Topic: [ANN] Bitcoinica Consultancy abandons customers. Bitcoinica to enter Liquidation - page 5. (Read 54938 times)

I meant you cant tell who the owner of any bitcoin is unless you encoded a dna string into the coinbase somehow 

Not true. Bitcoins have a unique generation and spending history stored in the block chain.

Although I can't imagine someone refusing refunded bitcoins because they are not "his".

Purely logically, ensuring equal payouts this does not require that all the funds are converted to NZD. If more BTC than USD are missing, there is no technical obstacle in using a proportion of the USD to buy BTC at spot price, which would also determine the settlement ratios and with respect to that, everyone would be treated equally. The problem of fluctuating rates causing temporal inequalities occurs irrespective of how the payouts are organised, since the exchange rates of all the involved currencies fluctuate, so a particular spot exchange rate would need to be chosen anyway.

Since Bitcoinica only accepted USD and BTC, I suppose many of the creditors would object to being returned NZD. And once the liquidator abandons the idea of NZD-denominated refunds, I don't see him being legally obligated to use USD in preference to BTC. None of these are legal tender in New Zealand.

After the Linode hack people were screaming at them for not having their Bitcoins on MtGox because MtGox was perceived to be safer.  I suspect that during the claims process a lot of people used their MtGox history to verify their claim and it was simply easier to make refunds of both USD and BTC from the MtGox account (and have an independent record of those refunds).  There's no reason to believe that other important credentials weren't stored on LastPass, including the keys to hot and cold wallets.  Too many people had access to LastPass and - by extension - the accounts for which it held credentials.

It still doesnt explain why all of their coins and fiat was sitting at mt gox because at least the bitcoins can be payed out from a cold wallet....there is 0 reason for them to be deposited with a third party

It occurs to me that with the way Open Transactions works, what is happening when actual fiat or coins used to "back" a token ("asset") in the server vanish is simply that that specific asset type has become a "fractional reserve" asset. So if bitcoins get stolen, oh dear the bitcoin tokens are now fractional reserve bitcoin tokens no longer fully backed bitcoin tokens. If the devcoins, however, are still secure, then the devcoin tokens are still fully backed...

-MarkM-

A trust account is a specific type of account where someone has at least temporary control of funds on behalf of another.  By definition, someone must act as trustee of the account which renders them legally liable for the way the funds are used while under their control (which is why lawyers, accountants, real estate agents etc have fidelity funds/insurance in respect of funds held in trust).  Trust accounts generally accept funds on behalf of someone else.  You might pay your rent to your real estate agent, who deposits that money into their trust account and then forwards the rent to the owner after deducting management fees.  If you win a lawsuit, the settlement will be paid into your lawyer's trust account and you'll be paid from that account after any relevant disbursements have been made.  Accounts opened for deceased estates are essentially trust accounts.  

A normal transaction account at your bank or an account on a Bitcoin exchange is not a trust account.

Thats where multi sig comes in I guess 

Wow. I am leaning back toward thinking the safest way to handle cryptocoins might be to have a deadman switch that sends them all out to their actual owners automatically if only I can merely delay the vultures from decrypting the key-storage long enough for that deadman switch to kick in...

-MarkM-

If a bank closes down I dont know how they treat safety deposit boxes.

Get a lawyer.  It is possible you could word the contract in such a way that you aren't accepting coin deposits merely offering secure storage of the user's coins.  That combined with using physically isolated wallets should be sufficient however if you likely would want a lawyer to be sure.  The fun thing is this is all new area for the law.   Likely a lawyer who is familiar with bullion storage may have some insight into how to word the contracts. 

Bottom line is, if I have a shitload of client fiat funds in the Royal Bank of Canada that I am holding in trust for those clients, and a shitload of bitcoins in bitcoin wallets I am holding in trust for possibly completely distinct separate clients, and a bunch of devcoins similarly, and a bunch of namecoins similarly, etcetera etcetera etcetera, how should I set things up if I want to ensure that if/when the FDIC and Royal Bank and government of Canada screw us out of the (value of the?) fiat it is only those clients who were foolish enough to have fiat in trust instead of cryptocoins in trust that suffer the loss?

-MarkM-

All services should segregate their own money from user's money.  They don't need trust accounts to do this, but they do need sufficient reserves of their own to cover expected daily/weekly transactions and other operating costs.  And yes, it would be helpful if users knew what the policies regarding deceased accounts are for each service they deal with.  For those services which require a significant amount of verification, it should be easy for the executor of a deceased estate to establish the legitimacy of a claim to the account (or for users to make specific bequests of accounts in their will).  It's likely going to be a much more problematic issue with services which don't require any significant user verification, though.

Failure to segregate user funds when you accept money on deposit from people is a big deal.  It brought down one of the online poker providers that the US DoJ went after - it's not an issue which is only relevant to Bitcoin services.

A "secured" creditor is someone who has a secured claim - usually against a specific asset.  A personal loan from your bank is generally unsecured but a motor vehicle or home loan is generally secured - the lender can take control of the asset and sell it if you default and if you owe 7,000 other people money as well, that asset is not available to satisfy their claims until the secured creditor's claim has been satisfied first.  Sometimes security takes the form of a lien over something other than physical property.

Receivers deal only with the interests of secured creditors so the fact that Bitcoinica is going through as receiver before it goes into liquidation means there's at least one secured creditor.  We're presuming it's Wendon because Tihan said that funds they obtain via receivership will be made available to the liquidator for distribution to unsecured creditors.  We don't know what the secured asset is (the domain and IP are the first things which spring to mind), but there'd be little point in pursuing receivership if it had no value.

Even there funds aren't kept physically separate.  When a trust account gets a deposit it gets recorded on the ledger and the cash put in the banks vault with all other deposits.  There is no account in any bank where your funds are held seperate.  Banks work on the principal of fractional reserves.  Funds which can't be borrowed against to create new money out of thin air aren't very useful to banks.


A trust/escrow account simply means there are certain increased accounting and reporting requirements (as well as legal penalties) at the physical level they work exactly the same as any other account.

The only concept in a bank which would be completely separated funds would be a safety deposit box.  However that really isn't banking honestly you are just renting some private space in a vault.  It doesn't even require a bank there are private safety deposit box companies too.

Theres a thing  called the FDIC which insures all deposits.

Theres a lot about the banking system that doesnt make sense 

But, fiat banks nonetheless do have things referred to as "trust accounts", and so do lawyers etc who actually put the fiat of those accounts into banks.

So if banks actually mixing up which coin or bill belongs to who does not render their so called "trust accounts" a null concept / invalid concept why should the details of how wallets work in bitcoin invalidate the same concept when it it merely exhibits the same gaping holes/loopholes?

-MarkM-

The only way to keep separate "accounts" is to segregate each wallet.dat

Ahhh, I see. I did not know that. I guess I was imagining a certain amount of "coin control" was implied that isn't actually in there. Thanks.

-MarkM-

It works exactly like a bank ledger does.

If you have address 1234 which is account A and address 198765 which is account B then

if you receive 10 BTC @ address 1234 the BALANCE (nothing more just the balance in the ledger) for account A is increased.
if you receive 5 BTC @ address 198765 the BALANCE (nothing more just the balance in the ledger) for account B is increased.

If you then spend 5 BTC from account A the BALANCE is reduced from 10 BTC to 5 BTC but the actual coins can come from any valid output in the wallet (i.e. the 10 BTC to 1234 may not be used).  If you then spend 10 BTC from account A again the balance will reduced from 5 BTC to -5 BTC and the actual coins can come from any valid output in the wallet.

Once again exactly how a bank ledger works.