Ask HN: Where are the 750k Bitcoins lost by Mt. Gox?

https://news.ycombinator.com/item?id=7318947

by pmcpinto • 12 years ago

218 194 12 years ago

news.ycombinator.com

sillysaurus3• 12 years ago

Some info here: http://www.reddit.com/r/Bitcoin/comments/1z37zw/mt_gox_has_a...

"MtGox still has at least 200k BTC"

Here are the possibilities, as far as I can tell:

1) That information is inaccurate.

2) MtGox lost their private keys.

3) The private keys were kept in a bank vault, which was seized by a foreign entity like the US government at some earlier time.

4) MtGox stole the coins.

The management of MtGox knows which of these is correct, but they probably aren't going to say.

bachback• 12 years ago

5) they were stolen

zbowling• 12 years ago

that is #2

raphaelj• 12 years ago

Which is the same as 2) and 3).

aroch• 12 years ago

"In the blockchain".

Assuming they weren't lost because someone forgot a password, all of the BTC lost / stolen in transaction malleability are traceable. Whether or not its feasible to check every transaction from Gox over the last few years and add up all the partial BTC is something I can't comment on.

knodi• 12 years ago

there are top men working on this very thing.

k3oni2• 12 years ago

I have to go with the following answer: in someone's pocket.

Piskvorrr• 12 years ago

A pocket of someone who had means, opportunity, and motive? Hmmm...

k3oni2• 12 years ago

That's my thought as all of it sounds really shady.. time will tell.

shawabawa32• 12 years ago

If you're thinking Mark Karpeles, he doesn't really have motive as he's likely going to go to jail.

However, an employee or contractor at mtgox who figured he could cover his tracks could have stolen them

bushido2• 12 years ago

With the possibility of getting down voted into oblivion.

The BTC lost/stolen are all available within blockchain/public ledger. Depending on who stole them, it would probably be distributed within multiple very smaller transaction.

It my be traceable, but likely unrecoverable, because this is a feature of Bitcoin. In other words authorities and forensic enthusiasts can find the BTC but they are most likely lost at the same time.

hartator• 12 years ago

I wouldn't be that pessismistic.

If people manage to identify people behind the blockchains, I strongly suppose that law enforcements, depending on countries where the theift physically is, can force the thieft to give it back without any modifications to existing laws.

I think we can catch him when he is going to want to laundry his bitcoins.

tommo1232• 12 years ago

Don't bitcoin tumbling services pretty much make it logistically impossible to follow the path of bitcoins if they cycle it enough? Also I wouldn't rely on the governments to do much to return people's investments in a currency they already distrust. In fact, considering the historic and contemporary roles the US and the IMF have had in deliberately destabilising and undermining international economies/currencies, you'd be naive to remove first world governments from the list of suspects. The incentive is even higher for them than normal thieves -- not only do they already have an established system for laundering stolen money, but they don't even need to remove the money to profit, they just need to steal it and render it inaccessible. The credibility of Bitcoin as an extranational, anonymous currency has been dealt a serious blow and, if you consider bitcoin a threat to the current institutions, then that has a value far greater than the few hundred million that they'd wind up with in pocket. I'm not throwing around any conspiracy theories here because there's no evidence for it so far, but I don't think there's anyone foolish enough to pretend that the US/UK/etc governments haven't already been in this ethical sphere of operations for decades. The first question was whether they have the werewithall to operate on this level technologically (confirmed by Snowden), and the second is whether they consider bitcoin a threat.

bushido2• 12 years ago

Actually, I was being optimistic.

I wanted to add the possibility of law enforcement from various countries tracing the alleged perpetrators. This is actually the most worrisome scenario, because a large portion of this would be unrecoverable from the law enforcement, due to the immense confusion stemming from authorities not knowing who has jurisdiction and the laws surrounding crypto-currencies.

This might be an acceptable situation for the customers but would be bad for the customers as over 6% of BTC would be almost permanently removed from circulation.

andrewcooke• 12 years ago

i thought the leak had been happening for years? wouldn't they already be laundered?

and hasn't this happened already? someone did steal coins and was tracked for a while. how did that work out?

gcb0• 12 years ago

Expect Reddit and 4Chan to spend weeks tracking the wrong transactions and the finally identifying a poor sap whose only fault was once buying coins from mtgox years ago. Which is not much different than being audited by the irs...

pjc504• 12 years ago

The community really needs to choose one of two messages:

a) Bitcoin is pseudonymous enough that you can safely buy drugs with it

b) Large thefts of bitcoin can be traced; it's not pseudonymous enough for massive frauds

loceng4• 12 years ago

This is the issue. It can become a never-ending wild-goose chase. The thieves can continue to move the funds around until they're no longer tracked, or far enough ahead that from the trackers (assuming there's any enforcement or penalties or laws relating to accepting stolen Bitcoin - which there aren't currently) or just spend them if they're not being tracked or if there's no enforcement in place.

