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Mt. Gox Gone? Apparent Theft Shakes Bitcoin World

timothy posted about 2 months ago | from the repercussions-will-repurcate dept.

The Almighty Buck 695

mendax was one of many readers to write with news about the apparent shutdown of Bitcoin exchange Mt. Gox, in the wake of massive theft. "The New York Times is reporting that Mt. Gox, the most prominent Bitcoin exchange, 'appeared to be on the verge of collapse late Monday, raising questions about the future of a volatile marketplace.' 'On Monday night, a number of leading Bitcoin companies jointly announced that Mt. Gox, the largest exchange for most of Bitcoin's existence, was planning to file for bankruptcy after months of technological problems and what appeared to have been a major theft. A document circulating widely in the Bitcoin world said the company had lost 744,000 Bitcoins in a theft that had gone unnoticed for years. That would be about 6 percent of the 12.4 million Bitcoins in circulation.' Maybe the U.S. Dollar isn't so bad after all." Forbes goes further, and says flatly that Mt. Gox has shut down; Wired calls it an implosion. Reader electron gunner links to the alleged leaked document which outlines the exchange's crisis strategy. Watch this story for updates, since there are bound to be new developments.

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Vive le Galt! (4, Insightful)

Shadowmist (57488) | about 2 months ago | (#46333197)

Waiting for the libertarians here to demonstrate why this shows how Bitcoin is such a wonderful idea.

Re:Vive le Galt! (3, Funny)

arisvega (1414195) | about 2 months ago | (#46333261)

MONEY ALLTOGETHER is not a good idea. Think for yourself, instead of waiting for some authority to think for you.

Re:Vive le Galt! (0)

Anonymous Coward | about 2 months ago | (#46333329)

I don't get how this didn't get +5 Funny within seconds.

Re:Vive le Galt! (0)

Anonymous Coward | about 2 months ago | (#46333365)

Think for yourself, instead of waiting for some authority to think for you.

Please stop applying this mindset to grammar. Thank you.

I like your style! (1)

Anonymous Coward | about 2 months ago | (#46333379)

MONEY ALLTOGETHER is not a good idea. Think for yourself, instead of waiting for some authority to think for you.

I for one would like to sign up to your newsletter.

Do you charge more than one chicken?

Re:I like your style! (1)

TheCarp (96830) | about 2 months ago | (#46333573)

You have a chicken? Would you consider trading for eggs? I have a goat, how many eggs can I get for that?

Re:Vive le Galt! (2)

beelsebob (529313) | about 2 months ago | (#46333479)

How would you propose that we distribute resources to people in a way that's fair, and gets the resources to the most in need and most capable?

Re:Vive le Galt! (2, Insightful)

Gr33nJ3ll0 (1367543) | about 2 months ago | (#46333639)

What part of the current system do you think is fair, and gets resources to the most in need? It does a great job of moving resources around, and storing value, but nothing about it is fair, balanced, or guarantees distribution to the places best or helpful for society.

Re:Vive le Galt! (3, Funny)

Sockatume (732728) | about 2 months ago | (#46333265)

For maximum irony, the strategy doc states that they're toying with "we're too big to fail" as a PR angle, going cap-in-hand to other bitcoin exchanges to get bailed out.

Re:Vive le Galt! (5, Funny)

Joce640k (829181) | about 2 months ago | (#46333333)

It's as if a million bitcoin owners suddenly cried out in terror and were suddenly silenced.

Re: Vive le Galt! (0)

Anonymous Coward | about 2 months ago | (#46333451)

Million? Customers of MTGOX? I have a hard time believing that, Obi.

Re:Vive le Galt! (4, Funny)

Anonymous Coward | about 2 months ago | (#46333351)

Yeah, I suppose you'd rather have a fiat currency. Well whatever the economist say, a currency based on nothing except shitty Italian cars is worthless and personally I only accept canned food as any form of payment because I know the big crash is coming.

Re:Vive le Galt! (4, Insightful)

Chrisq (894406) | about 2 months ago | (#46333355)

Waiting for the libertarians here to demonstrate why this shows how Bitcoin is such a wonderful idea.

Where else would a bank be free to disappear with your money ..... Oh wait ... apart from Madoff, Icelandic banks, BCCI, ....

