Topic: URGENT: What is next and legitimate on MtGox after the security issue? - page 2. (Read 7866 times)

The reversal rules cited for regulated exchanges don't apply quite as it might seem to this situation.  The criminal act caused a significant change market price.  Also, unlike securities exchanges, there is only one thing for sale in this market, bitcoins.  This is like a very small market with a single company's stock.

Damage is done.  I saw part of the youtube interview of Adam at Mtgox and I have to say the interviewers were not prepared or very knowledgeable.

Thanks for the diligent perspective. Very helpful+++

Still, it seems like MtGox can do almost anything with this unclarity...

Wanting to tie this in with the fiat stock market approach on mistrades

http://www.boerse-frankfurt.de/EN/index.aspx?pageID=44&NewsID=356

"By means of the Mistrade Rule, at Frankfurt Stock Exchange Scoach protects investors and issuers against erroneous order execution. This rule enables the cancellation of a trade if it has been made at a price that is not in line with the market. Such non-market-driven prices can arise from technical errors or wrong entries.

First of all, it is determined if a Mistrade application is perusable. On the basis of a comparison between the determined price and the price of the underlying instrument at the time of the transaction, a procedure involving trading participants examines whether the order was executed at a non-market-driven price.
"

And our Swiss friends:
http://www.six-swiss-exchange.com/participants/trading/on_order/mistrades_en.html
"
SIX Swiss Exchange may investigate trades on the stock exchange. If it identifies mistrades, it will declare these null and void. The stock exchange may investigate specific trades on request or at its own discretion.
When can an investigation be carried out?

    * If the parties concerned have doubts about the validity of the trade in question.
    * If at least one of the two parties requests a decision as to the validity of the trade.

When does the stock exchange declare a trade null and void?

    * If the price of the trade deviates significantly from the market price.
    * If fair and orderly trading is not guaranteed.

How does the stock exchange proceed in the event of a suspected mistrade?

The stock exchange establishes an appropriate market price for the trade in question. It then decides whether the effective price deviates significantly from the market price and thereby represents a mistrade. Although the stock exchange is entitled to ask other parties for their opinion, its decision is final.

Provided the market price is fair, any trade executed on the basis of incorrectly entered information for orders or quotes remains valid.
"
Such rules are not outlined on Mtgox in my opinion, but it seems not uncommon in our world to have mistrades and the operator of the exchange has some discretion it seems- These rules seem broad in my view.

For examples of such mistrades: http://www.scoach.de/EN/Showpage.aspx?pageID=86    mistrades tab

Just say it since just about everybody knows it anyway.  It is TradeHill.  If you didn't post a referral to get discounted trade rates then you aren't advertising; simply stating an opinion or communicating your experience.

I have used both obviously, and the only thing that TradeHill was missing is volume of trades [so prices tend to move slowly and lag a bit].  I think MtGox has just changed that to TradeHill's advantage; especially if they are up to the task [of the increased volume which ought to be moderately to massively significant].

I suspect those with a high number of coins are not the people panicking.  I think it is the little guys, the flood of new people that jumped in without knowing what they are doing and buying on the way up and selling on the down [which almost always results in net loss if not extreme loss].  There are no traditional fundamentals to use for investing in virtual currency like there is in conventional currency [which is backed in part by the issuing nations and their economic output and monetary policy ... i.e. the US Federal Reserve and their redistribution of wealth via monetary easing a.k.a. legal counterfeiting].  I can't claim to know enough about securities trading to make a reliable and good analysis and even less about monetary trading/investing, but the mob sure looks like a mob and acts like a mob and the mob is not full of financial experts doing the trading, it is full of gamblers and risk takers.

