Comment by enscr | Hacker News Reader

Comment by enscr | Hacker News Reader

I feel bad for Mark Karpeles but the way MtGox communicated & lied to its users makes me sad. It's those nameless individuals who believed in him, whose trust was betrayed - those are the ones that deserve the affection of the community. I've been following the news and I think MtGox was handling so much money that they should have focused on better security practices and audits.

Few examples of their lackadaisical attitude :

1. http://www.reddit.com/r/Bitcoin/comments/1x9gue/my_protest_a... :

I arrived at MtGox early, approximately 8am, and stood outside with a sign reading “MtGox, where has my money gone”. I got some curious looks, and a lot of questions from passersby about my protest. Then at approximately 9.20 am, Mark Karpeles himself came along carrying a large, and very fancy coffee in his hand that could have passed as a dessert. I immediately confronted him and told him we needed a chat. So he stopped to hear me out.

I told him he was playing with people’s lives, and some people stood to lose their entire savings. Like Gonzague told me the night before, he mentioned technical issues, and that he would look into my case.

2. http://www.reddit.com/r/Bitcoin/comments/1x9gue/my_protest_a...

I was told that up until a few weeks [at time of the interview] ago, there was hardly any development environment to test changes. Most changes were done straight on the production environment. Typing this made me throw up in my mouth.

3. http://i.imgur.com/xMeW43a.jpg

> and some people stood to lose their entire savings.

While I am not defending MtGox, having your entire life savings wrapped up in Bitcoin is hardly a sound, proven financial decision and evokes absolutely zero sympathy whatsoever. Losing it all in a get-rich-quick frenzy is sad - but it's sad in a "I can't believe people are willing to bet their lives on this" way, not a "this poor person lost his/her entire life savings due to the corruption of the financial industry" way.

Absolutely right.

Putting 5-10% of your net worth in something like this is being innovative and forward thinking and taking a calculated risk.

Putting 90-95% of your net worth in something like this is serious, foolhardy gambling.

Highhorses are fun to ride, but if you put in 5% of your networth at any point > 8 months ago, it is likely that you ended up with 90-95% of your net worth in Bitcoin.

You have a good point. It definitely takes a lot of mental discipline to rebalance on a schedule with liquid paper wealth.

And if we're being legal, a willingness to take it on the chin with short term capital gains rates on everything you rebalance.

Interesting question (I don't know the answer). Does appreciation through currency exchange count as a short term capital gain?

I had not considered this, and you have a very good point. Most of those people had been getting used to the idea of being rich, that it will be very rough for them to adjust.

Besides, the way their money is lost made it so much worse. The global value of btc crashing would be one thing, corruption would be another, but this level of incompetence.. it's almost harder to digest since they most likely are not guilty of any crimes either, unless stupidity would be a crime.

Too true. It is interesting that rationally speaking, considering windfalls or lottery winnings "house money" is incorrect--money is money. This attitude can lead you to cognitive errors that cost you more money in the long run.

On the other hand, if we think about the coping strategy for people who've been Goxed, I can see where if you can disregard the winnings as "paper gains" it is much easier to get on with life thinking "I only lost 10k."

This thread is awesome. Goxed is now my new favorite word (sorry for the more initiated if I'm already late to the party). It's just like being doxed - you exposed yourself in some way, and some clever bastard got the better of you for it.

Given the huge price increases bitcoin has experienced, many people bought bitcoin with a small portion of their net worth that later grew into the vast majority of their net worth. Some of these people were unable to withdraw from MtGox (their USD withdrawal issues were ongoing since June).

And in the same vein, while I'm not defending those who put their entire life savings into Bitcoin, to put their entire balance into an online wallet strikes me as the worse way to go about that. Paper wallets aren't comparable to dollar bills. They're comparable to security vaults from everyone online who would seek to separate people from their money.

"There was some weakness in the system, and the bitcoins have disappeared."

They've "disappeared". Curious choice of words.

Karpeles didn't say they were stolen, or misplaced, or destroyed. And he didn't say when the mysterious disappearing act occurred.

The most likely explanation is that Gox's crappy system lost the private keys to cold storage long ago, and they've been running fractional reserve since then, hoping to close the gap.

Transaction malleability was probably an insignificant fraction of the loss.

Transaction malleability was probably just event that pushed the withdraws past where they could ever recover.

That's the first explanation I've read that makes any sense.

Another hypothesis is that the US gov't might be in control of the bitcoins having connected them to SilkRoad or teh terror-izm and have Kerpeles under gag order preventing him from revealing this.

FWIW, #3 is from the original owner who sold the site to Karpeles in 2011. Doesn't excuse #1, #2, and many other things, though.

Correct, but no evidence of Mtgox improving on the original spaghetti. Circumstances point to the contrary.

> FWIW, #3 is from the original owner who sold the site to Karpeles in 2011.

Interestingly, the leaked business plan mentions McCaleb apparently still owns ~12% of Mtgox shares. Why? My theory is that it's related to the hack shortly after the sale: McCaleb had said on Bitcointalk that he no longer had an interest in Mtgox but was going to be paid royalties for a time. So perhaps after the hack, McCaleb, to avoid putting cash pressure on Karpeles's damaged Mtgox, agreed to turn the royalty debt into equity.

Reply on news.ycombinator.com