Re: Vive le Galt! (5, Interesting)

O('_')O_Bush (1162487) | about 2 months ago | (#46333425)

Madoff is an excellent example of why handing your money to an individual or small group (just like the ameteurs at Mt. Gox) to keep in your trust is an awful idea. Real banks, the ones with experience not losing all of your money or that are regulated and insured by the U.S. gov't, by comparison, are stable, secure, and at least reliable enough for an economy to run on.

Re: Vive le Galt! (2)

Enry (630) | about 2 months ago | (#46333495)

And many of your deposits in traditional banks are insured against failure by the government.

Re: Vive le Galt! (0)

jspayne (98716) | about 2 months ago | (#46333603)

...that are regulated and insured by the Canadian gov't...

FTFY. Ever wonder where these new banks in the US with funny names came from?

TD = Toronto Dominion RBC = Royal Bank of Canada

HSBC is British, but you get the idea... The US financial system is not a safe place for your money.

Re:Vive le Galt! (1)

Mitchell314 (1576581) | about 2 months ago | (#46333607)

That trick doesn't even make sense for banks with large amounts of lender assets. Most normal [US] banks would be walking away from profits, if they decided to disappear.

Re:Vive le Galt! (1)

DiamondGeezer (872237) | about 2 months ago | (#46333391)

It looks like a classic market capitulation. If no-one buys the low now, then Mt.Gox is finished as a Bitcoin exchange.

Unless BitCoin is backed by a tangible asset, then it must fail eventually.

Re: Vive le Galt! (2, Insightful)

Anonymous Coward | about 2 months ago | (#46333509)

There is no "low" if you can't ever withdraw your BTC. If there were any chance of buying at MTGOX extra-low prices and being able to sell elsewhere, the arbitrage opportunity would have attracted enough interested parties to equalize the market prices (the law of one price). MTGOX doesn't actually have the BTC to sell you; if you buy from them, you're buying scrip that's worse than fiat.

Re:Vive le Galt! (0)

Enry (630) | about 2 months ago | (#46333519)

It doesn't need to be backed by a tangible asset. It needs to be backed by something of value. Until now, that value was the exchanges, and their value has now decreased to 0.

Re:Vive le Galt! (0)

Anonymous Coward | about 2 months ago | (#46333535)

"Unless BitCoin is backed by a tangible asset, then it must fail eventually."

You mean like the US dollar and the legal tender of most other countries too?

Re:Vive le Galt! (1)

alen (225700) | about 2 months ago | (#46333655)

those are backed by weapons that will literally turn you into dust

what was gold backed by in the good old days?

Re:Vive le Galt! (0)

Anonymous Coward | about 2 months ago | (#46333541)

Why do you assume "the" libertarians would automatically defend a bad idea? Perhaps it's not a bad idea, but a bad implementation?

Whatever. Your agenda is ridiculously apparent.

Re:Vive le Galt! (2)

TheCarp (96830) | about 2 months ago | (#46333657)

And not even a bad implementation of the currency itself, a bad implementation of the exchange. This is nothing new, people have been finding ways to scam systems since systems existed to be scammed.

However, that they allowed their bankroll go so low before they realized there was a problem, they should have been looking to shut down the exchange and fix it long before it got that bad.

Dunning krugerrands (1)

Anonymous Coward | about 2 months ago | (#46333201)

Still the most clever and insightful internet comment of the last year (i didnt come up with it)

The paper trail (2, Interesting)

Anonymous Coward | about 2 months ago | (#46333205)


Re:The paper trail (1)

satuon (1822492) | about 2 months ago | (#46333585)

Which wallet is that? Why do the transactions have equal amounts (+10000 BTC then -10000 BTC, etc.)?

Where's the bailout? (4, Insightful)

Wireless Joe (604314) | about 2 months ago | (#46333215)

Oh, that's right. Unregulated currency free from government interference. Enjoy!

Re:Where's the bailout? (1)

JcMorin (930466) | about 2 months ago | (#46333249)

god thanks we don't bailout poor managed company. At least the failure of Mt Gox will not result in more money printing resulting is the reduction of value of the rest of the population. There bitcoin may be gone but not mine.

