.
Improving the wallet security is priority #1 of the dev team at the moment.
Note that no one of the developers expected it to get this big this fast. Six months ago, no one would even bother stealing bitcoins as they were not more than a toy curiousity. Now very serious amounts of money are represented.
Mt.Gox itself was hacked not just a guy. That's a bit like Wall Street being hacked, with due proportions. Also, Mt.Gox reaction to the episode is apparently pissing off a lot of users, as per comments in linked page.
I don't think this is the end of bitcoins but surely enough is quite a ouch moment.
Lesson I've learned today: given that bitcoin wants to be a better currency, they have the chance to provide a better service. A good bitcoin marketplace should enforce two way authentications, maybe with yubikey or even just GPG keys.
No, but that's also what would happen when the stock market behaves weirdly enough. It's a good thing, though, that stock markets and foreign exchanges have more trading volume; I'm starting to wonder what happens if a random blokes with a million actual USD wants to game the bitcoin like George Soros did it with the Swedish kroner.
Actually the bigger event around it was the Black Friday in 1992: The Bank of England was hoping/pretending that the pound would stay strong against the FRG Mark, whereas Soros lent a massive amount of pound to other people. When the pound finally devalued, he could fulfill the lendings (at the cheaper pound price). The Swedish currency took similar damage.
Basically, governments trying to stabilize their currency are in danger of losses whenever they meet someone with even deeper pockets. In contrast, the Japanese government could out-trade Soros in the crash in 1987 and Soros had to pocket substantial losses.
I agree. If one ever needed an example of why Mt. Gox or Bitcoin shouldn't be taken seriously. They had a withdrawal limit of $1000 per day, too. This was simply to save one more day of that.
It makes you wonder if Mt. Gox actually had the hard currency to back up everyone's account balance.
The point of an exchange is that you can trade one thing for another. E.g., US dollars for bitcoins.
Mt. Gox seems to act like both an exchange and a brokerage. Presumably people have an "account" in which they can deposit and withdraw various currencies.
"It makes you wonder if The New York Stock Exchange actually had the hard currency to back up everyone's account balance." That doesn't make any sense either.
I guess you don't have an account with any brokers participating in the NYSE or other exchanges. You can't open an account without writing them a check. Once you've given them money, you can trade NYSE stocks which may gain or lose value. But the dollars you deposit into your account you should be able to get them out again with low risk.
Each currency or security should represent a zero-sum balance sheet for the exchange as a whole. Unless Mt. Gox spent the hard cash for themselves and hoped the market for bitcoins stayed healthy.
Who do they think they are, a Wall Street investment bank?
I agree it doesn't make any sense (but for a different reason).
Yes, the NYSE is a building full of member broker dealers who will, in fact, buy shares from you when the proper conditions are met. (I.e., you need to be worth their time).
"Real banks" are highly regulated and in the US are backed up by the US government. I don't know of too many other entities that can handle other people's assets with such low reserve requirements without being considered fraudulent. If there are any, I suspect they're heavily regulated or at least exempted as a speculative private fund.
You're right about the anarchy, but I don't see the burning world. I don't see hackers and cheaters "taking over" bitcoin.
An account was compromised, and despite there being no government regulation, the exchange stepped in, protected their customer, rolled back the trades and protected the market.
That is anarchy exactly! But no burning world. And it is yet another realworld test that has been successfully met by the bitcoin idea.
I'm not sold on bitcoins viability, due to questions about the larger marketability and having not done an audit of the software. But from an economic perspective, bitcoin is a viable currency, or as close to meeting all the requirements that any non-physical currency can.
> and despite there being no government regulation, the exchange stepped in, protected their customer, rolled back the trades and protected the market
You know that's basically the same thing - central entity with overarching authority exerts its will over the market, canceling transactions it's deemed 'fraudulent' between two independent consenting entities. "Free hand of the market" ain't present here, chief - this is regulation.
Do they? It's by far the largest BTC exchange - by a factor of ~50 or so. If you want to exchange more than a couple hundred BTC, they're the only game in town right now.
Yes, but they're the only big game in town not because they held a gun to anyone's head or threatened to throw their customers in jail if they dared to start using another exchange, but because they provided the best service. They did not engage in coercion. This is the heart of the free market and of anarchy.
It is the heart of the free market but it is not the heart of anarchy. Anarchy would happily employ coercion. After all theres no one to stop you when anarchy reigns. In anarchy the big dog wins until a bigger dog comes along.
Please don't conflate the free market with anarchy.
You should read up on the foundations of anarchy before spouting your mouth off, since you are woefully ignorant on the subject. Bakunin, Kropotkin, and Bookchin are all good places to start.
Perhaps anarchy the philosophy would not employ coercion. But anyone in an anarchic society would happily employ coercion. That's what I meant when used the poorly phrased sentence "Anarchy would happily employ coercion".
Coercion does not have to be done by a governmental entity. The philosophy of government can wax as poetic as it wants but I know too many people who would happily take advantage of anarchy to employ said coercions. Practically speaking, Human nature being what it is, coercion will be rampant in an anarchic society. I'm quite familiar with the foundations of anarchy. I just occasionally use poor wording :-)
> If you stop being their customer, they will have just to live with that.
That's precisely the theory behind free governments the world over, to wit: "Governments are instituted among Men, deriving their just Powers from the Consent of the Governed". Except we all know in practice there are barriers to withdrawing consent from the government, just as there are surely barriers to leaving a market.
If I'm doing my math right, $500k is something like 2% of the bitcoin economy. Imagine what would happen to wall street if someone cashed out a few trillion dollars' worth of stock at once.
And if "your math" is "number of BitCoins extant time current market value of one BitCoin", your math is not correct. Macha is correct; crashing the market with $500K is proof that the entire MtGox exchange can't be much larger than that, no matter what multiplication says.
Of course MtGox isn't much bigger than $500k per ten minutes. Given how many bitcoins there are and how much each is worth, that kind of volume would be like every cent in the United States changing hands every couple of hours.
You have a terribly flawed idea of how exchanges work and what they are; your logic doesn't flow at all. But I can't really correct that in an HN post.
Entirely possible; I'm writing these before bed after getting home from work. I just have a feeling that if someone tried to convert 2% of the world's USD to rubles in a few seconds without an equivalent transfer in the opposite direction everything would explode. MtGox not being able to handle a transaction like this simply means that there was less than 500k flowing in the opposite direction every ten minutes. If there were, that would imply either a spectacular amount of arbitrage or enough transactions going on inside bitcoin for people to be changing 500k back and forth every ten minutes. This crash just means that neither of those are happening, which I find entirely believable.
Did you not read the outcome? The accounts are being rolled back while other exchanges are operating fine. These kinks have to be worked out and it's better late than never - even though it's relatively early.
Yes, the mayhem at the beginning is expected but I'm curious if the trial/error process could actually bring some sound stable system at the end. I'm inclined to think that this won't happen because most of the people in the bitcoin "economy" have some serious dislike for central authorities. And it's hard to design a stable monetary system without some kind of regulation and more transparency.
Wanting to avoid single points of failure doesn't seem that strange to me. It's an engineering decision, not a political one. Central authority is just a central system to hack, or become corrupt.
You wouldn't let your business become reliant on a single-supplier part, why would you let it rely on a single-supplier currency?
Regulations are only worth as much as the authority regulating them, if that. Just look at the USA. All the laws required to stop the recent mortgage meltdown were already in place and could still be used, but won't be. What value do those unused regulations have? It's better to have less fake regulations and simply not depend on a non-existent safety net.
i think it's kind of cute. people hoped for an economy no government could control, and got exactly that: anarchy and a burning world.