This is a really sad moment but let's hope it teaches everybody lessons. One very nice thing about cryptocurrencies is that they can be kept safe in cold storage without too much trouble. Some people kept all their coins there. It's a shame, but too bad.
Otherwise, I really hope Gox dies, in a darwinian business sense. Forest fires destroy big trees but makes way for new shoots.
Hopefully one of the lessons people learn is, "If it looks too good to be true, it is." I had to learn this lesson through a very painful and costly process, and while I would not wish such learning on anyone, I feel it is a very important lesson to have learned.
I stupidly had my life's savings in bitcoin, and when the
price started to fall, I converted to dollars and watched
the price plummet. I lost $357,000.
As I said, this is a sad moment for him. My point still stands: it was a very naïve and borderline criminally stupid thing to do. I feel bad for the guy because he didn't make Mt. Gox crash, but then he could win the equivalent of a Darwin Award in finance.
Harsh words, but you can't reason yourself out of such a bad decision as that he made. He should have used cold storage, period.
For some trees the fire causes the big trees to open their cones so that new trees may grow after the fire has run its course. Sometimes nature has interesting emergency backup systems.
Watching the bitcoin ticker (http://bitcointicker.co/#) you can see the tug-of-war bgoing on between people who are trying to pull the price lower and those who are trying to maintain it. Over the last few hours it's been a complete trainwreck, millions of dollars disappearing every few minutes and so on.
OK, you could watch the currency markets do this for real money all day but most of the time they trade on fundamentals. Watching a currency crisis unfold is a lot more interesting.
Unrelated: I see redditors are handing out 1:1 sympathy tips in DogeCoin.
On one hand I feel really bad for a lot of these people, but there were so many flashing lights and warning signs around MtGox that these people had to see putting money into this company was a bad idea right?
The exchange was a cobbled-together technical-mess that was originally supposed to be used for trading cards. They made a quick pivot and tried to wing it as a financial institution.
Hopefully the BTC and finance community learn from this disaster. There is going to be a huge market for a highly-regulated exchange run by banks and investment houses in the near future.
Yeah, the only possible excuse is if you were new to Bitcoin and went with Gox because it is what was mentioned in the media most often. When I first got into it a year ago I used Gox for a couple weeks before I realized it was totally FUBAR and got out.
It's interesting to watch ordinary people attempt to dabble in currency. How many criminal organizations, governments, and financial institutions (redundant?) the world over have people who wake up everyday just to manipulate the value of currency? For example, a common criticism of China is that they purposely manipulate their currency to devalue the US dollar. In which ways could such organizations impact a new currency like bitcoin? Simple theft doesn't work very well unless immediately converted to cash, just like tangible goods being fenced, often below true value. Was it really just theft?
I'm just an armchair economist, but I have read real economist argue that a strong US dollar limits the US's ability to repatriate it's manufacturing base. Also, I don't think China so much increases the dollar as it limits the growth of the Yuan in measure with technological and capital improvements that allow it to keep its export market strong and keep manufacturing business in China.
This is a bit bigger than Silk Road in terms of the amount of money people will probably lose but it wouldn't surprise me if something similar to the rally that followed the Silk Road take down happens. It's going to put Bitcoin in the news, this is the best entry price in the past 4 months, and Mt.Gox going under means the unethical players continue to shake out which can only be good.
> Mt.Gox going under means the unethical players continue to shake out which can only be good.
I'm not completely clear on the details (likely no one is), but it seems to me that the unethical players stole a lot of money and got away scot free. Lots of innocent people lost money, and yes mtgox, an incompetent player, will get shaken out. That doesn't exactly seem like a stellar outcome.
When I say unethical players I mean Mt.Gox who's master plan was apparently to hide their insolvency while at the same time creating enough uncertainty to tank the price so they could arbitrage their money problems away.
Well, I meant the people actually stealing money, who don't seem to get mentioned much in this whole discussion. What Empty Gox has done is not really good or right or anything, but deliberately stealing is worse in my book.
How traceable are bitcoins. Suppose Gox released their logs, would it be possible to track when someone tried to offload the stolen bitcoins on one of the major exchanges?
given the alleged value of the stolen coins are in the range of 0.5B USD it's not unreasonable to suspect that some government capacity would investigate this.