Re:Where's the bailout? (4, Interesting)

Sockatume (732728) | about 2 months ago | (#46333291)

Actually MtGox is looking for a bailout as their main recovery strategy, according to the document. They argue that their insolvency would destroy bitcoin as a currency and therefore it's in everyone's best interests, Bitcoin exchange and end user alike, to donate to them until they're solvent again.

Re:Where's the bailout? (5, Funny)

JaredOfEuropa (526365) | about 2 months ago | (#46333559)

The bankruptcy of MtGox would hardly lead to the demise of Bitcoin, at worst it will temporarily shake confidence in the cryptocurrency. Expect a drop, rebound and gradual increase in price.

Re:Where's the bailout? (0)

Anonymous Coward | about 2 months ago | (#46333321)

Maybe you could use some of those bitcoins to pay someone to teach you the difference between there and their.

Mt.Gox has a long history of problems, Bitcoin not (4, Interesting)

JcMorin (930466) | about 2 months ago | (#46333235)

Mt.Gox is like a bank, it's not because one big bank fail (Lehman Brothers for instance) that the whole currency is bad. Mt Gox was poorly managed, bad software code, bad PR, often DDOS. They couldn't stand the #1 place they hold for too long. I'm very sorry for everyone who lost money with Mt. Gox but don't get me wrong. Bitcoin ecosystem still exist and many other exchanges services will emerge as of that. Users and investors will have to be very careful about where they hold their money. In my case, I trust my on own encrypted devices.

Re:Mt.Gox has a long history of problems, Bitcoin (1)

Sockatume (732728) | about 2 months ago | (#46333271)

I thought the take-home message from Lehman Brothers was "the whole [economy] is bad".

Re:Mt.Gox has a long history of problems, Bitcoin (2)

jbmartin6 (1232050) | about 2 months ago | (#46333287)

Many people seem to forget, bitcoin is not inherently an investment vehicle. It is a currency. Using it as an investment is risky.

Re:Mt.Gox has a long history of problems, Bitcoin (5, Insightful)

bunratty (545641) | about 2 months ago | (#46333367)

If it's risky as an investment, how useful is it as a currency? I would expect a currency to be one of the least risky forms of property to be useful.

Re:Mt.Gox has a long history of problems, Bitcoin (2)

Dunbal (464142) | about 2 months ago | (#46333413)

He obviously thinks a "currency" whose actual value against other currencies regularly swings 100% or more in a day is useful. Frankly I want to hear about the guy who sank money into Bitcoin ATMs and how he's doing at the moment...

Re:Mt.Gox has a long history of problems, Bitcoin (1)

Sockatume (732728) | about 2 months ago | (#46333427)

Depends on what it's being used for. For small-scale transactions in time and value - e.g. turning $7 into BTC to immediately buy a CD - a relatively unstable currency is fine. Frankly, the while decentralisation of bitcoin made me assume that's the only way it would ever be used.

For anyone holding any significant amount of cash for any significant amount of time - e.g. a Bitcoin exchange - the instability is a nightmare.

Re:Mt.Gox has a long history of problems, Bitcoin (1)

bunratty (545641) | about 2 months ago | (#46333493)

Sounds like bitcoin is more useful as a payment method (like a check or credit card or Paypal) than as a separate currency.

Re:Mt.Gox has a long history of problems, Bitcoin (5, Insightful)

number17 (952777) | about 2 months ago | (#46333579)

For small-scale transactions in time and value - e.g. turning $7 into BTC to immediately buy a CD - a relatively unstable currency is fine.

Stability of currency is absolutely needed for a vendor. If you had to change your pricing every 10 minutes how would you ever advertise anything? Would restaurants have dynamic menus with pricing that changes throughout the meal?

Re:Mt.Gox has a long history of problems, Bitcoin (0)

Anonymous Coward | about 2 months ago | (#46333433)

A thousand times this.
Bitcoin isn't a currency and never will be until the price is as stable as actual money. At present it's just an investment like buying shares is.

