What is (so far) missing in the world of Bitcoin is a single actor powerful enough to play the organizing role that Morgan played during that previous crash:
"Morgan summoned the presidents of the city's banks to his office. They started to arrive at 2 p.m.; Morgan informed them that as many as 50 stock exchange houses would fail unless $25 million was raised in 10 minutes. By 2:16 p.m., 14 bank presidents had pledged $23.6 million to keep the stock exchange afloat. The money reached the market at 2:30 p.m., in time to finish the day's trading, and by the 3 o'clock market close, $19 million had been loaned out. Disaster was averted. Morgan usually eschewed the press, but as he left his offices that night he made a statement to reporters: "If people will keep their money in the banks, everything will be all right""
This news went up around 2 hours ago and market prices haven't really budged. In bitcoin, these kinds of shocks are almost always instant, and usually happen days or weeks in advance with insider knowledge trading.
Everyone with a brain knew Gox was dying a month ago. In relation to the panic you quote, this isn't a panic over the price falling - it is equivalent to one stock exchange back then stealing your money and going insolvent. Functionally, it is a private company failing, with the collateral that anyone stupid enough to have given them money is pretty much sure to lose it.
But that just means that the business failed, and it doesn't reflect much on the overall bitcoin economy at all. Hell, I was into bitcoin 2 years ago and knew right away MtGox was an incompetent lot that were bound to crash and burn. I also always kept my coins in local wallets and only had USD on an exchange long enough to wire it out or buy BTC that I could then move to my own wallets.
I applaud you on your foresight and you should pat yourself on the back extra good tonight.
But clearly others trusted MtGox. I haven't traded a bitcoin since 2011 so I don't know much about the community past what I'd absorb about anything that's on HN daily. But isn't the claim that MtGox lost like 6% of all BTC in existence? If you think this is going to sail by without impacting the larger community, I think the foresight that led you away from MtGox is failing you now.
People are now $500+ million dollars poorer than they thought they were. That has ripples. That will erode confidence. And my bet is that it will erode confidence.
Perhaps, however I suspect bit-coin is going to be forced to increase the long term cap at some point in the future as they keep being destroyed. Which might not seem like an issue but it adds a lot of instability as nobody knows how many bit-coins are still in circulation.
PS: Don't forget holding bit-coins does not get you a vote it's the miners that decide how things evolve.
Nobody knows how many dollars are still in circulation. They have good guesses, but nobody knows about the millions in cash that was lost/burned/buried in the desert. It doesn't matter. Supply and demand doesn't rely on the total number of bitcoins in existence; only the number that are available on exchanges. And with blockchain analysis, we can have a very clear picture of bitcoin circulation - much better than with traditional currencies.
With fiat money, this is not a problem, because that's only one of the available parameters to determine the relative value of a currency. Also, inflation constantly pushes fiat currency value towards zero, so your stashed 1970 dollars are now worth much less. Bitcoin, being deflationary in nature and not linked to anything, is a different ballgame.
My suspicion (I am not an expert on finance) is that (if it remains successful long enough) Bitcoin is going to end up being fractionally reserved by the exchanges—I mean openly so, with the consent of the depositors. That should generate a large increase in the apparent supply of Bitcoins. I mean, gold is already heavily fractionally reserved...
And as we saw with the banks, fools who hand over money to unregulated banks don't get their money back. Why would any bank not steal all the money, or get robbed, when it costs nothing to do so?
There's no reason to issue more bitcoin. The forces of supply and demand will keep the value stable, regardless of the exact number of bitcoins outstanding. Issuing more bitcoin would only serve to invite fears that it would be issued in shady ways, or that such issuances might become routine and inflation would take place. This would only further undermine the currency's perceived staying power.
Unfortunately humans are famously loss averse[1] which leads to downwardly sticky nominal prices[2] in practice. In the face of deflation a lot of people just stop buying and selling and hope that prices go back up, or hold out for a nominal offer as big as what they think they "should" get even if the real value is the same.