The thieves will move funds around at little cost in order to try to gain the value from the Bitcoin they stole.

The problem with Bitcoin is that because there's no fee associated with them, there's no money or resources being made available or directed towards policing and following of these thieves.

Edit: And it's not particularly fair to use the rest of society's resources to do this policing, when they're not contributing to the system - they're avoiding contributing, to a partially corrupt and currently inefficient system, yes - but it'd be better to fix these inefficiencies and deal with the corruption.

TelmoMenezes• 12 years ago

The problem with Bitcoin is that because there's no fee associated with them, there's no money or resources being made available or directed towards policing and following of these thieves.

How do you know that? Given the amount that was stolen, I would be very surprised if some victims are not employing considerable resources to find the thieves. Also given the amount, many layers and private investigators are probably willing to do speculative work on commission. It would just be silly for them to advertise such efforts.

d0ugie• 12 years ago

Wouldn't, in this high profile clustereff, somehow tracking down those bitcoins cause bitcoin in general more harm than good? Would it not highlight that one way or another, either by fault of bitcoin or human error, that like Tor it is not bulletproof in terms of anonymity and susceptibility to being taken back from someone, whether that someone is a good or bad guy?

maxerickson• 12 years ago

Let's say there are 2 categories of addresses involved with these coins; addresses that have been sufficiently analyzed (so you don't care anymore about tracking them) and addresses that have not been sufficiently analyzed.

Following the second category is roughly instantaneous, it's all on the block chain. So in some ways, the chase gets easier over time.

kordless3• 12 years ago

Eventually all addresses will contain coin from all other addresses, if they are spent. It's the Kevin Bacon rating for currency.

In the short term, referencing Blockchain transaction over a given period of time, a destination address could be assigned a lower karma value for having a relationship with a bad actor address. The karma could be measured in amounts taken from other bad karma addresses.

While your wallet may contain trace amounts of bad karma money, it eventually gets diluted over time. Maybe we could utilize a days destroyed karma as well.

tibbon• 12 years ago

From what I understand, tracing them is also hard because (generally) there isn't any annotation on the blockchain to indicate who actually had them or what they were used for. So its hard to tell what point is just another place they laundered them, or someone who just got them in a transactions and then reused them elsewhere.

Let's assume eventually they will be 'spent' somewhere- its going to be damn near impossible to track them down unless they transfer all of them into a single wallet with their name/address in the comment.

fredgrott• 12 years ago

Here s an idea..

Feds sized silk road and the Bitcoin wallets

If any was stored or transacted at MTGox this might be some of the amount of losses MTGOX is now showing but NOT ALL OF The lOSSeS obviously

jnbiche2• 12 years ago

Bingo. The Feds seized their cold wallet somehow.

Mark has said repeatedly that Mt. Gox is under investigation and that he can't talk about it. There's a supposed IRC log from two days ago where he let it slip that he's under a gag order, saying two days ago "le gouv US ne veut pas qu'on disclose" (the US gov. doesn't want us to say anything)[0]. And he's said in public that he can't discuss the matter since he's under investigation.

So my guess is that the feds have seized his cold wallet as part of the Silk Road investigation, or even as part of the case against Mt. Gox itself, which was probably in a safety deposit box. They've already seized 5 million USD last year from Gox, why wouldn't they go after the Bitcoins, too?

And yes, the seized Bitcoins would not equal the number owed, but my guess is that they're the majority of them, say 80%.

If that's the case, account holders would have to petition the USD to prove they're not drug dealers and or tax evaders to get their money back.

tommo1232• 12 years ago

I like that. "Prove you're not a drug dealer and we'll see if there's still money to return." It kind of gives the middle fingers to 3 somewhat-important US rights: the right to not self-incriminate (being coerced into providing new evidence that might be used against you), being considered innocent until proven guilty (assets seized without an active case against you), and that everyone is equal under the law (unless we say you're a drug dealer (or, going back 60 years, black)).

samelawrence• 12 years ago

"get their money back"

Lulz.

mtlolx• 12 years ago

This is an unusually silly conspiracy theory.

I find it extremely unlikely that MtGox would falsely claim that they suffered a theft due to transaction malleability (a real point of possible error) if the actual issue was a US Government seizure. It just strikes me as utterly unbelievable that they would actively cover up (rather than simply failing to disclose) a government seizure.