If the stolen coins can indeed be detected - how would they go about extracting the value? Seems like a large scale, risky money laundry effort would be needed.
hypothetical question for someone who is knowledgeable about bitcoin: since bitcoin is an experiment, what happens if it completely fails? what does a total failure scenario even look like, in terms of symptoms?
where does all the 'real' money go?
i don't understand how 6% of bitcoin can disappear when one of the supposed selling points is that you can verify all the transactions.
You don't need to be knowledgeable about bitcoin specifically to know what happens, at the last financial crisis we got the same lesson.
Value is perceived, and value can evaporate.
If bitcoin completely fails, the value evaporates.
It's a bit like buying a house in Detroit a decade ago for a hefty price, and trying to sell it today. Your money wasn't eaten by the house, no-one ran away with it, but it's now worth significantly less than it was and effectively the value just disappeared.
(PS: And I hope you bought the house with cash you could afford to lose rather than debt you now owe someone.)
No. Its a closed system. For every dollar that someone spent on a bitcoin, that dollar was received by someone else.
Now, you can certainly say that the money was spent on things like electricity, or GPU hardware, that has little/no value now. But thats irrelevant - the money most certainly spent, rather than "evaporate" into thin air.
> Does the FBI even consider bitcoin as something that actually has any value that requires investigating an accusation of theft?
Market cap isn't money, its an estimate of value based on a premise that is not merely flawed but outright insane -- that every unit of an asset that exists can be liquidated at the current market price of a single unit (that is, that market clearing price is not effected by supply.)
Its used because its easily calculated, and people are prone to want to believe that values that are easy to calculate are also meaningful.
Just because I can buy a bitcoin from somebody for $1000 a few months ago doesn't mean that same person is willing to buy it back from me for $1000 dollars today. The value in that bitcoin has evaporated, disappeared, gone up in smoke. Bitcoins are only worth how much people are willing to pay for them; what was spent on them in the past does not convey to them any value today.
The value hasn't evaporated - if you bought a bitcoin for $1000 a few months ago and now you can sell it for $100, then value of ~$900 (assuming that 'real worth' of USD didn't change much) was transferrend from you to the guy who sold you that bitcoin back then.
You buy at $100 and sell at $1000. Where did the value come from that compelled the new guy to buy it from you at that inflated price? In my thinking, by your example, the new guy wouldn't pay an extra $900 because the value didn't already exist in the bitcoin you are selling.
No, initially you were in possession of the value, as you could have sold the bitcoin to somebody else for that $1000 dollars. The fall of value in a bitcoin did not somehow go back in time, find the person you bought it from, and transfer value to them.
Think of it this way, I buy a nice car for $100k. The person selling it gets $100k in cash, and I get $100k worth of car. A year later, I crash the car and it is now worth $1k in scrap metal. Where did my $99k worth of value in the car go? Did the dealer somehow acquire that value? No, I simply destroyed it. I destroyed the value of the car, it wasn't taken from me. The value of the cash I gave the dealer? That is more or less still the same, but that is his business, not mine.
Value is not zero sum. Creating and destroying value is trivial.
Hardware makers who accepted dollars for graphics cards and ASICS would still have dollars. Electricity companies would still have dollars. VCs who invested $100 million of OPM in Bitcoin companies would still have dollars. Employees of those companies would, one hopes, have been paid in dollars.
And then the biggie: people who sold before the pump-and-dump hit "dump" would still have dollars.
Who loses? People holding hardware which 90%+ depreciates, GPs of funds investing in bitcoin companies, and a whole lot of people who bought into the pump-and-dump at or after "dump."
all that i know, but what about the value of the bitcoins kept at the exchanges and on online wallets? i presume that since their deposits aren't denominated in usd or any other currency other than btc, there's no actual loss of dollars, right? i.e., the only thing lost is the actual bitcoin, post-facto of the conversion from a 'real' currency.
What happens if it fails then you have a bunch of worthless coins. It's unlikely to 'fail'. Again, there has been a chorus of bitcointalk, reddit, *chan and IRC users warning people to stay away from being Goxed since 2011 so this exchange imploding due to incompetence is not a surprise at all.
The bitcoins did not disappear. They are on the blockchain just somebody used a bug in Gox's custom php wallet to pillage all the coins for themselves. The official client bitcoind/bitcoin-qt is not affected, and none of the other major sites like blockchain.info or localbitcoins who keep large escrows were affected, just Gox and a drug dealing site who also rolled their own wallet and lost everybody's money.
If you want to work with the raw bitcoin protocol you should pay a Bitcoin developer to help you, then these problems would be avoided. Karpales was making 6 million per month at one point, yet did everything himself (badly). You don't even need to pay them, log into bitcointalk.org and post in the dev base your custom implementation and ask them is this fail y/n?