Re: Mt.Gox has a long history of problems, Bitcoin (1)

O('_')O_Bush (1162487) | about 2 months ago | (#46333491)

You are right, which is the fundamental problem with it, right now, and the reason why it is floating on such an enormous bubble. Until it stops being speculated, it won't be stable, and if it isn't stable, it won't be a practical currency, and if it isn't a practical currency, it is subject to speculation. That is the cycle that is keeping prices high, and once the trigger is big enough, (or someone starts dumping the currency, which there are lots able to) the cycle will reverse. And it will reverse, given how many people were throwing their money into it thinking BTC would keep climbing to 10k-100k/coin, not thinking about the what a 1T total value digital currency would mean. And then, 'hey, I put real dollars into digidollars and ended up with way fewer real dollars that I can buy stuff with', crash ensues.

Re:Mt.Gox has a long history of problems, Bitcoin (2)

Alioth (221270) | about 2 months ago | (#46333489)

Pity it's nearly useless as a currency. The wild swings in value on a minute-by-minute basis make it impossible to use as a currency for anything other than black market goods.

Apparently using it as a currency is risky. (0)

Anonymous Coward | about 2 months ago | (#46333531)

BTW, who broke into /. and replaced it with this Wordpress blog????

Re:Mt.Gox has a long history of problems, Bitcoin (1)

StripedCow (776465) | about 2 months ago | (#46333369)

Mt.Gox is like a bank

Where do you need a bank for when you have Bitcoins?
The principle behind Bitcoin is that it is a distributed system, and payments can be made in a "peer-to-peer" fashion.

Re:Mt.Gox has a long history of problems, Bitcoin (0)

Anonymous Coward | about 2 months ago | (#46333415)

Mt.Gox is like a bank

Where do you need a bank for when you have Bitcoins?

Well, some people apparently thought they needed one in Japan.

Re:Mt.Gox has a long history of problems, Bitcoin (4, Informative)

JcMorin (930466) | about 2 months ago | (#46333599)

You don't need a bitcoin IF you have bitcoin, but the exchange service like Mt.Gox is doing exactly that, changing your cash to bitcoin and bitcoin to cash. Once you have Bitcoin you should remove them from the exchange service and store them on your own device to avoid any potential lost.

Sad (2)

elgholm (2746939) | about 2 months ago | (#46333387)

Kind of sad that a new currency - whose main idea was that it should be easy for private people to transfer money over the internet, free of charge - actually need these big "exchange-places" who not only takes out a charge (=makes money on your transaction) but actually becomes more and more as a regular bank. What's the point then? If the current usage continues we will have big online bitcoin-banks, who then will employ traders and whatnot, and start speculating on/with the currency, and, yes, we'll be in the same place we are now. Call it USD or BTC, same thing. It would be nice if the currency actually was so easy to use, and understand, so that people would feel comfortable to actually run the necessary software themselves, and take own - private - responsible for their.. yes.. wallets.

Re:Sad (1)

Dunbal (464142) | about 2 months ago | (#46333533)

Because the problem never was the currency, the problem is with human beings and their behavior.

Cash (0)

Anonymous Coward | about 2 months ago | (#46333601)

In my case, I trust my on own encrypted devices.

So, you're doing the equivalent of putting your money in your mattress.

Pyramid collapasing? (5, Funny)

NotDrWho (3543773) | about 2 months ago | (#46333273)

I've never personally been part of a Ponzi scheme collapsing before. But as the proud owner of a fraction of a Bitcoin, I guess this may be my big chance.

/. always so timely with its news (0, Offtopic)

Anonymous Coward | about 2 months ago | (#46333275)

I've been reading about this since yesterday. Good to see /. is as current as ever with its news. Those Dice $$$ being put to good work.

mtgox.ml (-1)

Anonymous Coward | about 2 months ago | (#46333279)


Not Dead Yet. (2)

rmdingler (1955220) | about 2 months ago | (#46333293)

More and more, mainstream media outlets are covering bitcoin stories.

What I'm saying is there is a slew of non-tech money out there about to prop up the price.

Even gold is worthless in a famine, but if enough people covet something it will hold value.

Re:Not Dead Yet. (0, Funny)

Anonymous Coward | about 2 months ago | (#46333359)

...but if enough people covet something it will hold value.

Except Slashdot Beta, no value to be found with that one.

Maybe a bit unclear on security? (4, Insightful)

seebs (15766) | about 2 months ago | (#46333295)

A programmer who would implement an ssh server in PHP [reddit.com] may be part of the problem?

