Dave Emory’s entire lifetime of work is available on a flash drive that can be obtained here. (The flash drive includes the anti-fascist books available on this site.)
Introduction: The fourth of our programs about Bitcoin, this broadcast further documents the predictable chaos and malfeasance resulting from a valuable monetary entity that is totally unregulated and open to all of the vagueries and criminality to which internet business is subject. (The previous shows on the subject are: FTR #’s 760, 764, 770.)
After discussing the suspicious death of Autumn Radke, CEO of a Bitcoin startup exchange, the broadcast underscores the rampant fraud and criminal behavior that characterizes every facet of the Bitcoin operations and landscape.
Much of the program focuses on the collapse of the Mt. Gox exchange in Japan, one of the world’s largest Bitcoin marketplaces. Blamed initially on hackers, it may well be that the operators of Mt. Gox were engaged in deliberate malfeasance, as were anonymous hackers who called attention to the sins of the company’s management.
The glitch that appeared to have left Mt. Gox open to hacking has led to the temporary shutdown of the successor to the Silk Road site, as well as opening the way for “bots” to begin attacking the entire Bitcoin financial landscape!
In the past, we have discussed the profound links between the advocates and users of Bitcoin and the Austrian school of economics. Those advocates include Patrick Byrne, the CEO of Overstock.com, the largest retail outlet to begin accepting Bitcoins as currency.
The program concludes with another look at the concentration of economic ownership affecting Bitcoin.
Program Highlights Include: Discussion of the “transaction malleabilty” that brought down Mt. Gox; the vacancy of leadership in the Bitcoin Foundation, due to the indictments and legal troubles of the top advocates and users of the troubled online currency; review of Silk Road and its criminal transactions; the fact that the top .01 percent of Bitcoin owners control %50 percent of Bitcoins; Mt. Gox’s claim that it “discovered” roughly $16 million in Bitcoins in a wallet that it had “forgotten about;” allegations that Silk Road’s administrators actually stole the missing Bitcoins themselves; the discovery that the communications from hackers alleging that Mt. Gox’s administrators were engaged in deliberate theft contained malware permitting the theft of Bitcoins from anyone opening the files about the firms alleged malfeasance; hackers’ denial of service attacks on startup tech companies, demanding Bitcoins in ransom in exchange for ceasing the attacks.
1a. At the conclusion of FTR #772, we wryly suggested that, with the epidemic of suspicious deaths plaguing the financial industry of late, Bitcoin enthusiasts should develop their own online currency for murdering each other, named “Hitcoin.” Perhaps that suggestion is not as remote as it might appear to be at first glance.
Autumn Radtke, the CEO of an upstart online currency exchange, died last week under mysterious circumstances at her home in Singapore.
Radtke, the U.S.-born head of First Meta, was found dead by local police Feb. 28, with the cause of death yet to be determined. In a statement on its website, First Meta said the company “was shocked and saddened by the tragic loss of our friend and CEO Autumn Radtke.”
In an interview with The Wall Street Journal, the company’s director and nonexecutive chairman, Douglas Abrams, said the exact cause of Radtke’s death was “still under investigation.”
Prior to taking the reins at First Meta in 2012, the 28-year-old Radtke had once closely worked with technology giant Apple, to bring cloud-computing software to Johns Hopkins University, Los Alamos Labs and the Aerospace Corp., according to her biography. She then took up business development roles at tech start-ups Xfire and Geodelic Systems, according to information on her LinkedIn profile.
First Meta bills itself as a clearinghouse for the purchase and exchange of virtual currencies, including bitcoin.
Her death comes as troubles swirl around the nascent cryptocurrency industry, and amid a rash of suicides in the financial industry as a whole.
Last week, the world’s largest bitcoin exchange, Mt.Gox, imploded; meanwhile, nearly $500 million in client funds vanished overnight. Elsewhere, untimely demises unrelated to bitcoin have claimed the lives of bankers at JPMorgan, Deutsche Bank and Zurich Insurance Group.
1b. Encompassing all of the folly and deliberate malfeasance that characterizes Bitcoin, the Bitcoin Foundation has found itself leadersless, in the wake of the arrests of key players in the bitcoin milieu.
What’s the role of an industry trade group and how much authority should companies place in the hands of these unofficial leaders?
That’s the question much of the bitcoin community is asking at the moment as the Bitcoin Foundation, the industry’s unofficial custodian and mouthpiece, faces allegations of self-dealing and embezzlement.