If your bitcoin economy is full of nerds who really understand the subjective value of money than that's fine. But if you were to start having lots of normal people using Bitcoin and denominating prices and contracts in Bbitcoin than deflation would be a huge problem. As long as most of the surrounding economy isn't using Bitcoin it still wouldn't have the positive feedback loops that caused the Great Depression under the gold standard, though.
Why do you think "forces of supply and demand will keep the value stable"? Bitcoin is much more susceptible to huge valuation fluctuations than fiat currency, where central bank can step in to shift demand/supply.
I meant only, because if Bitcoin effectively becomes the leading world currency 10^100 might not be enough. However it shouldn't be hard to change that limit, or to find a way around it.
That is 1.4 * 10^90 (atomic units of bitcoin) for everyone on earth. There are only around 1.2 * 10^12 actual US dollar coins and notes in the world, and only 1.2 * 10^13 dollars if you count all of M2 money supply.
Even if they were sent into the void, bitcoins are highly divisible. Just shift the decimal point over a few places and you've got convenient units once again.
In relation to the panic you quote, this isn't a panic over the price falling - it is equivalent to one stock exchange back then stealing your money and going insolvent.
The challenge here is that the Bitcoin system is built on faith. If enough faith disappears, so does the value of Bitcoin. In this manner, it is similar to a bank run.
Note that the 1907 panic and the present Bitcoin situation are fundamentally different in nature. BTC exchanges operate as, well, exchanges and stores -- more akin to a security deposit box with the ability to trade with other boxholders -- not lending institutions.
The other piece of the puzzle is that stock exchanges would allow trading on margin, often as much as 10:1 margin or more (an error repeated in the lead-up to the 1929 crash). Because of transactions, local banks were further implicated.
The trust lost wasn't in the exchanges' and banks' fiduciary responsibility but in their creditworthiness, and what Morgan accomplished was to say "don't trust their credit, trust ours". Not a foolproof gamble, but one which worked. The Federal Reserve takes this one step further by being a lender of last resort: if you're a bank and you need a loan, you can always go to the Federal Reserve's lending window to get more cash (though the FDIC may end up owning you). Stockholders can be wiped out (bank stockholders), but depositors are insured (subject to limitations).
The problem with Mt. Gox is, apparently, one of fiduciary trust or negligence -- it's not clear who's made off with the coin, but it's not creditworthiness that's in question.
If 50%+1 of the Bitcoin miners agree, couldn't they just mint 700000 extra bitcoin to make the depositors at MtGox whole? The confidence it inspires would probably be worth more than the impact of the inflation, and with Bitcoin prices dropping miners need to support the price to stay above break-even.
Technically speaking, yes. That would kill Bitcoin, though, because the community depends on it having an (eventually) fixed supply rather than it being having "an eventually fixed supply, except when we have a really good reason to do quantitative easing."
I know this is somewhat tangential to your point, but a bailout isn't remotely the same as quantitative easing.
Quantitative easing is buying financial assets at marginally above-market price with printed money in order to boost inflation and lower real wages. It's a useful policy (assuming you believe in Keynesian stimulus) because the distributional effect is close to nil, unlike fiscal stimulus or mailing money to specified individuals.
The distributional effect is small because the bank buys a bond worth $9,000 for $9,003 or so. This puts $9,003 in circulation but the person receiving $9,003 in cash receives only $3 of profit. So you've increased the money supply by $9003 but you've given the beneficiaries of QE only $3.
QE is a far more efficient way to increase inflation than fiscal stimulus since fiscal stimulus nearly always results in malinvestment/malconsumption (e.g., building bridges to nowhere, etc) and usually has highly non-stimulative side effects (raising nominal wages of government workers).
A bailout is highly targeted. Inflation is a side effect. The people receiving the money trade nothing of value in return for the money. It's totally not the same policy.
