The Bitcoin Crash

http://www.bbc.co.uk/news/technology-13857192

by tpatke • 15 years ago

64 58 15 years ago

bbc.co.uk

jgrahamc• 15 years ago

Slightly off topic, but there's a lovely little novel called "The Cryptographer" about an electronic currency set up by a man called "John Law" that runs in parallel to hard currencies (in the book it's referred to as 'soft').

http://www.amazon.co.uk/Cryptographer-Tobias-Hill/dp/0571218...

batterseapower• 15 years ago

From WP: "John Law was a Scottish economist who believed that money was only a means of exchange that did not constitute wealth in itself and that national wealth depended on trade".

Also used as a pseudonym by Mencius Moldbug for his classic piece on gold: http://www.safehaven.com/article/5205/why-the-global-financi...

thorax• 15 years ago

While we're now on this subject, here's Neal Stephenson's scifi tale on cryptocurrencies from 1995: http://www.time.com/time/magazine/article/0,9171,982610-1,00...

wurf• 15 years ago

that's only half the truth, here's the story of the so called "fraudster": http://forum.bitcoin.org/index.php?topic=20207.0

perfunctory• 15 years ago

BBC story seem to differ from the one offered by toasty. We might never learn what actually happened.

personalcompute• 15 years ago

BBC has no story, they are parroting MT Gox's reports.

sltkr• 15 years ago

Note that there are at least two people involved (excluding Mt Gox): a hacker that managed to gain access to a large amount of bitcoins and started selling them all, and a person that profited of the low price by placing a large buy order at 1.01¢ per coin (so as to outbid sellers at 1¢ but still pay a very low price).

Kevin/toasty admitted to be the buyer, but he is not the hacker (at least, he claims he isn't and Mt Gox seems to agree). The article suggests that these two parties were either the same person or were at least in collusion, but there is no proof of that whatsoever.

pbhjpbhj• 15 years ago

>but there is no proof of that whatsoever

There is no independent proof of Mt.Gox's claim either is there?

niklas_a• 15 years ago

Nothing new here. Just the standard speculation of what will happen to BitCoin after the MtGox hack.

The truth is, nobody knows where BitCoin is heading. It is still in it's infancy and Gavin, the lead dev, always describes it as an experiment.

gaius• 15 years ago

FTA:

He also questioned the fundamental workings of the currency, saying that its emphasis on anonymity and decentralised nature meant there was little recourse for users when things go wrong

So just like... Cash?

fhars• 15 years ago

Cash is actually numbered so you can for example trace bills payed as ransom

icebraining• 15 years ago

In Bitcoins all the transactions are publicly logged (by design - it's the public nodes that actually perform and verify the transaction), so you can do the same.

See http://blockexplorer.com

iwwr• 15 years ago

Bitcoins are less anonymous than cash, since all transactions are visible. Anonymous identities may be inferred from known identities in a step-by-step process.

Tichy2• 15 years ago

"The system has proved popular with online criminals"

Citation needed. Are there any stats on where BitCoin are being spent? Everybody says BitCoin could be useful for criminals, but how big is the adoption so far? How much business did Silk Road generate?

gwern3• 15 years ago

There was a comment on the Silk Road forums (in the context of replying to someone wondering whether buying from a seller with 0 reviews was very risky or not) to the effect that the Gawker article had caused SR to jump from a few hundred accounts to over 9000.

A decent number, granted, but likely most of them have not engaged in any transactions and never will. On the other hand, another poster mentioned that there is another Bitcoin+Tor market site by the name of BlackMarket (or something), so SR is only part of the picture.

smbwrs• 15 years ago

"...from a few hundred accounts to over 9000."

I see what you did there.

timrosenblatt• 15 years ago

I imagine people thinking that Tony Soprano is sitting in his house, furiously mining BitCoins, while whacking snitches.

praxeologist• 15 years ago

I have no clue if this one article I happened to pull up is accurate or conspiracy wackiness but it says that banks connected to the CIA pull in $10-15 billion in drug money each year. http://omasiali.wordpress.com/2011/06/08/cia%E2%80%99s-50-ye...

How much do federal/local cops actually steal in drug money each year? Silk Road is a worldwide thing too so it would really have to be compared to the millions that corrupt forces in Mexico and all over the world make each year using the anonymous money system.

I think people need to reevaluate who the criminals really are.

watt• 15 years ago

I really wonder who is the person whose coins were being sold off. I mean, that's the real story here: somebody had many tens of thousands of BTC that were stolen from his MtGox account and were sold off at a very low price. (The story that people were buying BTC at very low prices is a distraction, the real story is that somebody was SELLING at this low price.)

The other thing is that MtGox did not suspend trading once market moved 20%. I think if it had such failsafe it could have prevented this fiasco. (Should shut down the marketplace once market moves 20% in any direction to reassess the situation and check if there is technical error or panic, or similar event that requires additional intervention. Any mature market requires such failsafe.)

gst• 15 years ago

Why should a panic require intervention? If somebody wants to sell his Bitcoins way below the market price - why stop him?

wladimir• 15 years ago

Not a panic in itself is the problem. But as the grantparent mentions, there might be a technical issue (such as a hack, in this case) if such an irrational thing happens.