According to the Foundation’s own website, it exists to “standardize, protect, and promote the use of Bitcoin cryptographic money for the benefit of users worldwide.” Several hundred bitcoin companies are members of the Foundation and have donated heavily to fund its operations. The organization is led by a board of prominent crypto-currency entrepreneurs, investors, journalists, and academics, chiefly its Chairman, CoinLab founder Peter Vessenes who has been the subject of the most skepticism and scrutiny.
The spotlight was first shone on the Foundation’s leadership by controversial bitcoin blogger Ryan Selkis, aka the Two-Bit Idiot. On March 2nd, following the unraveling of Mt. Gox, Selkis wrote that Vessenes and Executive Director Jon Matonis would be stepping down prior to the conclusion of their current terms, “[seemingly recognizing] the need for the Foundation to clean house in order to revitalize its image in the coming months.” Days later, when forced to retract that prediction, Selkis began an aggressive, and occasionally manic campaign calling for their immediate ouster due to a failure of leadership.
At his most livid, Selkis called the current board “illegitimate” and demanded senior leaders across the bitcoin ecosystem stage a coup or kill the Foundation altogether – a position from which he later backed down, but not before writing:
Peter Vessenes and Jon Matonis are not scapegoats. They are not innocent bystanders. And they are not ethically entitled to remain in their board seats through later this year.
Selkis then promised to reveal “damning facts” if his demands were not met, including the those relating to: the Foundation ignoring warning signs of Mt. Gox’s failure as early as April 2013; Foundation directors exploiting their positions to withdraw funds from a failing Gox while the general public was losing their shirts; and conflicts of interest between director’s roles within the foundation and their personal bitcoin businesses.
After a several days of self-described backlash from the bitcoin community, Selkis issued a concession and never published those damning facts – despite maintaining that his accusations were “100% truthful.”
Selkis’ lightning-rod status cannot be denied and has made it easy for many to write off his claims as those of a man seeking attention – he’s acknowledged on multiple occasions plans to write a book about bitcoin’s recent scandals – and also hoping to enrich his own bitcoin insurance startup through spreading fear. But it bears noting that for all his bluster, Selkis has also been the source of a number of accurate and impactful breaking news stories, not the least of which was publishing Mt. Gox’s Crisis Strategy documents ahead of its eventual bankruptcy.
Now, however, it’s not just Selkis who’s beating the drum for changes atop the Bitcoin Foundation. Blockchain.info CSO Andreas Antonopoulos, who’s is held as close to a deity as anyone within the bitcoin community – a list on Reddit once ranked him below Satoshi Nakamoto but above Mother Teresa and Jesus – has also called for leadership change. Speaking on the Lets Talk Bitcoin podcast yesterday, Antonopoulos called the Foundation “rotten from the top” and said that he wouldn’t be surprised to see it implode due to embezzlement:
They certainly have received many funds. Where are those funds, who controls those funds, when were they last audited, are they actually solvent, or have all of those funds disappeared into a big black hole? Just remember who was in the leadership until recently, who is in leadership today, and what their track record with ethics has been.
And, I would suggest that I would be not surprised at all if the foundation implodes in a giant embezzlement problem sometime down the line or funds get stolen – within quotes or not within quotes – something like that. It’s bound to happen because these things happen not because of technical failures, they don’t happen because of bad actors, they happen because of failures of leadership. And the foundation is the very definition of a failure of leadership.
Those are incredibly strong words and not the kind of accusations to be taken lightly. It bears noting that Antonopoulos didn’t suggest any direct knowledge of embezzlement or criminal wrongdoing, nor did he provide any evidence to that effect. He simply said that he views it as inevitable due to the character and competence of the Foundation’s leadership – leadership that until recently included Mark Karpeles, the CEO who led Mt. Gox into bankruptcy, and Charlie Shrem, the bitcoin entrepreneur recently charged with money laundering, among other offenses. Antonopoulos’ statements are complicated by the fact that he is a volunteer member of a Bitcoin Foundation working group, a fact that he acknowledges within the podcast.
So where does this leave the Bitcoin Foundation, it’s current leadership, and the entirety of the bitcoin community as it fights for credibility and legitimacy among regulators, investors, merchants, and everyday consumers?
2a. A software glitch that has permitted the looting of bitcoins has claimed the new Silk Road site as one of its victims. Correction: The Silk Road 2.0 shutdown was described as temporary. We are not aware of whether or not it has reopened.
. . . The revived online black market Silk Road says hackers took advantage of an ongoing Bitcoin glitch to steal $2.7 million from its customers.
The underground website’s anonymous administrator told users Thursday evening that attackers had made off with all of the funds it held in escrow. Silk Road serves as a middleman between buyers and sellers, temporarily holding on to funds in its own accounts during a deal. Buyers put their money into Silk Road’s accounts, and sellers withdraw it.