The free market response suggests that MtGox may suffer anyway, however, the mob psychology of the bitcoin traders is that if MtGox comes back up, they will probably start using it, maybe at high volume, or maybe at low volume.  There will be a mass exodus to TradeHill however, but, I am not at all sure that TradeHill is prepared for THAT rapid of an expansion.  Maybe they are preparing for it during the halt in trading; but I am not sure they have load tested their system at anywhere near the volumes of MtGox [nor am I sure that they have not ].  The better TradeHill does responding to the new comers, the less likely MtGox will recover the overwhelming dominance of the volume of trades that it had previously [as a percentage of the market as a whole].  This all assumes MtGox even survives.  I have already posted that they have a problem with rolling back "half trades" meaning that if somebody traded currency for bitcoins and withdrew the bitcoins to their secured wallet during this time then MtGox will have to come up with that amount in bitcoins [not currency] to roll back the trade.  Do they have enough?  Anybody even have an idea what that amount might be?  Most were legitimate trades, many of which were reacting to the market adjustment to the illegal activity [selling on the way down is the downfall of risk averse investors and thus they shouldn't be trading bitcoins purchased with cash .. mined coins might be considered differently due to the cost of actually acquiring them in the first place, but I digress], but that is a free market response [which is why the exchange should not be tampering with it, but instead, paying for the losses of those affected by their lack of security resulting in the theft of their property].  Either way, since the price dropped as a natural [to this market] reaction to a crime and not a more fundamental cause, I think that as long as people can trade, the price will recover rapidly if not almost immediately when trading is in full swing [well, can maintain volume to the point of satisfying most traders enough to continue with bitcoin as opposed to abandoning them for whatever they can get].  Probably there will be a bit of volatility due to low volume at first [due to MtGox not trading for awhile at least .. my supposition and TradeHill taking in much of the slack, but not ready to take on the high volumes at once thus spiking the price for the few that like to trade on volatility [adrenalin junkies buying and many of those selling have large supply of bitcoins to take advantage of the spike with low relative risk ].  I think it all hinges on volume in the few days following when trading restarts [and an imminent restart of trading at that].  TradeHill holds all the cards; if they are up to the task, they may split the market with MtGox assuming MtGox survives [and they seem to be quite resilient and nobody knows the extent of their outlay if the follow through with this stupid rollback; or for that fact, what it would cost to payback the victims accordingly if they do not do the rollback].

It will be interesting how it plays out, but the mob has proven fairly predicable (mostly "gut" ... said "emotional" based trading) for the most part, which is making some people rich I suspect [since they can see almost precisely when and why an event will happen ... except the crimes of course].

If anything I have written is some or all not agreed with by anybody, there is one thing that nobody can deny; the need for more stable and significant exchanges (and maybe the only reason why I don't want to see MtGox go dark at this point).

Multi-millionaires are very common in the USA compared to a couple of decades ago, due to the decline of the Dollar. For some lucky people tens of thousands of currency is still just play money.
^^^
So why do they panic so much when the price falls?   

Perhaps you know by now your speculation was not correct.

It appears that someone who performs audits on our system and had read-only access to our database had their computer compromised. This allowed for someone to pull our database. The site was not compromised with a SQL injection as many are reporting, so in effect the site was not hacked.


https://support.mtgox.com/entries/20208066-huge-bitcoin-sell-off-due-to-a-compromised-account-rollback

Better how? A huge bid/ask spread and almost no trading is better? MtGox is still the leader.
FYI: Their latest update says the site was not even compromised; The stolen data come from the computer of an auditor who had read-only access.

There is a limit on BTC withdrawals of $1000 worth.... But if you dropthe price to 0.01 first, that's 100,000 BTC.

They can't do a full rollback.  Anybody who has bitcoins in their wallet (withdrawn from Mtgox) from a trade during that timeframe has possession and is by no means responsible for reversing; by the very nature of bitcoin they are not responsible.  That means that money and bitcoins MUST come out of the Mtgox coffers to complement the half of the trade that they still have control of and want to reverse.  If they don't have the capital and coins to cover this, then they will have to announce that they cannot reverse transactions as announced and take true licks.  If they have the money, but not the bitcoins then they still have a problem as they would have to purchase the coins to cover the transactions reversed that would result in bitcoins.  They can't buy then on the open market as their exchange is down and volume definitely low (people would sell at a premium knowing that they must buy coins at any cost which would spike the price on low volume ... only real damage is to Mtgox).  So, if they have the money and not the coins then I expect they will either make a private trade with somebody with a large hoard, but more likely they will get a bitcoin loan ... and the first place that I would look to for that are the large pool operators.  It is in the interest if the pools to see trading resume and confidence renewed in trading (with our without Mtgox is irrelevant).  I think the likely case is that Mtgox is coin shy only or both coin shy and currency shy.  If the latter, I would expect an announcement soon about their inability to reverse and what they intend to do, if anything.  If they started rolling back transactions without doing the obvious accounting to cover the coin loss from trades that occurred and  bitcoins withdrawn and find out while doing this that they can't complete it, they may be in a mess that they can't get out of. We will know soon enough without a doubt.