First off: money isn't "real". It is itself a representation of real property (land, minerals, houses, plant and equipment, books), subject to its own supply and demand. Part of that is based on faith in the currency itself. What provides the basis for that faith is itself interesting, and I'm increasingly drawn to the suggestion that it's payments which must be made in specific currencies, such as tax obligations and petroleum purchases, which play a huge role in supporting the US dollar.
Secondly: the "real money" went at the time the BTC were bought (if they were bought and not mined). If they were mined, then the "real money" went to pay mining expenses: plant and resources, which is to say, processors and electricity.
What would have vanished should BTC lose its acceptance as a currency and value store is the market in which bitcoin are traded and valued, and any significant price within that market. More specifically, if the offered price for BTC falls below the present mining costs, it's likely that few will be created, though there might exist some sort of zombie market for what bitcoin already exist, likely at a small fraction of recent prices. This is what has happened with other currency and coin whose value has disappeared. At best you have the underlying worth in specie (or CPU cycles for BTC).
The question about where the coin went and whether or not they're of any use to the present holder is a good one, and my understanding of bitcoin and transaction logs isn't sufficient to answer it. But if the original coin holder could track the coins they'd at least be able to see who's transacting them. I'm not sure that this would be sufficient to have them recoverable.
Seems another useful feature might be to be able to repudiate a coin: if someone steals it, publish a revocation key. Though of course, this would have to not be exploitable in legitimate, authorized, transactions, and you'd then have to be able to distinguish authorized from unauthorized transactions.
"what does a total failure scenario even look like, in terms of symptoms?"
The value of Bitcoins is determined by what other people are willing to pay for them, which is determined by their confidence people will exchange them for tangible goods or services, or other forms of money, in the future.
Total failure means people lose confidence in the system, due to technical flaws, regulation, competition, etc.
The value would approach $0/bitcoin, though I don't think it would reach zero for a long long time. I'd happily pay $10 for a million bitcoins just for the hell of it.
I don't know where you get the notion that Bitcoin is an "experiment". It's not. This is less knowledge of Bitcoin than it is knowledge of economic theory and what the words "money" and "currency" mean.
> what happens if it completely fails? what does a total failure scenario even look like, in terms of symptoms?
Failure is just people stop believing in it and the price falling to zero. Given the buzz and investment capital, I think it's unlikely the price actually goes to zero as there will be buyers stepping in when it falls.
The coin disappears because it was stolen, or possibly deleted (less likely). It's not that different from someone taking cash out of your wallet.
Times like these I'm glad I didn't have a dime in gox--but I was never trustful of them, they didn't to seem to be as legit to me as Coinbase or Bitpay -- I'm not 100% sold on some of the other exchanges either - coins-e has left me with a bad taste in my mouth when they held onto my dogecoins for 2 weeks during a transfer request...
Luckily I have no money in BTC at all - other than 2k for mining equipment(scrypt) - and the coins earned from my small operation is only about 1 BTC so far -- which I'm planning on holding onto till it rallies, WHICH it will (too much investment money in too many companies) for it not to.
Lots of companies have spent a lot of money to integrate it, and there will be a vacuum for a few weeks, maybe even months, but trust will come back into the market and it'll grow...
One thing I'd like to see is some sort of P2P exchange service where exchanges don't happen on any network --ie all funds remain in wallet until time of exchange, -- of course this wouldn't work for usd necessarily, but for coin to coin exchanges it would, unless it was also tied into some sort of site like coinbase where they can store a fiat currency value like a bank for deposit at a later date.
The most interesting part in that text for me was "Released in 2009 by an anonymous creator known as Satoshi Nakamoto"
It was news to me that the creator of the bitcoin technology is anonymous. Heard the name several times before, but never knew it was a pseudonym for an anonymous person or group of persons.
I'm just hoping I can get home after work and buy some coins at the price the are now before it goes up again. I feel that this is mostly already discounted in the price, everyone was expecting it. It may drop further but it's not going to last.
I should add that I only plan to spend perhaps 1% of my money available for saving/investing in bitcoin. I think it's a good investment but the risk is too high to risk more.
I wonder if law enforcement is already questioning him; I am sure FBI has eyes on him already. Yes. I want him to come out and explain to us. Any employees should come out and give us insider stories. Whoever took advantage of this (whether it's criminal or Mt itself) should be punished.