> It's a useful policy (assuming you believe in Keynesian stimulus) because the distributional effect is close to nil, unlike fiscal stimulus or mailing money to specified individuals.
Except that we don't really see QE causing the hyperinflation many feared or the lowering of real wages. If it is intended to do these things, it is a miserable failure.
The fact is that when you dump a whole lot of money into what Steve Keen called "the slowest part of the system" it isn't going to actually have much effect. Velocity in money matters if you want the money to actually circulate.
That's simply incorrect. According to Krugman (back in 4/2013, back when data was not yet released) 2013 will be a test of Market Monetarism (QE to target NGDP), since the QE3 will be offset by fiscal austerity:
...we are in effect getting a test of the market monetarist view right now, with the Fed having adopted more expansionary policies even as fiscal policy tightens.
patio11: that is not how the Bitcoin protocol works.
Even if 99% of the Bitcoin miners agree, they cannot create extra bitcoin; it is simply impossible because that is not something that miners control. Every full node (client) on the Bitcoin network verifies the validity of each block. A block that created more bitcoins than allowed by the protocol would be rejected by the clients (and the miners who follow the original rules). The "extra" bitcoins would be on a hard fork and thus invalid to anyone on the main (original) blockchain.
You're right, the defecting miners would have to convince people to download a new client, or convince the sites which those people access Bitcoin through to use the new client. Sorry, should have mentioned that, but I thought the thrust of the concern was "Could we just rewrite the rules of Bitcoin to make this retroactively not happen?" And the answer to that is "Yes, but the community would explode."
If the most common bitcoin clients are updated to allow this "bonus", and at least 51% of the network installs this update, their blockchain will become the authoritative one. Older or other clients will have to accept it if they still want to participate in the chain.
The validity of transactions is checked by the individual bitcoin clients. After all, something, somewhere must check if they are valid according to the protocol rules! And this client code can be changed to anything at all, as long as most miners agree to update to it.
Transactions that make up bitcoin out of nothing are already used as rewards for mining a block.
Individual clients don't have to use the same client that miners use.
If 51% of miners start using an inflationary version of Bitcoin "Bitcoin-QE", but the clients (exchanges, merchants, wallet providers, etc) don't approve, they won't update the client and use the partition of the network that is secured by the remaining 49% of miners. People wouldn't want to accept the Bitcoin-QE mined on the inflationary branch and the investment wouldn't pay off.
Of course Bitcoin-QE miners could start an attack on Bitcoin in other ways, but that also woudn't be necessarily economical.
It's very hard to tell what 51% will do, but it is clear that you don't have full control of the currency.
This is actually impossible. Bitcoin has two security points, the miners (proof of work) and the nodes (clients such as the reference client).
Gaining 51% can allow you to double spend your own transactions, but you can't spend other peoples money or make more coin, because the clients will reject those transactions even if 100% of the miners put it through. The nodes verify what the miners do. Even 100% control does not give you God power. The best you can really do is deny all transactions and thus destroy Bitcoin.
Well, what will happen is that there's now going to be great pressure for all exchanges to prove they are not in a fractional reserve state (one of the advantages of bitcoin is that it makes such a proof possible.)
It'll be interesting to see how many of them can provide such a proof... I'm guessing most of them can (but only time will tell)
If they successfully provide this proof, there's no reason to expect a bank run.
What makes you think that online wallets (including exchanges) keep 100% of their reserves? Without inside information, I find it extremely hard to believe that they would just eschew that advantage.
"Acting as a custodian should require a high-bar, including appropriate security safeguards that are independently audited and tested on a regular basis, adequate balance sheets and reserves as commercial entities, transparent and accountable customer disclosures, and clear policies to not use customer assets for proprietary trading or for margin loans in leveraged trading. It does not appear to any of us that MtGox followed any these essential requirements as a financial services provider."
Did I miss the part where Coinbase, Kraken, Bitstamp, BTC China, Blockchain.info, and Circle met those essential requirements?
