Pretty good Ponzi. Not as impressive as Bernie Maddof's, but extra points for the tech angle.
The loss of coins was unintentional on the behalf of MtGox. It may have been stupid that basic abc123 auditing would have probably revealed that there was a problem months/years ago, but evil has not been shown at this point in time.
The low BTC exchange rates were both indicative of the risk, but also enticing to new exchange customers trying to strike it rich off a sinking ship.
The only difference from a traditional Ponzi scheme is that in such a scheme the extraction is to the fraudsters pockets, rather than to the fraudsters incompetence.
No it doesn't; the key feature of a Ponzi scheme is intentional fraud using a phony investment that doesn't actually exit. That's what a Ponzi scheme is.
Bitcoin has nothing in common with a Ponzi scheme and all you people who keep repeating this non-sense need to go educate yourselves on what a Ponzi scheme actually is.
Assuming the description of this as being a loss that, however unintended when it first started occurring, was known, concealed, and papered over by using other funds, it was an intentional fraud from that point on a phony investment that doesn't actually exist.
> Bitcoin has nothing in common with a Ponzi scheme
That may be true about Bitcoin, but not about the scenario proposed upthread about what was going on at Mt. Gox. They aren't the same thing.
Just because fraud occurs does not a Ponzi make. Seriously, just stop repeating this complete nonsense. Ponzi schemes are very specific things and neither the Gox situation nor Bitcoin are Ponzi's in any way.
They expect the chance of trading losses is high, they don't expect that the loss of balances on account is high (in fact, they are generally promised that, except for specified transaction fees, such accounts will retain their value.)
There's a slight difference from what goes on in a traditional Ponzi scheme in that the former promises a positive return which is only met for as long as external funds come in to cover the returns (plus the funds being extracted by the fraudster) where the suggestion about Mt. Gox is that their Bitcoin accounts were promising a zero return, which could only be met for as long as external funds were coming in to cover the BTC being stolen. Which isn't strictly the same thing as a traditional Ponzi scheme, but is a very closely related form of fraud.
Note that I'm not saying this is what happened at Gox -- I have no way of knowing that. But what has been suggested is very much like a Ponzi scheme.
From Google:
Ponzi Scheme: a form of fraud in which belief in the success of a nonexistent enterprise (the definition) is fostered(i.e. the mechanism) by the payment of quick returns to the first investors from money invested by later investors.
Many valid things use the mechanism of new money paying out earlier investors; that alone is meaningless and not a defining trait of Ponzi's. All insurance also does this. A ponzi is literally "a form of fraud carried out by the belief in the success of a nonexistent enterprise"; that's it.
Once they severely restricted/shut off withdrawals, they were no longer an "exchange". People were no longer investing in Bitcoins facilitated through an exchange, they were investing in the exchange allowing withdrawals and making good on the promised high Bitcoin to USD values or low USD to Bitcoin values. All the time they were telling people it was a technical problem and they would make good on transactions. Given how insolvent they were, this had probably been going on for a significant amount of time or they just never had intentions of making good. Allowing deposits to continue despite the issues they faced was unscrupulous, and I believe it was likely a way for them to try to collect capital to make good on the "top of the line" and "bottom of the barrel" exchange rates that they had promised their customers, which they simply could never fulfill.
Perfect example of the mentality of a new investor at MtGox can be found on this reddit comment: http://www.reddit.com/r/Bitcoin/comments/1yw9vj/how_i_nearly...
I'll admit that not all the facts are known, and my conclusion above is essentially hypothetical based on the information known at this time. Perhaps when if we ever get access to internal communications within MtGox, we'll know the truth. Even pleading incompetence does not mean that the operators weren't unknowingly running a Ponzi scheme.
That is to say, at the end of the day, does it really matter if this happened because Karpeles is an idiot or because Karpeles was malicious? No, the end result is the same, and possessing and wielding that shear amount of idiocy is no more excusable than just being malicious.
The end result being, we hinge huge decisions on the question, "Do I think this person might actually try to hurt me?" without giving adequate attention to the question, "Does this person possess sufficient competence to reliably avoid hurting me by accident?"
Not just in finance. The issue seems to come up in health care quite a bit, too. Do you really want someone who doesn't fully grasp the germ theory of disease sticking sharp objects into you after previously having stuck them into someone else? The occasional outbreaks of hepatitis associated with acupuncture suggest this is a question we might want to spend more time thinking about. Instead, we tend to not get past worries (including legitimate ones) about whether or not Big [insert_big_thing_here] is trying to hurt us.
Your evidence of that is...
Every ponzi operator dreams of earning themselves to solvency.
You clearly have no idea what a ponzi scheme actually is; educate yourself before making such foolish public statements.
all I know is that an awful lot of people lost money.
Here we have a company that took money and let the "investors" fight it out amongst themselves.
The ponzi never dies because no one who participates every believes that _they_ are the one who's going to get screwed.