Topic: Was MT Gox just a ponzi? (Read 2982 times)

No, not a Ponzi. Technically, Mt. Gox was a bucket shop. A bucket shop is a broker which pretends to be executing transactions on an exchange or as an exchange, but is really faking it, trading against its customers, usually with the customer's money. That's Mt. Gox.

The term "bucket shop" is almost unknown today, because, in the US, that particular scam was shut down in the 1920s.

Most of the people involved with Bitcoin don't know enough financial history. Just about every scam and failure associated with Bitcoins has been seen before, many times.

To sums this up. Karpeles took your money and no intention of returning it.

I posted this response (below) back in July 2013.

OP from https://bitcointalksearch.org/topic/if-mtgox-supposedly-is-having-liquidity-probs-256843 wrote this:

OP stated: If MTGOX supposedly is having liquidity probs --- Why the fuk are they still allowing bitcoin withdrawals? It doesn't matter whether u withdraw bitcoin or USD, if u do either the money is gone from their account. So I call BS on all this speculation they don't have any money left to run their shit.
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Turns out that MTGOX didn't have either BTC or money.

My response:

If you do either, the money ISN'T gone from their account. If you transfer a BTC out, then yes, the BTC is no longer on the MTGOX exchange. But, if you sell a BTC and then have funds in your account (or so it says on your MTGOX page) those "funds" aren't leaving MTGOX's account. Prove to yourself that those funds actually exist.

The notion that a lack of liquidity would prevent MTGOX from permitting BTC withdrawals is flawed.  The purchase of BTC's on MTGOX right now is being performed based on funds that are simply listed on your account. It's almost like a demo account with fake money, but the BTC's are real. If you can't get your funds out, how do you know that it actually exists?

Say MTGOX only has 2 customers (A and B). Customer A has 100 BTC's and B has enough USD in their MTGOX account to purchase all of those BTC's. Customer B with USD in GOX can't withdraw, so B buys all of Customer A 's BTC and transfers them to another exchange where B can sell those BTC's and make a withdrawal without an issue.

Customer A now has USD in their GOX account, however it's USD that they can't withdraw and there are no other customers to purchase BTC's from, so A is stuck with his/her USD in GOX and no way to get it out --- No one to buy BTC's from and no way to get the USD out because MTGOX isn't processing the withdrawal.  Now the million dollar question is this: DO THE FUNDS NOW IN CUSTOMER A's ACCOUNT ACTUALLY EXIST? It say's that they have it on their MTGOX account, but does it really exist?

It's not like MTGOX has an independent 3rd party that can audit them to say that they indeed have everyone's funds and are solvent. All we are left with is an account page that says that you have $xxxxxx.00  

You can purchase BTC's with those funds listed there, because for the moment, everyone believes that those funds are real. But can you all withdraw your funds right now?

What's working in the MTGOX's favor right now is the fact that they obviously don't have just 2 customers. Additionally, customers are depositing funds.  What's saving them from a collapse is that the simplified scenario above is being prevented by the thousands of MTGOX customers who aren't heading for the door at once. BUT, if something were to trigger a panic, we'd see the price of BTC's on MTGOX shoot up and those willing to take a lose by purchasing BTC's at panic prices will be able to get their funds out through the transfer of BTC's and those left holding USD will be out of luck. Those left holding USD will have their USD delineated on their MTGOX page, but are those funds really there? Since there wouldn't be anyone to "buy" BTC's from (because they left with the BTC's that you sold them), you could put in a request to withdraw those funds, but when that request doesn't get fulfilled (like the stories that we keep reading on this forum), is your money really in your account?

You can "buy" BTC's with the funds listed on your MTGOX account because everyone believes that those funds really exist and accept them (electronically), even if they can't withdraw those funds.  You can then transfer those BTC's out and it has nothing to do with the liquidity of MTGOX. The acquisition of BTC's and the transfer of BTC's is solely based on the belief that the funds listed on your MTGOX account are real.

If you can prove that those funds in your account actually exist, then your belief that MTGOX is solvent is founded.

However, the fact that BTC's can be transferred out of MTGOX does not prove that MTGOX is solvent.

You are right.. it is ridiculous to keep stating that they didn't notice the theft of 700k...

Because that is not what was stolen. That was a fake document. Thrown into the "draft", which was also fake.

Gox has not said how much was lost. Nor is it even possible that 700k was removed through the exploit mentioned. It would have taken over 7,000k to have executed that withdraw exploit, and thousands of user accounts, over months and months.