I guess those things are just essential now, not in the past.
It sounds like self-regulation. If exchanges would just prove solvency periodically (which is possible with the blockchain), the whole world could see it. Wouldn't it be nice if you could see the balance sheet of your bank, in a way that accountants couldn't lie about it?
There are historical instances of self-regulation working. The movie and video game industries control their own content ratings and before the invention of dynamite, nitroglycerin was commonly used as an explosive in construction. Shipping NG is very dangerous because of its instability and many accidents occurred. They industry eventually developed extensive standards regarding shipping that vastly improved the safety of shipping NG.
> movie and video game industries control their own content ratings
Not sure you're helping yourself here. The established movie industry uses its content rating system as a bludgeon against independent filmmakers. The video game industry's content controls are largely a joke, assigned arbitrarily by people who never actually play the game.
Short version: Most cinemas and other outlets in the US won't carry your movie if it's unrated, so in effect those who control the ratings control which movies can get distributed. Also most cinemas in the US won't show NC17 rated movies so the ratings people can also use that as a way to prevent your movie being shown to a large cinema audience if they want to.
In the one case the life of the engineers and not the execs bonuses were on the line. In the other created one of the more potent systems of censorship (it is largely invisible and encourages self censoring the content) and preventing new/small guys from entering.
The difference between PG-13 and R in many cases is completely arbitrary.
The ratings lump many kinds of movies together and says absolutely nothing about their content.
No movie can be NC-17 or unrated because that is a kiss of death. No theaters will play it, no big box stores will sell it. I think what R can get away with has broadened considerably because of that.
If you have appropriate regulations to support self-regulation it can work very well.
For example, here in Indonesia, if I buy eggs at the supermarket I don't really have to worry about them carrying salmonella. Why? Because truth in labelling laws and demand for salmonella-free eggs means that the farms that sell to the big food distributors all get tested so they can label their eggs as salmonella-free.
One really wonders why this hasn't taken off in the US. I can think however of a few reasons (it's not just too much or too little regulation but the wrong regulations).
s/libertarianism/bitcoin/ and I agree with you as a Distributist.
As a Distributist, my feeling is that successful regulation supports decentralization. The problem with the regulation vs deregulation dichotomy is that regulation is usually pushed as a centralizing power, while deregulation is usually also pushed as a centralizing power.
Solvency, the ability to pay what you owe people when it falls due, is easy to prove at any point in time. The state of insolvency occurs the first time you have an obligation to pay, which you cannot satisfy.
The thing is, if you're a de facto bank (by virtue of holding customer demand deposits) then your future expectations of solvency could turn out to be wrong because everyone wants their money at the same time (i.e. there's a bank run).
MtGox isn't supposed to be a fractional-reserve Bitcoin bank, so, modulo server capacity problems and modest transaction delays due to offline Bitcoin storage, why, in principle, should everyone wanting their Bitcoins at the same time pose a problem?
My point about solvency was a general one (applying to all people and companies) but I overlooked an important point: the Bitcoins entrusted by customers to MtGox do not become MtGox assets. The Bitcoins are always owned by the customer (not owed to the customer). They are less like bank deposits than they are the contents of safety deposit boxes at a bank branch.
Why must that require regulation? They're calling for a meme that informed actors probably wouldn't do business with exchanges that don't provide those "requirements".
That's regulations with a multilateral peer enforcement mechanism. Conveniently enough it serves as a barrier to entry to new competitors. So if you were wanting to start a bitcoin exchange, you may have missed the boat.
I think the bitcoin community at large is interested in standardization for the greater good not regulation enforced through tyrannical political institutions.
Well, who decides what the "greater good" is and how to achieve it? If the BitCoin exchanges get together and decide on a set of standard procedures and policies that are in any way enforced or monitored, then voila: "Governments are instituted among [BitCoin Exchanges], deriving their just powers from the consent of the governed", aka "tryannical political institutions" and regulation.