It's far, far more likely that Karpales is either grossly incompetent or a thief than it is that he's making up complicated stories to cover up a government action.

gnaritas• 12 years ago

He should have shut down the exchange the second that happened; keeping it open is fraud.

INIT_6• 12 years ago

You can't really seize bitcoin. you can think you have. The only thing you need is a private key so if you store this in a encrypted file like you can with wallet.dat you can seize this file.

mean while you can have already split your key into parts and give them to trusted people. setup a dead man switch to email those people to talk and recombine private key, import into wallet and withdrawal funds.

this would have worked beautiful in silkroads case because the private was encrypted.

ig1• 12 years ago

fyi. A US gagging order has no legal power over a Frenchman in Japan.

pmorici2• 12 years ago

"There's a supposed IRC log from two days ago where he let it slip that he's under a gag order"

It isn't supposed you can go read the IRC transcript. He said no such thing. What did happen is, in response to the question of what would he like to tell everyone who is waiting for news he replied with a link to a image with a Batman quote about failure. The image happened to be hosted on an image sharing site called 9gag.com. People think that was his secret way of signaling that since the word "gag" was in the website's URL. It is a total ridiculous conspiracy theory to think that he is under some kind of gag order that is preventing him from telling the truth about what happened to the coins.

bombtrack• 12 years ago

There's a lengthy post in /r/BitcoinMarkets about it:

http://www.reddit.com/r/BitcoinMarkets/comments/1z2xo5/specu...

eterm• 12 years ago

This is another possibility people are overlook, that perhaps they never had them. Perhaps they simply built up a liability of 800k bitcoins by trading on their own exchange and making some bad calls.

drcode3• 12 years ago

If I had to venture a guess, I'd bet that not even Mark Karpeles knows what happened to the money.

dirktheman• 12 years ago

Somewhere in the blockchain, probably divided into smaller chunks. The way Bitcoin is set up, you can follow transactions, but it's very hard to track buyers/sellers. It's a paradox: Bitcoin's strength is that it's untraceable and unregulated, but in cases like this those exact strengths are pitfalls at the same time.

jarek• 12 years ago

That is not a paradox at all. Bitcoin as a system is performing exactly as designed here (barring possible wibbly wobbly "malleability" bugs).

davidw• 12 years ago

"The Lost BitCoins of Mt Gox" sounds like a good Scooby Doo episode. Or Hardy Boys?

colinbartlett2• 12 years ago

Velma yanks off mask.

Daphne gasps

"Mr. Karpeles!"

Fred: "Mark Karpeles was the thief all along!"

Karpeles: "And I would have gotten away with it, too, if it hadn't been for you meddling kids!"

krishnasrinivas• 12 years ago

haha :-) upvoting this.

terranstyler• 12 years ago

Velma didn't even say Jinkies yet :(

rkuykendall-com• 12 years ago

Sherlock Holmes novel.

yread• 12 years ago

Why doesn't Mt. Gox just publish the ID of the wallet(s) from which they were stolen?

1. They weren't stolen - lost in cold storage harddisk failure for example

2. Revealing it would show something extremely embarrassing - they only used a single wallet?

3. They still have them - yay?

4. They were stolen by Mt. Gox - gulp

drcode3• 12 years ago

MtGox may just have larger problems right now and can't get around to the actuarial work involved.

Though I agree a cold storage failure is still a good possibility, given the poor communication.

pmorici2• 12 years ago

Can anything they say or do be trusted at this point? I mean regardless of exactly how it happened weather it was theft, insider theft, incompetence, or blackmail Gox is not a party worthy of implicit trust any longer.

Crito2• 12 years ago

2a. Revealing it would show that although they did not commit the current theft, they have been running another unrelated scheme.

badman_ting3• 12 years ago

Does it matter?

Edit: Not "does it matter that they are lost", but rather "since they are lost, does it matter where they are".

aurumpotest• 12 years ago

Well, yes, to a lot of people - both those who lost money in the affair (some people vast amounts), and also to anyone interested in following the development of BTC - if this was theft, how can we prevent repeat incidents to reassure potential Bitcoin buyers; if it was a failure in the technology, what can we do to repair that to make Bitcoin more secure, or if there was some government or official organisations involved, why did they interfere and what're they up to?

badman_ting3• 12 years ago

Too glib I suppose, I just meant that if the coins are "out there" they're not actually recoverable, are they? If a bunch of sand falls out of my hand on the beach, those grains didn't disappear but I'm never getting them back again. Then there's the very real question of whether it actually is theft. I would argue no, in the sense that downloading a song isn't theft.