BTW, the article linked from that reddit comments thread really is beautiful. In the absence of the later disasters, I might have speculated that this was parody.

Facepalm. DNS too - wikipedia uses PowerDNS, MySQL (2)

raymorris (2726007) | about 2 months ago | (#46333513)

That's a face palm. He mentioned he wrote his own half-ass DNS server so that he could use MySQL as storage too. Apparently he didn't take five minutes on Google to discover PowerDNS. Pdns is used by major sites like Wikipedia, has a MySQL backend, and takes security seriously. I found and reported a security flaw in Pdns once and their response was textbook perfect.

Acquisition hinted by Web page HTML source (4, Informative)

vinsci (537958) | about 2 months ago | (#46333313)

From mtgox.com:

<html> <head> <title>MtGox.com</title> </head> <body> <!-- put announce for mtgox acq here --> </body> </html>

Why do people use online wallets? (1)

satuon (1822492) | about 2 months ago | (#46333323)

Most people around me say it's better to keep your coins in an online wallet because it's easier to set-up, but I didn't do that, because then it would be the exchange that controls my money.

If people had kept their bitcoins in offline wallets, Mt. Gox wouldn't have been able to take them.

Gross negligence with customer funds (0)

Anonymous Coward | about 2 months ago | (#46333353)

If you compare MtGox to a bank then helping the fraudsters take suitcase after suitcase of money from the bank and wishing them a nice day every time this happened. To me this appears to be gross negligence in handling customer funds.
The transaction malleability problem required active assistance from MtGox support staff in order to initiate a second transaction of a withdrawal, after the original transaction seemingly failed to go through. Why did no one at MtGox ever have a closer look at the block chain to examine if and why the first transaction had failed in the first place? Why didn't they notice the decline of their cold storage wallet balance? This should have raised so many red flags.

phantom transactions 2 weeks ago (1)

Billly Gates (198444) | about 2 months ago | (#46333373)

For some reason only Slashdot reported no money was lost. In the phantom transactions obviously bitcoins were transferred, yet cancelled before cash could come.

On other sites like neowin it is reporting the values are sinking below $300 a coin!

Long Term Con? (5, Interesting)

Lord Apathy (584315) | about 2 months ago | (#46333381)

Sounds to me like someone was running a long term con here. Act like a legitimate business for a few years, get people to trust them. Maybe think of them as a bank and a safe place to actually cash, not bitcoins. Then once that trust is built up and you have a nice supply of money sitting in some off shore bank. Vanish like a thief in the night.

Re:Long Term Con? (0)

Anonymous Coward | about 2 months ago | (#46333505)

If you can't trust the internet, who can you trust?

But, but... (0, Troll)

Jawnn (445279) | about 2 months ago | (#46333395)

They said Bitcoin was just like currency, only better.
/sarcasm (C'mon mods. Mark this post as troll again. It doesn't change the reality.).

This is hysterical! (1)

Anonymous Coward | about 2 months ago | (#46333399)

Does anyone still think bitcoins are worth anything more than Monopoly money? HAHAHAHA!

Re:This is hysterical! (1)

BlueMonk (101716) | about 2 months ago | (#46333611)

Would you similarly suggest that diamonds are worthless if your neighborhood jeweler got robbed?

Not unexpected (1)

satuon (1822492) | about 2 months ago | (#46333423)

Well, you can't say it was unexpected. There have been problems with Mt. Gox for months now, ever since dollar withdrawals were stopped, so anyone using them was doing it at their own risk.

Cautious people would have sold their trapped dollars at a discount while they still could, and taken out all their bitcoins, so they wouldn't have lost too much. The unwary... well, they'll pay some stupid-tax.