The exploit was a short and recent thing. It took months to tap silk-road-2 out of 70K, or was it 50k... I forget... (Though I seriously doubt that is where the coins in silk-road-2 went... lol.)

There is no 700k missing.

This is ridiculous to state that Gox hasn't noticed theft of 700k BTC. That can only be true if they don't have accounting at all!

Even if that's true, they didn't disclose their failure, but instead they intentionally transformed Gox into PONZI scheme and started selling non-existing bitcoins and paying old users with the money of new users.

This is blatant crime and it's no wonder if Frappuccino Boy will soon be wanted by Interpol.

Let's find the CEO of Mt. Gox!

http://findmarkkarpeles.com/

Looks like it huh?

MTGOX was not a ponzi. it was a fair exchange where people traded at prices they decided. the end result this week was not a ponzi, not a pyramid or anything else. it was pure theft.

if someone has your property and refuses to give it back. even for 1 hour, one day or eternity. you can claim theft. only banks or government have the authority to hold funds whilst doing legal investigations. not services such as mtgox.



no mtgox was freezing withdrawals before then. they only decided to freeze bitcoin withdrawals due to their own scripts not checking balances properly. this has nothing to do with the protocol. the protocol has not changed. what has changed is website code to interact with the bitcoin protocol.

alot of people think karpeles is just holding funds until new code is produced. please destroy that myth. yesterday, karpeles was in a meeting with lawyers, not coders. so this issue is not a simple website alteration and then business as usual. there is legal stuff happening.

If Gox paid interest (to lure more and more deposits) and paid expenses and salaries out of deposits until it failed it would be Ponzi.

Gox WAS PROFITABLE.  At least before thefts.  Excluding thefts they were making more money then salaries and expenses.  Enough to pay investors if there were any.  But somehow they did not see their looses to thefts (if these thefts were real is a different story).  They were not a Ponzi.

Gox didn't say the numbers on the fake form were real...

1: He said the "exit plan" was essentially true, "more or less".

2: The numbers, he said, were NOT an internal gox document.

There was two separate parts. The numbers were NOT part of the plan. The plan was a hypothetical exit plan/draft, for when disaster struck.

Gox doesn't trade only in USD, if the numbers were real, it would have contained all trade-values. Actual values, not estimates on one thing, then specific numbers on another. It would have also been confidential, and marked as such.

Gox has not released any actual information, yet. There was not stolen money and coins... The only thing they had shortage of, was some coins from a hot-wallet. Funds, if anything, are/were just "frozen", and thus, "inaccessible", at the moment.

But no, it was not a Ponzi Scheme. (Pyramid scheme)
Nor was it a HYIP Scam. (All HYIP's are scams, there is no investments, or profiles/portfolios. There is no such thing as a legal HYIP. That is like saying legal robbery. HYIP, is a form of Scam.)

Once they completely understand themselves, what happened, then they will make an announcement. The more they dig, the more screwed-up crap they are finding, I am sure. They never had to look until now. They know who they gave the "re-sent withdraws" to, I hope. (That was the purpose for getting verified for large transactions.) It is not like there were millions of people hacking the blockchain, with millions of accounts, (limited to 100BTC withdraws), all withdrawing 700,000 coins. (They would have had to have half-that, at-least, to do the attack and get that much out. Not every re-sent withdraw showed as returned. So it would have taken almost 4x-20x more BTC withdrawn, to get that much out.)

Stop repeating other peoples obvious FUD. If they knew what they were talking about, they would not have used a name like 2bit-idiot... Obviously, the guy was an idiot, and it was a joke.

Mark Kaples=Ray Bitar

As I noted in my OP this is conjecture, and my use of the term ponzi is completely valid in terms of the investor fraud for which I was implying.

If MT Gox was paying old investors with new investor money no matter what operations took place in between the scheme follows the basic formula of a ponzi.

All deposits were not instantly accessible to clients outside of the MT Gox operating platform. They took deposits in the form of money and coin and allowed people to see a balance which didn't exist because they were skimming from both ends.

They paid out old balances from new balances because the funds from the old balances had already been stolen, it really isn't hard to connect the dots.

In order for new ponzi schemes to work they have to appear like they are legitimate.

Nobody external could have noticed. Only Karpeles himself. But its possible that HE made up these transactions with new goxcoins out of thin air so he knew it anyway

Possible, how could one be stole so much and not notice?

Lets assume the was no "leak" from the cold wallets and Mtgox made up transactions and sold bitcoins they never possesed and made new "goxcoins" out of thin air up to 700k.

Btc withdrawals would be paid with realbtc, but they ran out.