You play in dirt, you get dirty. You want an unregulated purely digital currency with irrevocable transactions, you know it's going to sting if you lose some of it.

tjaerv2• 12 years ago

There are already reports of two suicides related to the Mt.Gox fiasco, so yes, it does matter.

http://falkvinge.net/2014/02/28/the-gox-crater-crowd-detecti...

deweller9• 12 years ago

In November of 2011 Mt. Gox demonstrated control of 500k BTC.

I followed the 500,000 BTC for a bit beginning at https://blockchain.info/tx/b269bf1b82dae8a61f7f91dbf7a9d807e....

The coins move around and small amounts are sent away, but the majority ends up back in Mt. Gox's main (hot) wallet. This repeats a few times until the majority is paid back to the main Mt.Gox address.

Here is the transaction where it starts to get interesting:

https://blockchain.info/tx/478ea915aa3a2e54503c43e1c5659722b...

What's left of the 500,000 (429.9k) is split into roughly half and sent to 2 new address. And then each of those address splits the coins in half and sends to two new address.

The end result is that the 429k was split again and again until the funds are split into many addresses, each of which now contain less than 1,000 BTC each. I stopped following the transactions there.

Why take 429k and split it into many addresses each containing less than 1,000 BTC each?

I'd like to see someone trace all of these coins and see if they end up coming together somewhere or show a pattern.

neals• 12 years ago

Can anybody follow one of these "branches" until the very last known transaction on the blockchain? Would that clear anything up?

drcode3• 12 years ago

Yeah, people have been trying all kinds of analysis on these addresses on r/bitcoin this week- So far the jury is out as to whether meaningful info can be gathered in this way.

deweller9• 12 years ago

I haven't seen anyone do a comprehensive analysis yet. I assume someone is working on this. But maybe everyone else thinks that too.

Here is a some background information at Let's Talk Bitcoin:

http://letstalkbitcoin.com/the-ghost-in-the-machine-at-mtgox

Consultant32452• 12 years ago

If you were going to steal bitcoins in this manner you'd run them through a number of tumblers. Tumblers are essentially the laundering facility for bitcoins. Lots of coins from various locations come in, put into a pool, and then get sent back out. There's no way to track coins you receive back to a particular transaction. Since 6% of all bitcoins are stolen, more than likely anyone holding bitcoins has a good chance of holding some stolen ones.

KiwiCoder• 12 years ago

I wonder, can this trace be automated?

artursapek• 12 years ago

It must be. Has anyone built a transaction tracer? Perhaps a visualizer using d3?

ihsw• 12 years ago

"Coming together" is a bit difficult to determine -- how do you identify a large group of recipient addresses as a single entity? How do you differentiate between a group of addresses belonging to a single owner, and a group of addresses belonging to multiple owners?

We can construct a graph tree all destinations beginning from that one address, but what good would that be? Where do you make inferences to determine the identity of the recipients? How do you group them together?

At some point your trail becomes so long and so disparate that any effort to continue following that trail would be a pointless endeavor.

Sure the technology is there to follow the trail indefinitely, and (where available) you can easily check all recipient addresses from this "poisoned" tree against regular fiat exchange logs, but within the BTC ecosystem? It's an interesting intellectual challenge, but not useful.

deweller9• 12 years ago

Here is an example of something you might find:

Say you traced these coins to 50 different addresses. And then, for example, say that those addresses lay dormant for 3 months. And then 45 of those addresses send bitcoins somewhere on the same day. That would imply that the coins are under the control of a single owner.

I agree it is difficult and beyond the scope of just writing a simple script.

deweller9• 12 years ago

Or maybe you find that all of these coins end up in addresses that have not been touched in 2 years. That would lend support to the theories that the cold wallet keys were lost.

chevreuil• 12 years ago

I'm a bit new to bitcoins, but is it technically possible for the bitcoins community as a whole to make a blacklist of bitcoins addresses and "ban" the stolen bitcoins ? Such blacklist would daunt robbers and enforce public trust in bitcoins.

the_watcher4• 12 years ago

Well, the supply of BTC is finite, so simply excluding stolen BTC's has some additional problems. May be better than not addressing it, but while BTC provides a mechanism for following them through the transaction chain, it's not that simple to ID what addresses contain "stolen" BTC. What if the thieves are able to launder them through unwitting proxies? For example, steal a bunch of BTC, sell them on another exchange immediately, and now, how do you blacklist those "stolen" bitcoins without screwing over an innocent bystander?

deweller9• 12 years ago

Others have proposed such measure. And it sounds like a good thing on its face.