I think the Bitcoin community at large has a certain set of values that it regards as sacred (security, anonymity, freedom from state regulation)
Perhaps I'm wrong though.
Regulation is often associated with political states and are often enforced through brute force. I think if we could, as a community, regulate without any state intervention that would be ideal.
Without doing a lot of due diligence, it might be hard to figure out which exchanges are well run. And its not like lying to auditors etc hasn't been done before.
Maybe the exchanges can join together and offer something like FDIC Insurance?
• Receipt of insurance is contingent on meeting requirements for insurance, so it's not blind assistance in the face of incompetence. The 3 years of account thefts reported to have occurred at Mt. Gox would, hopefully, have been detected. Even collaborating on more secure storage and trading systems. There's a precedent for this: it's how the large credit card companies (BankAmericard, I mean, Visa and Interbank/Master Charge, I mean, MasterCard), were formed.
• Rates would correspond to perceived risk, providing a market feedback mechanism.
• Some risks are incidental and random. Weaknesses in protocols, problems in network or technology stacks (independent of individual exchange software).
• The end result is a greater level of trust in the entire marketplace as a whole, so: more transactions, more members, more profits.
I know in this case it is true (I read it while it still had "insolvency" in the title) but for future reference, the only part that matters is the id in the URL, the second part can be made up like so http://blog.coinbase.com/post/77766809700/i-just-made-this-u...
Perhaps I'm just a conspiracy theorist, but, I gotta believe Coinbase knows some stuff they can't talk about by being a member of the Bitcoin Foundation (that Mt Gox just stepped down from). I imagine what happened is Coinbase slipped and revealed information they shouldn't have, and then retracted it.... I was going to pay off my student loans with those coins, damn it!
This sort of thing is why finance is a regulated industry.
Although why anyone would have had money in Mt. Gox after they had their stateside accounts frozen is beyond me. It's not like there weren't any warning signs http://www.techmeme.com/130620/p53#a130620p53
You can't have progress without the possibility of failure. I'm glad my local bank is regulated and insured by the government, but I'm also glad that the world of Bitcoin exists for people who want to experiment with digital currencies.
This is Coinbase, Kraken et al throwing MtGox under the bus to stop the taint from spreading. Note there is no mention of any help for MtGox or its customers. Just reassurance that they aren't MtGox.
This is the wagons being circled to stop the non MtGox price from tanking further.
They shouldn't, but there seems to be the expectation that the community will step in and help MtGox out of this mess for the sake of Bitcoin.
It isn't going to happen as MtGox has been a boil that's needed to be lanced for a while now. This is the first step given that MtGox has decided to stay silent.
The best thing for the sake of bitcoin is for Gox to be gone. Maybe we could finally have a year where the incompetence of their engineering and management staff doesn't skew the price all about like a merry-go-round.
It is pretty entertaining to watch the bitcoin crowd slowly reinvent all the controls that exist in the existing monetary systems as they slowly learn what they are for. One lesson down, how many to go? :)
What controls? I see some empty reassurances, but nobody that I see is proposing controls. I doubt controls for existing monetary systems would work for bitcoins anyway as it requires a central organization that has power, like printing money, and enough vested interest to through good money after bad money to save the currency. Bitcoins have neither of these.
>Acting as a custodian should require a high-bar, including appropriate security safeguards that are independently audited and tested on a regular basis, adequate balance sheets and reserves as commercial entities, transparent and accountable customer disclosures, and clear policies to not use customer assets for proprietary trading or for margin loans in leveraged trading.
I believe that anywhichway hasn’t found the names of the “independent[…] audit[ors]” in that document. He’s being harsh, but his point is technically true: the text reads ‘should’ first. Hopefully, a matter of days.
The catastrophe of 2008 (to consumers) was that the market decided to make credit scarce. It makes sense that the government can't force banks to take unjustified risks once they've wised up to the recklessness of their lending.