First up, I use Mt Gox, but keep balances in BTC/dollars as low as makes no difference if it all vanished.

We all rushed into this happy anarchistic world of 'our money' without big brother looking over our shoulder with glee and excitment - the shackles falling from our feet.
The relished the startup trading sites and the idea of shadowy Keyser Soze masterminds lurking behind the scenes making out like bandits.

The moment something goes wrong, we all immediately start reaching for our pitch-forks, demanding regulation and over-sight and bleating about our consumer rights.
Nobody apart from me seeing any irony in this?

I assume the next step is that the exchanges will be stressing that they're based in the US, comply to all US laws, are audited by the banking authorities and withdrawals are only allowed upon the recipient faxing in a copy of their passport..

Either bitcoin is free-market-anarchy, Mt Gox can do what they want and we decide whether we want to use them, or another site, following this - we have the right to choose, but that's about it.
Or we regulate the arse out of it and make the entire thing pointless.

Possibly the (good) outcome is that it'll just fragment the trading market - you want to use the one that charges 1% on transactions and under-writes your cash, or the nice scuzzy one that runs in Belize.

My understanding of what happened at MtGox was that somebody hacked their way in, got a load of BTC, flogged them all trashing the market and then found out they could only pull out $1000 of their BTCs?
If this is the case, rolling back everything seems the only sensible thing to do - with MtGox covering any of the coins/cash that left their little ecosystem out of their own pocket.
Assuming the limit on withdrawal is $1000 with of BTC though, was that worked out on the average over the last 24/48 hours, or at the last traded price the market was pushed down to?
Anyway, I've wondered away off the topic now.

thanks for the kind words. i agree it's a complicated question, and reflection is useful.

to answer your question, you're correct: i don't have any trades that would be canceled. indeed, i don't even have a mt. gox account, having not trusted them for a long time (though i don't mean that specifically to impugn anything about their service - i simply lack trust in it). as usual, i'm not writing to the forum out of a narrow financial self-interest.

the best way, in my view, to understand the problem is to recognise that the part of mt. gox that implements a currency or commodity exchange was apparently not hacked or compromised in any way. if it had been, then trying to break executed trades would clearly be appropriate. but all that's reportedly happened is that mt. gox has identified what it believes is a theft, or a collection of thefts. to identify, after the fact, a theft that moved a market provides little reason to break a trade. as analogies, consider: (1) if the stolen amount had been only 500 btc, you'd never consider taking the money back from someone on the other side of a trade from the thief, and (2) if someone had stolen us dollars and used them to buy bitcoins on mt. gox, aiming to transfer them out before being detected, similarly mt. gox would probably not have thought to break any trades merely because the price of bitcoins temporarily doubled.

thus, if what they propose is done only in response to events on one side of the market, and only in response to arbitrarily selected events, it appears unprincipled and of little value to anyone. that said, i don't personally have a strong opinion about it; largely it's a contractual matter between mt. gox and its customers, and it threatens bitcoin as a technology only to the extent it undermines confidence in what is unfortunately a very concentrated market for currency exchanges. i think that on balance it would be a bad idea, systemically speaking.


reports were that it was making $70,000 per day, but not presumably for very long. i doubt it would have the capacity to insure all user accounts or even this one large one, and it's not clear that it would have a responsibility to do so. but that's a separate question from whether they break trades made in good faith.