The problem is that who then decides which coins are "bad"? Does the US Government get to decide? How about coins that fund organizations that the US Government doesn't care for?

My personal opinion is that no bitcoin should ever be tagged as better or worse than any other one. By messing with the fungibility of the currency, we would do way more harm in the long run than good.

webkike• 12 years ago

Absolutely impossible. One of the major positives of bitcoin is that accounts cannot be frozen by any authority.

bencxr• 12 years ago

while in theory possible, this approach has not been done because it is said to be a slippery slope down the lines of being against "bitcoin neutrality".

once the feature exists to treat one set of coins different from another, it leaves the protocol open to control by centralized parties - they could ban the use of "unidentified coins", etc.

patio11• 12 years ago

This is not technically speaking impossible, but the Bitcoin community has a visceral hatred for the idea, because it allows off-blockchain-entities to effectively deprive them of the use of their coins. It also undermines trust in the currency generally, since why accept Bitcoins if there is the possibility that you'd be paid with black Bitcoins instead of white Bitcoins, when you're practically speaking guaranteed that all dollars are green.

Also "Take all the coins that went through Silk Road. Now, floodfill forward." (probably) colors most of the network black.

tensafefrogs• 12 years ago

It would be possible if enough miners started supporting a blacklist, but the real problem is not enforcing it, but who decides which coins are "stolen"?

Bitcoin is decentralized, and that's the benefit of it. Creating a global block list would go against that.

Bootvis2• 12 years ago

But what if I steal a Bitcoin and exchange it directly to USD. If the coin is banned later my counterparty, who acted in good faith, is left with an empty bag.

btcfn2• 12 years ago

Impossible. You'd have to somehow convince ALL miners to not process them.

Fungibility prevents you from simply blacklisting these coins.

http://themonetaryfuture.blogspot.it/2013/12/why-bitcoin-fun...

pbreit• 12 years ago

Making arbitrary decisions to ban bitcoins seems fundamentally antithetical to the whole exercise.

dogecoinbase• 12 years ago

The main issue here is that once a Bitcoin enters a wallet, it's indistinguishable from the other BTC in that wallet. So you'd have to blacklist whole wallets, and since you can't deny payments, people possessing stolen BTC would simply tip anyone trying to enforce this scheme.

stef25• 12 years ago

Assuming those transactions you describe constitute "the theft", how on earth could Gox not have noticed their wallets being emptied?

Carltonian2• 12 years ago

That's the 750k Bitcoin question.

jackgavigan2• 12 years ago

Why take 429k and split it into many addresses each containing less than 1,000 BTC each?

Ever heard the adage "Don't put all your eggs in one basket"?

It's possible that MtGox used to operate everything from a single, large wallet but decided to split it up into lots of smaller wallets, to avoid the risk of suffering a single, catastrophic compromise.

rsiqueira2• 12 years ago

When following the splits-in-2 of this transaction, many accounts still have about 1000 BTC in their final balance according to blockchain. E.g: 1BoGw97oS9L2mU8HTQqpm7yxC72H4LCm6i (Final Balance: 1,000.35 BTC). The question is: who may be the owner of those large amounts of of about 1000 btc? If MtGox did all those splits in 2 smaller accounts, then MtGox could still be the owner?

marcusramberg• 12 years ago

Yeah, that worked out well.

IanCal• 12 years ago

Having somewhere in the region of half a billion dollars in a single wallet would feel very dangerous to me, certainly.

enraged_camel• 12 years ago

>Ever heard the adage "Don't put all your eggs in one basket"?

I'm pretty sure the opposite is also true though, as in "don't split all your eggs among thousands of little baskets." I mean, at some point the overhead of managing all of those wallets must outweigh the risk of having everything in one wallet, right?

mars2• 12 years ago

that's common practice to anonymize bitcoins. google 'bitcoin tumbling service'.

deweller9• 12 years ago

So do you think that these 429k bitcoins were all sent through a tumbler? Now that would be interesting information.

Can we verify this? Obviously we can't trace the outputs, but can we look for patterns that suggest the use of tumblers/mixers?

sbierwagen• 12 years ago

Tumbling only works if you're a small fraction of the total. If you put $300 million into a tumbler that only has $1 million of other volume, then it's pretty easy to track you.

PeterisP3• 12 years ago

If any scenario that 'blacklists' some bitcoins is implemented (IMHO it won't, but if we're discussing it..), then any bitcoins 'tumbled together' with blacklisted bitcoins would be blacklisted as well.