But given this person was/is a US citizen (I believe he was?), even though he's now operating outside US, the States has big interest in bitcoin, perhaps the States has already compiled a stack of profile of him :)
> Does the FBI even consider bitcoin as something that actually has any value that requires investigating an accusation of theft?
ISTR that both the US Justice Department and at least one state government in the US has initiated prosecution based on the fact that Bitcoin is a thing with value, so probably.
> I would think they were more interested in the products being sold as compared to the made-up currency that was being used to purchase said products.
I'm not talking about the SR related prosecutions, I'm talking about, among others, the ponzi scheme prosecution against Bitcoin Savings & Trust, where bitcoins were invested for promised returns in bitcoins in a ponzi scheme. (Though I misrecalled, and this prosecution was a civil prosecution by the SEC not the Justice Department; still, its a pretty strong indicator that the US federal government recognizes bitcoins as thing of value when it comes to the law regarding such things.)
That makes me wonder if, in that case, if the SEC would have to recognize some form of value to the bitcoins lost or is it enough that the victim feels there was value to the bitcoins lost.
Just because the Feds may not recognize any value of an object you possess doesn't mean that another can simple take it on a whim.
Things like bitcoin sure make for interesting legal debates.
Sure, I mean the prices were listed by Mt Gox. No one involved in the transactions were claiming that the BTC were of no value. It's just more of a CIA thing :)
I came late to the Bitcoin party, so when I started mining other coins mid-last year the first thing I did was download the wallet client and encrypt, and backed it up. And I still didn't fully trust that my coins were safe, and that there wasn't some other bug in the protocol that could result in my coins getting stolen somehow (or at least confusion arising as to who owns them). I don't understand how people put so much trust in these exchanges as to have millions of dollars equivalent of coins there.
I think people (perhaps rationally) believe that the people running the exchanges know more about keeping bitcoins secure than they themselves do. The analogy would be that you're a lot safer putting your money in a bank than trying to keep it safe in your house. And certainly a company whose entire business is trading in bitcoin should know how to keep them safe. Unfortunately the reality is obviously sometimes different.
Certainly you can keep your own coins essentially 100% safe relatively easily with encryption and backups, but most people wouldn't even think to try, let alone have the necessary knowledge to do so.
> I think people (perhaps rationally) believe that the people running the exchanges know more about keeping bitcoins secure than they themselves do.
There was nothing rational about this assumption. Banks are bonded and insured with teams of very, very good security professionals auditing their stuff. Mt fricking Gox? Not so much.
Absolutely, but MtGox probably still knew more about keeping bitcoins secure than most individual owners. The decision to leave it at that and entrust them with large amounts of money wasn't rational, but the belief by many people that they were out of their depth managing the coins themselves was probably correct. (How many coins have been lost in hard drive crashes without backups for instance?) Yes, most people could educate themselves on these things, but most people won't. Nor should everyone have to be educated on everything; that's what civilization is all about. But if you aren't willing to do so, you probably shouldn't be an early adopter, before safeguards are in place.
I see this as more of how local banks were before government guarantees started being implemented. If someone robbed the bank it was your money they were taking and not the bank's. Heck, if the bank burned to the ground your money was gone. Made for a tighter community in some cases; you rob the bank the whole town hunts you down.
What was a bank? Any person off the street with a safe in a building who claimed they could keep your money safe for you until you needed it. Sound familiar?
Personally, I would have put about as much trust into these exchanges as I would have of those old banks.
I think people who aren't necessarily technically savvy mistakenly treat the exchanges as their local bank. Your local bank follows a huge number of regulations, many of which are designed to keep your money safe. And in the rare event that your bank fails, your accounts are FDIC insured up to $50k (in the US, don't know if other countries have depositors insurance.)
I also think that most (though apparently not all) of the people with millions of USD worth of bitcoins acquired them at low cost so in real terms their loss was mostly on paper. The started at $10k, it ballooned to $10m, and now it is zero. Did they lose $10m or $10k?
All those arguments about whether or not they ever traded Magic: the Gathering cards look kind of frivolous now, DON'T THEY. Sounds like Bitcoin is about to have its Enron moment...
I really wish I had some BTC just to separate some fools from their money. Either through trading on the market or some sort of BTC based gambling. BTC isn't very liquid but I'd bet you could extract 50K in USD from it a year without too much trouble.
Otherwise, I really hope Gox dies, in a darwinian business sense. Forest fires destroy big trees but makes way for new shoots.