You are correct.  However, this is a clear attempt by "Durr" to manipulate the market to his buying advantage ... even if it is a long shot, it didn't cost him much to do it.  It isn't so different than the issues with truth and lies going around Yahoo Groups to manipulate stock prices in the years leading up to the DOT COM collapse in 2000 [so many attribute it to 9/11/2011 as the needle that popped the bubble, but fundamentals of the entire market were clear to me, a total stock NEWBIE in 2000, that prices were way to high for my own company, which was PSINET at the time [so I didn't buy options like so many of my co-workers did], and the price fell from over $50 to less than $0.25 very quickly and was delisted BEFORE 9/11/2001.  It was over and people were just starting to see it like the coyote who runs off a cliff while by chased by the road runner and then just sort of hangs there in mid-air with a "GULP" and then drops. 

In the real world, MtGox would be done, dead done, nailed to the wall and executed [meaning criminal proceedings, senate hearings, prosecutions and convictions .. well, in the US anyway].  However, this isn't the real world, it is the virtual one and people act very irrationally here and the market is very small and there is no regulation or law broken [other than by the person/people that committed the crime].  So, I don't predict the demise of MtGox, but nor do I dismiss it.

People like Durr though, should take a leap.

Dude you have it backwards.  They can't invent bitcoins, you are right, so they CANNOT rollback!  You can't go backwards with bitcoins!  The BTC transferred out of MtGox that were purchased at $10, $1, and $0.01 are gone from MtGox.  GONE.  They are in someone elses wallet now.  MtGox doesn't have them.  Their database says they have x users with y bitcoins, and their database will be WRONG.  They DO NOT have enough BTC to cover everyone's accounts.

Lucky buyers who got their BTC out to their wallets DONT CARE IF THERES A ROLLBACK BECAUSE IT WONT EFFECT THEM!!!!!!  THEY ALREADY HAVE THE BTC!  YOU CANT REVERSE A BTC TRANSACTION!

What part of that doesn't everyone understand?  MtGox should NOT do a rollback, and they should be financially responsible to the user whose account was hacked.  I don't even have money in MtGox but this is BAD for the community, to do a roll back.  Their exchange cannot be trusted, they do not have enough BTC to cover their deposits.  Is it 1 BTC Short, 10BTC Short, or 10k BTC short?  They won't say.  I wonder WHY?

He is not wrong.

And whis is why mtgox HAVE to roll back.

They cannot "invent" bitcoins to cover the 550k bitcoins stolen.

The only thing they can do is roll back everything. It will make all lucky buyers sad, but it is the "less worse" thing that can be done.


Not rolling back, or mtgox will have to become fractional reserve (you want that, are you SURE of it?) or mtgox will become bankrupt, pay a fraction of what each person own and close doors.

Yes, they made a lot of money, but they do not made 500k bitcoin.

Wrong.  This is more equivalent to a hacker gaining access and adding money to their account, and WITHDRAWING some of it before the bank finds out and corrects the error.  Too bad they already hit up the ATM machine for an undisclosed amount of BTC.

Will we ever know?  It wouldn't be hard to find out but I doubt if MtGox will ever say how much BTC was transferred out.

I find it both ultra sad and ultra hilarious people still have not understood the implications of this very thing.

I have yet to understand how anyone, and I mean anyone, could have put in a lump sum over the price of maybe 2 xbox games and a bag of cheetohs into BTC.
(Mining I can understand - that's some cents and spare time, but investing tens of thousands of currency onto uninsured, unregulated accounts? Well done! Financial Darwinism, hooooo!)

If you have access to the database, you can change your account to read anything you wish - the BTC in MtGox aren't real before they are transferred to someone's wallet.dat. That's probably why MtGox is doing a rollback - the 'lost BTC' aren't from anyone, they are just virtual coins which were just added to his account. This is exactly like hacking a real-life bank -- you can change your account to read what ever you wish, but before you actually get your money out from a counter or spend it somewhere, it does you no good. Exactly in the same way, the hacker changed his account to read an arbitrary number of BTC (which do not really exist), sold them for the virtual USD, and when he tried to withdraw those, he couldn't get out more than 1k USD due to the MtGox limit.

That's why a rollback is needed and is justified: the people who bought the 'BTC' for 0.01$ didn't actually buy any real BTC, they just bought MtGox monopoly-money BTC's which do not really exist.

Just my .02 BTC.