Safest action in that case is to halt the market temporarily (as well as delay withdraws) and investigate.

lysol2• 15 years ago

Circuit breakers give the exchange a chance to cool off and think things over. It isn't really intervention. It's just a halt to trades and they could take their BTC to Tradehill if they really feel like selling. Bitcoin fans like to pretend that all aspects of it should be unregulated, but when you take a decentralized currency and then place it in a centralized exchange, that mentality is no longer applicable and you have to deal with it like any other traded commodity. This includes security measures and circuit breakers on the exchanges.

thanasop• 15 years ago

The amount sold was over 500000 BTC - more that all estimated deposits on MtGox. The likely explanation is that these were just virtual BTCs added through SQL injection. The alternatives are that a single person was keeping that much on an exchange rumored to be insecure and used insecure password (easily cracked from leaked md5 hashes), or the person decided to sell half his BTC for $0.01 - an extra $2500 in addition to hundred thousands.

IsaacL2• 15 years ago

That raises an interesting point.

The nature of Bitcoin is supposed to prevent things like fractional reserve banking, since the nature of the system means you can't give people BTC you don't have. It's impossible to create bitcoins in any other way except mining.

However, if people are making BTC transactions through a centralized exchange such as Mt. Gox, they are in effect moving numbers around in MtGox's database rather than actually transferring bitcoin. This means banks are able to effectively create BTC as they can with fiat currencies, leading to problems like the current case - problems that Bitcoin was designed to solve.

danssig• 15 years ago

>The amount sold was over 500000 BTC

Source? I hope you're not quoting the guy from the "I'm the one who bought them" forum thread who accidentally add all numbers including dates to determine how many BTC were traded. He was almost instantly debunked.

gwern3• 15 years ago

A 20% trigger wouldn't have been a good idea. Bitcoin moved 20% many times over the last few months without a flash crash happening.

illumin83• 15 years ago

Bitcoin will recover, but right now it is going through a liquidity crisis:

Only a small percentage of BTC users were using Tradehill, a competitive BTC exchange. People have rushed to create accounts there, however it takes a few days to transfer money in, so right now there are more sellers than buyers, causing prices to go lower. In addition, apparently some people have their money tied up in unreachable MtGox accounts so are unable to trade.

MtGox has some serious issues to deal with. Finally yesterday, on the 3rd day after the exchange was brought down, they instituted an account recovery page, where you can provide information about your account and try to prove it is yours. Their support people are manually reviewing account information and will give you access when they feel you have sufficiently verified the info.

It looks very fishy, like MtGox is intentionally delaying access to people's accounts in order to prevent a run on the exchange. We don't know exactly how much money or coins were actually stolen from MtGox, but it is entirely possible that someone figured out a way to transfer a large amount of coins or real currency out of there. It might be possible that MtGox cannot make all investors whole again, so they are reenabling accounts just a few at a time and hoping that not everyone withdraws their funds at once.

Personally, I never kept a balance of either USD or BTC in MtGox. Their site looked too amateur to trust with money. I would sell my coins and transfer them to Dwolla immediately. Right now, all of the exchanges look sketchy. I would not trust a single VPS running MySQL at all with what could be millions of dollars.

mathly• 15 years ago

Maybe we shouldn't be so trusting of Bitcoin Exchanges? http://nerdr.com/bitcoin-exchange-scam-bitcoins-are-worthles...

illumin83• 15 years ago

Interesting article. While it is entirely possible to do this, professional traders will soon move in and arbitrage any price differences between exchanges.

As competition increases, amateur exchanges that manipulate the price will suffer the consequences, for example, overpaying on the buy side because they've artificially inflated the price. Or traders will just move to another exchange if the spread is too high between bid and ask.

chalst• 15 years ago

It looks very fishy, like MtGox is intentionally delaying access to people's accounts in order to prevent a run on the exchange.

Such a move, if it is what Mt Gox is doing, is completely legitimate. If they are indeed bankrupt, then an orderly winding down is fairer; if they could recover their business, then this avoids needless value destruction.

rrrazdan2• 15 years ago

This is one of the most balanced coverage of the Bitcoin issue I have seen. "The system has proved popular with online criminals, keen to keep their financial transactions secret, although it has a wider, legitimate, user base." Nicely researched. Kudos to the BBC team. Shows why BBC is still the trusted source for many of us.

IsaacL2• 15 years ago

I'm also surprised that bitcoin is being covered in such a mainstream news source - I was under the impression that it was still only of interest to the techy early adopter crowd.

sunchild• 15 years ago

I had the opposite reaction. I thought it was poorly-researched, esp. in that it parroted MtGox's explanation for the compromise. I don't think the BBC should be so quick to accept that story, given this information: http://news.ycombinator.com/item?id=2676263

rrrazdan2• 15 years ago

They are quoting an official statement from Mt Gox. Its not like they are accepting this line. But if there is somebody they can quote, its Mt. Gox, not somebody who claims something on a forum. In any case, not mentioning 'toasty' is not really relevant.

themal• 15 years ago

At the very least, the BBC has avoided the BitCoin hype.

Lots of other websites mention it every other day, yet this crash was probably the first major event for the technology.

Tichy2• 15 years ago

Your comment is a nice example for people wanting to read what they already believe.

The Bitcoin Crash

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