This is very different from money just disappearing out of checking accounts, which is what happened with MtGox. Even if that did happen, the FDIC would make the depositors whole.
And thanks to the "controlls" in place, everything changed and we're now in a situation where something like what happened in 2008 would be inimaginable !
/s
This tragic violation of the trust of users of Mt.Gox was the result of one company’s actions and does not reflect the resilience or value of bitcoin and the digital currency industry.
The best way to build trust in the 'resilience of Bitcoin' would be to leverage the blockchain technology to help document who lost what and monitor if/when any of those coins appear in the future. This is going to cost money as well as development time.
It's one thing wax pious about how and why this happened and to say it must never happen again etc. But the best thing the exchanges could do for their long-term credibility would be to each put up a chunk of cash and engage an expensive law firm to set up a trust and audit the whole affair as completely as possible. That's going to require a collective commitment of of a million dollars, or possibly a few million.
It's either that or get put under the microscope of existing financial regulators on their schedule, which (IMHO) will relegate BTC to the status of a disaffection currency that is only convertible in fringe markets.
FYI, after some time, Coinbase followed up with my support ticket and said tough luck, bitcoins lost, better luck next time. No mention was made of any effort to track-down the hacker or fraudulent transaction. They probably didn't even block the hacker's IP address.
And yet, Coinbase declares, "We strongly believe in transparent, thoughtful, and comprehensive consumer protection measures. We pledge to lead the way."
Mt. Gox might have held 6% of the total BTC supply.
According to a quick search, the total M2 money supply of USD is $11,011.5 Billion and the largest US bank is Chase with $2.3 Trillion in assets (4%).
So this is as newsworthy to those interested in Bitcoin as the failure of a bank 50% larger than the largest US bank would be to those interested in USD.
Um, no. The vast majority of people even among wealthy/high-tech countries have absolutely nothing to do with MtGox, and people in the rest of the world are even more distant from it. It might loom large on the horizon for you and for a significant percentage of HN users, but let's not completely lose perspective here.
If the other post is to believed, they have around 740,000 BTC. There are roughly 12,400,000 coins total at the moment. That pegs Mt. Gox's share at 6%.
I'm sure a lot more than 6% of all total bitcoins are lost to dead wallets and such already, though. Only drives up the scarcity of the rest of em.
I highly doubt Gox's coins are "gone" though. Someone has those wallets and almost certainly is going to make a pretty penny fucking over the customer base, but caveat emptor.
Wow, reading the comments about ways to solve this above and I'm speechless... let's follow demands for regulation/self-regulation/FDIC-style insurance to its logical conclusion - it seems to me that everything will eventually come full circle and every financial institution and mechanism that people do not like today which moves them towards Bitcoin will ultimately be recreated by this new wave.
Bitcoin is not a revolution, it is not a movement, it's an iteration, and a significant one.
The same thing for the internet, today vs 1996, all the same huge media companies as before dominate the web with some new ones mixed in that jumped in early.
If Wikipedia can be believed [0], JJ Allaire [1] and Jeremy Allaire are brothers [2].
[0] I mean no slight against Wikipedia, I only mention this since the statement "He now runs a bitcoin start up in Boston" is supported by no citation (as of 2014-02-24).
Although we shed a tear for not being included in this Industry Leading announcement, I think we can all make a group announcement on top of this joint announcement that announces that Mt.Gox is pretty crappy.
Since a Hacker News participant first told me about Bitcoin Ticker[1] (back when a regulatory action in China caused a sharp drop in Bitcoin prices in U.S. dollars), the Bitcoin price has dropped still more. That's not the kind of volatility I look for in an investment.
Bitcoin isn't an investment, it is an entirely different way of doing money. If you want to play it safe play by old money rules, if you want to be on the forefront of something many of us think is revolutionary "long term return projections" be damned.
Then again, I just spent most of my btc on tigerdirect 3 weeks ago, so I don't even have much left to call myself an investor with.