Which would mean that either people would stop using tumbling services (since the process would turn 'good' bitcoins into 'tainted' bitcoins as soon as a single participant wanted to anonymize stolen BTC), or tumbling services would disallow tumbling any blacklisted bitcoins, or both.

freefrancisco• 12 years ago

It would be interesting to put these transactions, or the whole blockchain, in a graph database like Neo4J. Dealing with it as a graph would make it easier to find the sinks for all the transactions that started from that wallet. It would also be interesting to look at deviations from the historical statistical distribution in the aggregate of these transactions as a function of time, that would show when a single actor moved a lot of bitcoins even if it is allocated among many addresses. I would bet that the thieves didn't bother to match their transactions with the background statistical distribution.

Torn• 12 years ago

Visualising it in something like KeyLines (http://keylines.com/) would be awesome.

sciencerobot• 12 years ago

this exists: https://github.com/thallium205/BitcoinVisualizer

negamax• 12 years ago

I followed until this far

https://blockchain.info/zh-cn/address/1BWxHjJMmfxfu3w9ESDx91...

And it goes back to MtGox address. What?

Following another chain and ended up here

https://blockchain.info/zh-cn/address/1Cz3BkgQ9NJGq5gvPLs5Yr...

Same. Goes back to MtGox.

Edit: Guys, the original address. The one which contains the MtGox coins. If you track any large transaction. > $30k, even the recent ones. They follow the same pattern. Split into two. And they all end up in pretty big wallets.

As much as I want to call it a witch hunt, there seem to be some patterns (I may be biased as I do want this thing to end up in positive). There's still so much information missing.

gizmo6862• 12 years ago

Thanks.

Is there an API available for doing this type of analysis of the blockchain (or a program already built for this)?

gremlinsinc2• 12 years ago

Yeah, and I'm sure this line of thinking, will eventually route out the person who stole all those bitcoins -- and I won't be surprised it it's The top execs of Mt. Gox - - who better to take the money and run? They KNEW that they couldn't possibly sell bitcoins at higher than market prices, and make a profit UNLESS they were running a Ponzi scheme.

andypag• 12 years ago

Could these be the coins? http://www.reddit.com/r/Bitcoin/comments/1z8bqb/jed_mccaleb_...

zacinbusiness3• 12 years ago

So if the bitcoins are seized by some government entity....wouldn't that make the total value of bitcoin go up? Supply and demand and all that...

Again, I know very, very little about bitcoin or economics in general.

theklub• 12 years ago

Yes and no in my opinion. Because while the total supply goes down, some confidence is also lost (at least short term).

jsaxton86• 12 years ago

An interesting idea, but it assumes that the demand doesn't change after a government seized a large number of BTC.

glesica• 12 years ago

Depending on whether people viewed the seizure as permanent or not, it would reduce the number of available bitcoins and, theoretically, cause a price increase. However, that assumes the volume of bitcoins demanded didn't also go down, which would most likely also happen since a large-scale seizure would reduce confidence in bitcoin and cause fewer people to use them (and many people holding them to try to sell them for traditional currency).

zeidrich• 12 years ago

Bitcoins have no intrinsic value. They only have value in trade.

If I started my own currency called a superdollar, and I had the only superdollar in existence, it would be worthless, despite the fact that it was very rare.

If a foreign entity can make the bitcoins you have disappear, that leads to less confidence in your ability to use the bitcoins for trade. The fact that there's fewer out there doesn't mean yours are more valuable. The number of bitcoins has been constantly increasing, yet the price has been going steadily up as well. That's because they've become more trusted, more usable. More places will accept them in trade, and more exchanges exist.

When places like Mt. Gox fail, or fear that foreign entities have the ability to essentially rob the banks with impunity, it makes the currency less trusted.

Consider this. The government issues a currency called digibux. They are matched to the USD, you can buy one digibuck for 1 USD, but they are limited in volume, only so many are offered. Looking at this naively, digibux has the same value as USD. Now consider the following happens, the government takes down a giant drug operation, and invalidates all of the digibux that were involved in the operation. A friend of yours who was a pizza delivery guy has hundreds of dollars removed from his digital wallet because they were tips from people who had participated in the drug trade.

Now you're sitting with 10,000 digibux, and you know that the government is pleased with the results of the previous sting and wants to set up more operations like that. Someone offers you 8,000 USD for your 10,000 digibux. You know that the 8,000 USD can never just vanish.

The number of digibux in circulation went down. But did that make the total value of digibux go up?

zacinbusiness3• 12 years ago

That's an excellent explanation and I appreciate it. I'm sure you've simplified some, but it makes sense to me.

dragonwriter2• 12 years ago

So if the bitcoins are seized by some government entity....wouldn't that make the total value of bitcoin go up? Supply and demand and all that...