Re:Not unexpected (1)

JaredOfEuropa (526365) | about 2 months ago | (#46333629)

They have: trapped dollars got converted to BTC and moved out, leading to BTC being more expensive on MtGox than anywhere else. Then BTC withdrawals from MtGox got blocked as well, and people started to convert trapped BTC to $ again (hoping dollars would be safer than BTC in case of problems with the company), leading to as much as a 500% gap in exchanges rates at MtGox and elsewhere.

surely someones considered this. (2, Interesting)

nimbius (983462) | about 2 months ago | (#46333455)

1. new currency emerges, becomes significant
2. reigning system of currency/government considers it a threat.
3. coordinated attacks on the stock exchange
4. bankruptcy, uncertainty, disappearance
5. 'Maybe X currency isnt so bad after all!"

the fact stands that shifting major trade away from the dollar is dangerous, but the bitcoin midel would be catastrophic. its a world where international financial sanctions cant work, and in which America would need to do more than just show up to security council meetings in the UN for a rubber-stamp vote against $evil_dictator. Iraq and Iran serve as real-world examples of this in action. both countries have in the past attempted to shift oil trade away from the dollar. Nothing says monetary supremacy like de-stabilizing the competitions government.
http://www.hks.harvard.edu/fs/... [harvard.edu]
http://www.projectcensored.org... [projectcensored.org]

Re:surely someones considered this. (2, Informative)

Alioth (221270) | about 2 months ago | (#46333549)

Never ascribe to malice what can adequately be explained by incompetence. This just looks like a sheer case of incompetence by Mt.Gox (which after all is a Magic The Gathering exchange, that's what it stands for - so run by gamers - not that this is necessarily a bad thing - but it's not an exchange run by people who are experts in banking, markets and computer security.

All joking aside... (1)

Buck Feta (3531099) | about 2 months ago | (#46333475)

Now is an excellent time to buy bitcoin.

Re:All joking aside... (1)

jratcliffe (208809) | about 2 months ago | (#46333517)

Why? I'm asking a serious question - what leads you to believe that (a) it's right to think of Bitcoins as an investment, and (b) that now is an attractive time to invest in them?

Re:All joking aside... (0)

Anonymous Coward | about 2 months ago | (#46333621)

you can still buy a (much maligned) telsa with btc? pay for college...... hang in there

Re:All joking aside... (0)

Anonymous Coward | about 2 months ago | (#46333659)

Because he has bitcoins he wants to unload?

dark matters band of 85 controls coin of the realm (0)

Anonymous Coward | about 2 months ago | (#46333553)

ike render onto.... stuff like that. putting our spirits on hold whilst collecting imaginary well being which appears then unappears in the cosmical wink of an eye leaving us both materially & spiritual bankrupted again. goal done http://www.youtube.com/results... [youtube.com]

'l walk a mile in your shoes, now i'm a mile away, & i've got your shoes' kol

slashdot only allows...... per day

cryptocurencies will survive (0)

circletimessquare (444983) | about 2 months ago | (#46333567)

but they need to be heavily regulated by the government, obviously

it seems like the entire story of bitcoin has been heavily propeled forward by naive, enthusiastic free market fundamentalist types. ideological children

and now they are learning what the rest of us know from economic history, but apparently their gullibility means they have to learn the simple lessons of history the hard way

the free market fairy does not actually solve all problems. that's a quasireligious statement of faith, and is in complete contradiction to our simple experiences with markets throughout human history

sorry libertarians

Mt. Gox Gone? (-1)

Anonymous Coward | about 2 months ago | (#46333569)

O yea like slashdot fuck beta!

Magic the Gathering Online Exchange (0)

Anonymous Coward | about 2 months ago | (#46333595)

Maybe people will think twice before hiding their money with a company named after a card game.

Re:Magic the Gathering Online Exchange (1)

The Archon V2.0 (782634) | about 2 months ago | (#46333637)

You go to Hell. I've got enough Black Lotuses stashed to fund my retirement. Yeeeeeehaaaaaaaaaaaaa!

This kind of thing is why FDIC exists (5, Informative)

JDG1980 (2438906) | about 2 months ago | (#46333597)

Maybe this will be an object lesson for the libertarians (a very expensive lesson, for some of them). In the real financial world, we used to have "bank panics" all the time. People could lose their life savings if a bank was run poorly or crookedly. Worse, if there was a recession, people were more likely to need their money immediately, so they'd go to the bank to withdraw it – but of course a large portion of deposits had been loaned out and weren't immediately. And since people knew this could happen, they'd rush to withdraw their deposits at the first sign of trouble, since they didn't want to be the one left out in the game of musical chairs. These "bank panics", then, could happen even to well-run banks, and they made recessions far worse than they might otherwise have been. During the 19th century, the U.S. economy was repeatedly devastated by bank panics.