The new Russian President found a note in the desk of the old Russian President, "To my successor: When you find yourself in a hopeless situation which you cannot escape, open the first letter, and it will save you. Later, when you again find yourself in a hopeless situation from which you cannot escape, open the second letter."
A few months later, there was a massive problem. The new Russian President opened the first letter, which said, "Blame it all on me." He did. It worked great.
A little bit later, there was another massive problem. The new Russian President opened the second letter, which said, "Sit down, and write two letters."
I feel like this is the Bitcoin community collectively blaming the old Russian President. (Never mind the inherent flaws in the system.)
Interesting to see these companies assume that the report is real. I wonder if they had contact with the owners of MtGox or if they simply wanted to get a jump on what is sure to be a major downswing in BTC prices.
Seems like a safe choice, if its real they already have their statement out there, if it's false, they still have a positive statement of support for their customers out there. I don't see any downside to them coming out with this statement at this time, do you?
People have been accusing MtGox of being insolvent for years and the malleability stuff has been going on for weeks. Plenty of time to whip up some damage control.
That is an interesting point. How long would it actually take to coordinate between those exchanges though? Its been a big day in BTC news and I'm sure everyone with some skin in the game is watching the news like a hawk.
Probably not very long. But I'd wager they've known since at least this morning. Given last night's resignation of Mt. Gox from the Foundation, I'd say since last night.
Wow! I can see a misguided politician already saying something like "Maybe all bitcoin exchanges/wallets/etc need money transmitter licenses or FDIC insurance"
I think it would be cool to hear what the creator of Bitcoin thinks about all this. Is it annoying? Or is it the beauty of a new technology that's still cutting its teeth.
I know it's not a bit coin problem, but I'd like to hear his (or her) thoughts on how people are implementing the technology, how these sorts of problems are being handled and what he sees as the major lessons learned (other than don't trust some non-insured entity with your cash).
So it seems, in essence, that the fundamental issue is that MtGox became "Too big to fail," and this is what the repercussions on a currency market of the failure of a large and trusted institution look like.
It's an interesting object lesson for armchair economists, and I'm sure some hay will be made drawing comparisons to the US housing market crash and the value of the dollar.
I think there should be some discussion about setting up a SIPC equivalent for Bitcoin exchanges. Each exchange/operator contributes dues that provide a fund for compensating losses in the event of a member's insolvency. That would also provide a strong incentive to for members cry fowl about bad practices, self-audit, etc.
Is it possible to fine the bit coins that were stolen and then effectively devalue them? One thing the miners should be able to do is refuse to verify transactions with the stolen BTC.
isn't the bitcoin scene beginning to resemble a modern government in recession? carefully crafted statements, avoiding to say much, but very reassuring... markets be praised!
the leaked "Crisis Strategy Draft" slideshow seems like it was actually authored by these companies, not MtGox.
"In order to re-establish the trust squandered by the failings of Mt. Gox, responsible bitcoin exchanges are working together and are committed to the future of bitcoin and the security of all customer funds."
As someone with funds stuck in gox, I optimistically hope that "all customer funds" includes gox customers, in the form of some sort of industry-led bailout.
Nothing personal (I don't know you at all)but I find it ironic that you want bitcoin users on other exchanges to pick up the tab for your poor investment decision. Cavest investor, and all that. The irony of a bitcoin bailout is pretty damn thick.
Before the news of gox's massive 740k BTC loss, I had considered the possibility that a competing exchange would buy out MtGox, cover the small hole in customer balances (10-50k BTC) and gain a larger customer base while also boosting the confidence of the bitcoin community.
A "bailout" could have been mutually beneficial. 740k BTC is way too much.
Yeah, I should have added that by bailout I meant financed by other industry participants rather than via some notional hit on everyone's BTC holdings - but ultimately the cost would have to be passed back to the users in the form of increased transaction costs.