You are only considering the supply side and assuming that the government seizing bitcoins from one of the major exchanges (and, subsequently, collapsing the exchange) doesn't impact the perceived viability of the bitcoin ecosystem (since, presumably, the same thing could happen elsewhere) and reduce the demand for bitcoins as well as the supply.

Also, it further assumes, on the supply side, that the government simply throws the coins in, effectively, a digital landfill -- otherwise, the fact that they were forcibly transferred from the exchange to the government doesn't actually have any effect on supply.

zacinbusiness3• 12 years ago

That's something I've always wondered about. When the DEA or seizes, say, a million dollars in cash from a drug dealer...where does it go? I assume the bulk of it goes into the pocket of someone. But where does the officially seized money go? Do they destroy it? Similarly, what would they do with 25,000 BTC? And could they even document it properly?

tudorizer• 12 years ago

"Lost" is such a harsh word. They are still here, in the blockchain.

jackgavigan2• 12 years ago

There have been hints that MtGox's losses were due exploitation of the transaction malleability issue.

I don't know if it's possible to identify (from the blockchain) transactions that have been altered in a way that exploits the malleability issue but it should certainly be possible to identify pairs of transactions with identical startpoints, endpoints and sizes (i.e. number of bitcoins).

If it turned out that pairs of such transactions turned out to come from MtGox's wallets to third-party wallets, that would probably be a good starting point.

colinbartlett2• 12 years ago

I would be surprised if that was simply a ploy by Mt. Gox to deflect blame from their own ineptitude.

tjaerv2• 12 years ago

http://falkvinge.net/2014/02/28/the-gox-crater-crowd-detecti...

the_watcher4• 12 years ago

Since the story seems to be that this has been going on for years without anyone investigating, I'd guess that most of them are long since laundered and distributed between various innocent bystanders. Even if we could trace every single uBTC to it's current location, the percentage actually held by those responsible has got to be very small.

uslic001• 12 years ago

Any truth to the claims made on this website?

http://www.doctrackr.com/blog/bid/376566/409-Million-in-Bitc...

"The Pony botnet attack was an ambitious data collection program. TrustWave reported staggering data loss statistics from the event the following sensitive information was stolen.

1,580,000 website login credentials 320,000 email account credentials 41,000 FTP account credentials 3,000 Remote Desktop credentials 3,000 Secure Shell account credentials Pony’s attack on the Bitcoin community took down the worlds largest Bitcoin exchange, and caused the price of Bitcoin to plummet. The attack reinforced security concerns over the currency. Can confidence in Bitcoin recover?"

corresation2• 12 years ago

To reply to a recurring line of thought, Bitcoins are not atomic entities with serial numbers like dollar bills. You can't say "Bitcoin #AE472b was stolen" and then trace it through its life, or blacklist it.

Instead Bitcoin is a ledger that details wallets and accounts. The origin of balances came from mining, and then people made transactions that, on the official ledger, transferred some or all of those amounts to other wallets. And on, and on, and on.

Hypothetically, if the community were foolhardy enough to trust someone's list of "recipients of mislaid money" wallet ids, you could blacklist those wallets, or even, through group agreement, force transfers back. But that's where tumblers come in: Tumblers are group wallets that take transactions in from all sorts, and then distribute them anonymously to new wallets you control (after a service fee, of course). Anyone hiding their tracks will of course have used a tumbler, often anonymously run on the Tor network. Do you blacklist or reclaim from every wallet that took an output from a tumbler?

Bitcoin would be toast. Tumblers are something that legitimate users of the currency make use of. You won't get the cooperation of tumbler operators because they are themselves engaged in a very serious crime.

So the trace-ability claim repeatedly being made just doesn't hold when you have legitimate and illegitimate transactions by the millions all intermixed. When bitcoins are transferred...game over. Give up on that thought.

badman_ting3• 12 years ago

Right, exactly. It just seems hopeless to try to figure out "where they are". They're drops of water in the ocean.

wpietri• 12 years ago

In this particular case, are tumblers viable? If I understand rightly, the stolen coins here are a significant percentage of the amount of bitcoins outstanding.

corresation2• 12 years ago

Supposedly this looting went on for years, death by a thousand transfers. It will have dissolved into the sea by now.

brudgers• 12 years ago

I suspect that the bitcoins have been exchanged for something else and are back circulating around. The beauty of the heist is that any bitcoin in circulation invariably passes through transactions where the parties have a compelling interest in not being attached to the transaction.

After finding a stolen bitcoin, unravelling its history back to the Mt. Gox Heist is likely to meet a wall of resistence - e.g. if it passed through Silk Road the parties on both sides will be reluctant to come forward and provide information.