Finally, after the Great Depression and the mother of all bank runs, the government stepped in, because the "free market" obviously wasn't working well in this area and really never had. The answer was to create the Federal Deposit Insurance Corporation (FDIC), funded by insurance premiums charged to banks. This ensured that even if a bank did go broke, the FDIC would reimburse depositors up to a certain amount (originally $2,500, but now a quarter of a million dollars). Stockholders might be wiped out, but depositors would be made whole. As intended, this reform restored confidence in the U.S. banking system. There have been quite a few failed banks [fdic.gov] that went broke, but people with checking or savings accounts at those banks still get their money back.

But didn't that lead to "too big to fail"? Not really. The whole point of the FDIC is that you can let a bank go broke, let the stockholders be wiped out, sell the bank assets at auction, and the federal insurance will make sure the regular depositors – who didn't sign up for extra risk – will get their money back anyway. So why didn't that happen in 2008? It's extremely complicated, but it basically has to do with the repeal of Glass-Steagall. This was legislation passed in 1933 that basically said because banks are federally insured, risky investment activities have to be cordoned off into separate businesses from ordinary consumer banking. In other words, you weren't supposed to be able to run a bank, gamble on risky high-yield investments with the deposits, and then go running to the federal government for a bailout when things went south. They didn't want bankers privatizing profits and socializing costs. But that law was repealed by Phil Gramm in the 1990s. As a result, everything got intermingled – we had massive insured deposits being used to gamble on derivatives that no one understood, and everything was linked to everything else in such a way that one false move would bring the whole house of cards tumbling down. The fear was that if there was not a general bailout for the investment banks (not covered by FDIC) then the whole economy would collapse. Whether that argument was sensible or just self-serving, it's what happened. Since then there have been several attempts, only partially successful, to rein in the exuberant activities of Wall Street to try to stop this from happening again.

Now back to Bitcoin. People in Mt. Gox thought they were keeping their money in a bank. Well, they were – a pre-1933 bank, with no insurance and no guarantees. There was a de facto bank run on Gox a couple months ago, and now it's gone bust and everyone has lost everything. And the libertarians didn't see this coming because they thought FDR was the devil and that all banking regulations are unnecessary.

The new meme on Reddit seems to be that you need to keep your coins in "cold storage" – if you keep them on an exchange and something bad happens, you have only yourself to blame. Imagine the financial papers saying that you can't trust the banks, so you should shove all your money under the mattress instead! It's not a solution, it's an admission of failure. Nor will it do to compare Gox accounts to, say, an uninsured stock account rather than an insured banking account. Bitcoin, at least according to its proponents, is supposed to be a medium of exchange, not a form of gambling.

It's quite possible that this fiasco will bring on real regulation of Bitcoin from various First World governments. And for all the kicking and screaming you'll see from the libertarians, that would probably be the best thing that happened to the cryptocurrency so far.

If anyone is interested (5, Funny)

DrXym (126579) | about 2 months ago | (#46333609)

I'm setting up a new exchange. It used be a Pez dispenser trading site but I'm sure it can be adapted to securely manage millions of dollars worth of financial transactions.

Of course every new industry that is on the cusp o (1)

rimcrazy (146022) | about 2 months ago | (#46333623)

.... why I was just talking to my friends that work at DEC and Control Data. Ooops oh darn, yea, those companies got crushed by the PC market's rise to power

It's the nature of the beast. This won't be the last although it's arguably the most dramatic of the firsts. In the end it will be one of the better things that happen to crypto currencies as the weak and crooked will fall by the wayside but it's not for the feint of heart as things transition.

How to avoid buying stolen bitcoins? (0)

Anonymous Coward | about 2 months ago | (#46333651)

Can these coins be taken out of circulation?
The other exchanges could create a blacklist of stolen blocks.

Huh. (1)

argStyopa (232550) | about 2 months ago | (#46333675)

It's almost like there's a reason that currency is a "government" thing.

(Not that "quantitative easing" and perpetual deficit spending isn't a form of deliberate theft in its own right, but that's another discussion.)

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