Not necessarily - there could be a variety of reasons that other companies would pitch in to cover holders of BTC in Mt Gox - not the least of which is faith in the bitcoin economy as a whole. There's nothing about an unregulated currency that means "screw you".
For people with money on MtGox this is an unfortunate situation. There is no way other exchanges would take money from customers and give it back into MtGox users. That would be absolutely unethical. The other option is for exchanges to collectively absorb the financial cost of Gox stupidity. At $350m, I'd say no chance of that happening.
The Gox price already tanked and a huge chunk of their funds already moved out. It was the mistake of anyone who invested in Gox, and more importantly kept their money in Gox, to do so with a company that time and time again proved its incompetence.
They'd still have their money if they had just avoided BTC altogether. You, as an end user, are probably never going to be in a position to really make an informed judgement about any particular exchange, the validity of the protocol, or much else, really. The latter things you can feel reasonably sure of because they've been vetted by a lot of people, but there's always the possibility that someone has missed something.
The difference is that this would be industry-led and new bitcoin can't simply be printed.
There's actually some precedent for this in the March 2013 blockchain fork, when miners on the abandoned fork were reimbursed for lost block rewards from Bitcoin Faucet funds.
Also Save Dogemas was a community effort just a few months ago. It's goal was to reimburse Dogecoin users who lost their funds on a hacked/scammed web wallet (although Save Dogemas may have itself been a scam-- I don't know and didn't follow up on it).
But if it's 700k+ Bitcoins, no way it's happening.
For all they did wrong, known for a very long time, they were the lead chargers in bitcoin and all these exchanges got "real investors" and after Mtgox was successful. If Mtgox were trading magic cards, the story would have been probably different for most exchanges. They deserve to shut down, and stop business. They dont deserve to get ridiculed because they didnt measure up to the expectancy created around an instrument they dealt with when it was worth nothing.
Note that the "industry leaders" who "stand by this statement" have published slightly different variations of it.
See, for example, Circle's statement[1], which styles itself as a joint statement regarding "the Insolvency of Mt.Gox", and describes Mt Gox's actions as "abhorrent". At the end of Circle's statement, after listing some of the high standards to which Bitcoin custodians should be held, the author(s) make this observation: "It does not appear to any of us that MtGox followed any these essential requirements as a financial services provider."
The statements of Kraken[2], BTC China[3] and Blockchain.info[4] also describe Mt Gox's actions as "abhorrent" and make the same observation about Mt Gox in relation to its compliance with appropriate standards.
Coinbase's statement[5], on the other hand, does not use "abhorrent" and does not express any view on whether Mt Gox complied with the "essential requirements" of a Bitcoin custodian. But the Coinbase statement does include this sentence: "Mtgox has confirmed its issues in private discussions with other members of the bitcoin community". That sentence is conspicuously absent from the other statements.
Finally, the Bitstamp.net[6] statement is completely different. It says that the "known losses" of fiat currency and Bitcoin "are limited to those balances that were in MtGox's care", and that Mt Gox "can best explain how this happened".
The names of the industry leaders appear at the bottom of each statement. Have they signed off on all of them?
Did some leaders edit the "joint" statement to avoid potentially defaming Mt Gox?
http://en.wikipedia.org/wiki/Panic_of_1907
What is (so far) missing in the world of Bitcoin is a single actor powerful enough to play the organizing role that Morgan played during that previous crash:
"Morgan summoned the presidents of the city's banks to his office. They started to arrive at 2 p.m.; Morgan informed them that as many as 50 stock exchange houses would fail unless $25 million was raised in 10 minutes. By 2:16 p.m., 14 bank presidents had pledged $23.6 million to keep the stock exchange afloat. The money reached the market at 2:30 p.m., in time to finish the day's trading, and by the 3 o'clock market close, $19 million had been loaned out. Disaster was averted. Morgan usually eschewed the press, but as he left his offices that night he made a statement to reporters: "If people will keep their money in the banks, everything will be all right""