Why Mt. Gox, the World’s First Bitcoin Exchange, is Dying
coindesk.com
coindesk.com
Mtgox is the giant raging zit on the face of Bitcoin. The software and service are so terribly, inexcusably bad, and they have always been that way. The market price on Mtgox has been artificially high ever since I can remember, because no one can withdraw their money. Users wait for their withdrawals for weeks, and sometimes months. As a result, a dollar in your Mtgox account is worth less than a dollar. Now it is artificially low, because people can't transact Bitcoins either! The other exchanges, meanwhile, tend to agree pretty closely, because it is actually possible to move bitcoins and dollars between them.
Imagine if ETrade, say, was so bad at moving money that you had to pay an extra $100 for a share of Google stock. That's what it's like. Or if everyone used Google's DNS servers but they typically took 3 seconds to respond. And yet people use Mtgox, and talk about it, and it's listed on all the sites and apps that track the market price on different exchanges.
At first, everyone chalked up Mtgox's problems to the sheer difficulty of running a Bitcoin exchange, and then, to the difficulty of running the biggest. Well, now it's no longer the only or the biggest exchange, and no one else is having the same problems, at least at this service-destroying level. I can't comment on the difficulty of establishing relationships with banks to move millions of dollars -- I'm sure it's hard -- but Mtgox has also had a lot of plain old scaling issues, and the transaction load is not even that high by web scaling standards. Last time I checked it was 30 per second or so. Their security is nothing special; they've been hacked before. I have heard only negative things about their engineering competence.
I'm a casual fan of Bitcoin but a big hater of bad software, bad customer service, and companies that act in a sleazy manner. I hope Mtgox dies.
Also, there is minimal danger of a bank run. MtGox makes a profit off of every transaction. Therefore they control more BTC than users are able to deposit. Hence, since Magical Tux (the owner) is motivated not to go to jail, he will not run off with people's BTC.
For anyone who wants the truth, rather than speculation, here it is: http://www.reddit.com/r/Bitcoin/comments/1x93tf/some_irc_cha...
Except if, like every fraudster ever, he believes that he has a good plan to run off AND avoid going to jail. I mean, what kind of bizarro logic is this? Are we supposed to listen to further "rational" arguments now?
Also, seriously, people place their money (in whatever form) in someone who calls himself "Magical Tux"?
A guy whose profile in Twitter reads "PHP Developer working on some weird stuff, like a mail server (POP3/IMAP4/SMTP) written in PHP"? Sure, that inspires confidence in a money exchange. Might as well invest your money directly to that Nigerian prince too.
What if the technical problems lead to a situation where they are short BTC? Your link mentions they could have double paid people which would lead to that situation. Then there's the issue of seizure which apparently has happened at least once.
Relying on your unlicensed money changer to be fair because "he is motivated to not go to jail" is precarious. Madoff's client's probably said the same thing... That's the beauty of the FDIC and the terrifying part about BTC exchanges.
If he had 440k coins then, imagine how many he has now.
Yes, he could have lost a lot, but on the other hand we'd probably have heard if someone pulled off that kind of heist.
Here's how I expect things will happen: Gox will refund all "stuck" withdrawls. (Mine have already been refunded.) Then they will fix the technical problem, hopefully by Monday, but certainly within a couple weeks. Then they'll re-enable bitcoin withdraws. At that point, everybody will yank their bitcoin out of Gox. But then people will realize that there is value in trading on Gox as a platform, and Gox will be used for what it's meant to be used for: Trading, not storage.
EDIT: To clarify, I don't believe it's possible they had a technical problem that led to them losing more bitcoins than the profits they've made from trading fees. (This is me being hopeful that people can't be that incompetent.)
Those ~440,000 Bitcoin were property of the Mt. Gox traders, not Mt. Gox the company.
Mt. Gox was moving the money publicly in a show of good faith that they still controlled it.
They have yet to do that in this new case.
For all we know, Mt. Gox could have sent the ~40,000 missing Bitcoin to an unrecoverable/non-existant address by mistake.
Of course seeing their origins and backing, they've screwed up - and BTC being volatile it has probably moved against them - so low and behold "technical problem" while they try to figure out how to get solvent again.
Punchline: real cash gets refunded, the BTC will not be, anyone holding BTC is going to lose big as the price tanks.
I would guess this is a fraud-stopping measure. Time is a fraudster's enemy; you may have guessed someone's password, but if they read the email that says someone changed their email address, they can react before the money disappears into the ether.
Furthermore, Mt. Gox can probably predict in advance how much cash they'll need to fulfill withdrawals, and liquidate the instruments in advance to make withdrawals instant, if they so chose.
Everyone loves a good conspiracy theory, but the reality of running a money transfer business makes Mt. Gox look pretty normal.
If I agree to hold your money, then "need more time" to give it back to you, how exactly is time being my enemy?
What value is this, exactly? You seem to be assuming that having fixed this problem the platform will never break down again, ever.
For those of you who are wondering, this is because MtGox is Japan-based. In Japan, virtual/digital goods are considered property that can be "stolen." There have been a few cases on this in Japan, though it's never been tested outside of the gaming context and AFAIK nobody's actually gone to jail for stealing a virtual good (yet).
"Hence, since Magical Tux (the owner) is motivated not to go to jail, he will not run off with people's BTC."
Anyone else reading this who's new to crypto-coins, at the _minimum_ I do not recommend you send any of your coins/fiat to MtGox at this time.
On the upside, Bitcoin seems like a perfect laboratory to re-run the experiments in banking leading up to the 1930s when you know, the "communist" FDR imposed banking regulations which are still hated today by some. :)
Not to mention they're a huge hacking target.
http://www.reddit.com/r/Bitcoin/comments/1x93tf/some_irc_cha...
This analysis describes a Bitcoin transactional defect of which I wasn't previously aware. However, from a vaguely-similar much-smaller incident involving the default client, I know that having a local wallet confused about what prior transactions are truly spendable can take significant time and custom effort to unwind.
Would you be as OK with your bank holding money like that?
I'm unhappy when ATM outages or erroneous fraud alerts prevent me from using my cash or credit, but I understand that such situations are different from dishonesty or insolvency.
The casual tone by which people (including you) were discussing this. If a bank had even week long issues like that people would be frothing at the mouths (and rightly so).
>It's just information for understanding the situation.
Yes, it's the "understanding" part that I don't get (except if it's pure technical curiosity, but from the excuses people make in this thread it doesn't seem so).
They messed up, they are not a worthy exchange, that kind of fiasco is insurmountable -- end of story. I wouldn't try to "understand" a restaurant that served my cochroaches in my pizza, I'd just avoid it and bad mouth it to everybody I know.
This is Hacker News, where we like to "understand" enormous failures, even if we don't have "patience and understanding" for them.
I think the point of the people talking about the technical glitch, is to counter everyone saying "BTC is perfectly frictionless, therefore if Gox can't give me BTC they must not have any!" nullc/gmaxwell gives credible technical explanations for why spending thousands of BTC in daily volume from various sources through a volume-necessitated custom implementation of Bitcoin, can actually be non-trivial. You're free to think Gox is incompetent, or that the pizzeria is unclean, but that doesn't mean you can't have interest in how they got that way.