In terms of a tort, is it civil or criminal? Was the loss of the coins by Mt. Gox simply an unsatisfactory business transaction? Supposing there was a theft, how should the bitcoins be valued? By the amount of storage space they consume, by the cost of the resources required to create them? If by some market price, which one - some average at the time of their creation, at the time of their loss, at the time of their recovery, or at the time of the prosecution? Many of those values are zero.

Finally, how many of Mt. Gox's customers are going to come forward and claim ownership if such claims are accompanied by a risk of being asked "And how came you to acquire these bitcoins?"

Unlike fiat currency, no government has an interest in supporting the agreed upon fiction that bitcoins are not a fiction. Stealing cash is a crime because the government has an interest in cash being an asset.

The problem with cryptocurrency is the proportion of black and grey market interests it attracts. With bitcoin, they were there first and good citizens second. Separating good citizens from their money was always going to be an attractive option, probably more attractive than separating participants in the black and grey markets from theirs given the greater potential for more serious reprisals which might accompany theft.

It's been over since the first Bitcoin story on NPR.

nickmolnar2• 12 years ago

Wouldn't the sheer number of coins involved make tumbling services almost useless. What is the volume that a single tumbler gets per day? If you put in tens of thousands of coins, and there are only a few dozen coins in the Tumblr that day, your coins are going to be most of what comes back.

dragonwriter2• 12 years ago

Wouldn't the sheer number of coins involved make tumbling services almost useless.

Sure, if they were all stolen and tumbled at once. The descriptions of a cold storage "leak" suggest that if the loss was due to theft, it was a gradual over an extended period.

zerocored• 12 years ago

Things like these are bound to fall. People should have predicted this risk.

ZeWaren• 12 years ago

What if Satoshi Nakamoto stole them?

rikacomet• 12 years ago

So what happens next?

-The government has no inclination to interfere (even though many US citizens lost their money) as they were against it (if not outright criminalizing it).

- The lost money, even if recovered in full, would not be the same. The time lost is money lost. Besides the emotional shock and pain people had to take.

- Someone somewhere is sitting on that money, and it will have value, because people won't stop trading Bitcoin even now.

I know people are not ready to take any criticism of bitcoin, but here it is, what needs to be fixed about it.

oskarth• 12 years ago

Here's what I would do if I stole 750k Bitcoins.

1. Split the wallet up into as many wallets as possible. Preferably by transferring them through a couple hundred compromised (but not emptied) accounts.

2. Sell each individual wallet of say, 100-1000 BTC, on the black market. Make sure the transaction happens outside the transaction chain (i.e. either in real life or using other wallets with some kind of alternative trust system).

3. Be prepared to lose 5-20% of the value, in exchange for turning the money "white".

If the money was stolen and the people who took it aren't stupid, I don't see how someone is ever going to find it.

bdevine• 12 years ago

Of course, the more wallets you create and sell, the higher the probability that at least one of their buyers is stupid.

junto• 12 years ago

Whilst the numbers quoted in US dollar terms are quite staggering, I would be interested to know what the actual losses are based on the initial investment dollar amount.

I'm guessing many of these coins were mined or bought before the astronomical price rises.

Of course I understand that that is irrelevant to people who have perceived millions of USD, but interesting nevertheless.

danudey2• 12 years ago

This is an interesting point. This value is all speculative until the it's resolved by conversion to another currency. The entirety of my LTC holdings are from mining coins, trading out to USD before it dropped, then 'buying' in again. I ended up with around five hundred bucks worth, mostly due to just smart trading, costing me nothing.

The value has recently dropped, and I'm sad that I didn't cash out before, but I didn't actually lose anything. I'm still up the entire value of my portfolio, I'm just not up as much as I was before (and could have cashed out at).

I do feel bad for the people who bought in and then lost it all.

elif• 12 years ago

Instead of a blacklist which is tantamount to centralized regulation, there can be a concerted effort by the community to publicly shame people using these coins, or tumblers, merchants, services, etc. which accept them.

gremlinsinc2• 12 years ago

Wouldn't it be funny if the lost bitcoins---were all the result of someone forgetting where they put the key? So not stolen, just literally lost? Talk about a major 'oops' moment.

ryanSrich• 12 years ago

They are most likely being held by the U.S. Government.

http://www.reddit.com/r/BitcoinMarkets/comments/1z2xo5/specu...

bitcoinlive• 12 years ago

Crypto currency news @ http://cryptocurrencylive.com/newest

Ask HN: Where are the 750k Bitcoins lost by Mt. Gox?

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