This would be a classical ponzi.

Its much more stronger than a ponzi

It was a ponzi buy not by design, once they got insolvent it became a ponzi. A fraud. Ponzi is illegal anywhere, he must go to jail.

Mt. Gox was definitely not a ponzi... if ran properly Mt. Gox would have been a cash cow of a business.. especially in recent years with the large increase in price.

It was just mismanaged horribly.. they should of noticed something was happening and secured the exchange's funds instead of being slowly stole from over time. I fail to see how  they can say that they were using cold wallets. Since the "cold wallets" were drained electronically using the block chain. That's a severely dysfunctional cold wallet system if you ask me..

What OP was alleging is embezzlement, not Ponzi. Jeez!

Thank you for your insightful and accurate post.

My $.02.

Yeah a broken protocol that work just fine for everybody else but GOX LMAO

This has to be a level...

I'm glad that Mt. Gox rejected my attempt to create an account with them, as I sent the exact same identification to Bitstamp simultaneously and was accepted by them.

My question to this audience is -- how concerned should I be that my SSN is floating around Mt. Gox's systems?

Obviously Mt. Gox has possession of a ton of other people's SSN information too, but I'm curious to hear some thoughts.

Concerned, Not Concerned?  Thanks

MT Gox was not a fuck up, for a time the value of the coins that were being traded but did not exist was close to 700 million dollars! That is not an oversight, it was deliberate.

Ponzi, pyramid, bubble however you want to label it, investor fraud is the name of the game. These people were accepting payments to allow trading of something that did not exist all while holding every deposit in trust and skimming with fees.

Urgh love that you said this, people just love throwing around the words ponzi/pyramid scheme. Maybe it makes them feel smarter or something. Mt.Gox fucked up, but this is no scheme.

mtgox had no BTC like for knox has no gold to back USD.

same scheme

I asked this same question back in July 2013 because the signs were there. https://bitcointalksearch.org/topic/mtgox-ponzi-258170

However, the majority of the respondents believed that MTGOX wasn't a ponzi. Sadly, those Gox believers are most likely without shirts right now.

it's not about being ponzi but about being bad organization. MTgox verification processes was taking more than 4 weeks. This alone lead the real problem. Being stupid!

As long as there were both a buyer and a seller on each side of the trade,  and Gox was only a middleman collecting fees, then no... it wasn't a ponzi.

Bad accounting,  and/or having your assets stolen through a fraud conducted by unrelated third parties does not make your business a ponzi.

Not a ponzi scheme, but a mindboggling level of incompetence, coupled with desperate flailing once they realized the extent of their incompetence.

They did continue accepting deposits up until the very moment they went offline, which is extremely dirty. But that alone doesn`t define a ponzi scheme.

well if you wanna redefine what a ponzi scheme actually is, yeah then your right lol

Like if I define that if something has wheels then it is a car yeah then a bicycle is a car all right. lol

MT Gox was openly allowing people to trade an item that did not exist. The were obviously paying withdrawals from fresh deposits since they were missing more than 700 000 coins that were still being traded. That is a ponzi my friend.

No, just mis-managed and shady.

They should have filed chapter 11 after the Silk Road and then worked out a repayment plan with their account holders. Then they could operate a profitable exchange and still allow USD withdrawals.

So many people just love to use words like ponzi scheme and pyramid scheme, but really dont know what they talking about, no way Gox was a ponzi scheme.

A ponzi scheme is where a scammer pretends to have some super profitable investment scheme and promises poeple huge profits if they buy a share in his company or bonds or investment fund or whatever, while in fact all he is doing is paying the old investors with the money coming in from new investors and when the moment comes he can not find any more new investors the whole thing will just collapse like any pyramid scheme.

How does this resemble anything GOX did ? It does not

Gox might have been scamming people, but it they were it was the most simple scam, just take your money and run, but chances are they were just incompetent, first with how they dealt with financial regulators and then how they dealt with the transaction malleability issue.

lol epic trolling 

I would say Mt Gox was a victim of a broken protocol.

I do think it is a nice = between Gox and Ponzis

But I believe that Gox will rise up again and all users will be paid for their problems etc...

All this Gox made such a bad media carma. ..

While reading about the demise of the exchange and the supposed loss of 700k Bitcoins I realized that the whole thing seems like a collapsing ponzi pyramid and not just a case of total ineptness. If it can be conclusively proven that this was a ponzi scheme there is no doubt that some hefty prison sentences will be handed out.

obviously this is just conjecture, but please let me know what you think.