At the time of the attack, here were about 4,440 bitcoins in Silk Road’s escrow account, according to computer security researcher Nicholas Weaver.
The news has shaken confidence in Bitcoin. Prices dropped sharply overnight, though they’ve since bounced back to about $660.
Silk Road can only be accessed on the deep Web using Tor, a special program that hides your physical location. The FBI shut down Silk Road and arrested its alleged founder in October, but shortly thereafter, tech-savvy outlaws started Silk Road 2.0 in its place.
It is primarily used to buy and sell drugs. Bitcoins are the only kind of currency accepted on the site, because they are traded electronically and are difficult to trace to individuals. But Bitcoin accounts also lack protections that most bank accounts have, including government-backed insurance.
That means the bitcoins stolen from the Silk Road users are gone forever.
The new site’s administrator, a faceless persona known only as Defcon, posted a nerve-racking message Thursday night that began with, “I am sweating as I write this.”
He said hackers took advantage of the same flaw in Bitcoin that knocked major exchanges Bitstamp and Mt.Gox offline over the past two weeks. That glitch allowed Silk Road hackers to repeatedly withdraw bitcoins from the site’s accounts until they were empty.
In detailing the alleged hack, Defcon listed the online identities of the three supposed attackers and shared records of the transactions. And in an example of the kind of dark, dangerous world of illegal drug trade, Defcon called on the public to “stop at nothing to bring this person to your own definition of justice.”
“I failed you as a leader and am completely devastated by today’s discoveries,” Defcon wrote, adding that the website should have followed the approach of other major Bitcoin exchanges and halted withdrawals due to the Bitcoin system flaw. Silk Road has since temporarily shut down.
Many have accused the site’s administrators of faking the hack and stealing the money themselves. But in a world where drugs are outright illegal — and there’s little to no regulation of Bitcoin transactions — it’s difficult to prove anything.
It’s just his kind of bad news that smears Bitcoin’s credibility and keeps the currency from going mainstream.
2b. Bitcoin exchanges are now suffering a massive denial-of-service attack, but with a twist: Someone’s botnet is applying the same “transaction malleability” technique that brought down MtGox, but instead of just hitting MtGox this bot network is malforming all sorts of bitcoin transactions simultaneously! As a consequence, we’re learning that it wasn’t just MtGox that needed to update their software:
A “massive and concerted attack” has been launched by a bot system on numerous bitcoin exchanges, Andreas Antonopoulos has revealed.
This has lead to popular exchange Bitstamp putting a temporary halt on all bitcoin withdrawals, and BTC-e announcing possible delays on transaction crediting.
Antonopoulos, who is the chief security officer of Blockchain.info, said a DDoS attack is taking Bitcoin’s transaction malleability problem and applying it to many transactions in the network, simultaneously.
“So as transactions are being created, malformed/parallel transactions are also being created so as to create a fog of confusion over the entire network, which then affects almost every single implementation out there,” he added.
Antonopoulos went on to say that Blockchain.info’s implementation is not affected, but some exchanges have been affected – their internal accounting systems are gradually going out of sync with the network.
He emphasised that this isn’t affecting withdrawals, because most exchanges are not processing them automatically.
Mt. Gox is the exchange that has suffered the most over the past few days, due to a number of factors, said Antonopoulos. One problem is that it was using a custom client (not the core Bitcoin software), on top of that there is the DDoS attack, plus it was using an automated system to approve withdrawals.
“This is not happening to other exchanges because they’re not stupid enough to issue withdrawals without checking them out first,” he explained.
Antonopoulos said we will see a few exchanges suspend withdrawals temporarily while they re-work their accounting systems to ensure they are not confused by the attack.
“It’s important to note no funds have been lost. Withdrawals have been halted to prevent funds from being lost or to prevent the balances from going out of sync,” he stressed.
An industry-wide coordinated response has been put into action, with exchanges and core developers collaborating actively to attack the problem from multiple angles.
Various other groups within the ecosystem, including the big mining pools, are working to stop the issue from propagating across the network.
Bitcoin developer Jeff Garzik said the core bitcoin block chain consensus mechanism and payment system are continuing to work as before, and are not directly impacted by transaction malleability.
He added: “Web wallets and other services that build services on top of bitcoin are reporting problems similar to MtGox, and are taking safety measures to ensure no fund loss, during this network disruption.
“Yesterday’s statement must be revised: we will likely issue an update fixing two edge cases exposed by this attack.”
Bitstamp has issued a statement explaining that it has temporarily halted BTC withdrawals. It begins:
Bitstamp’s exchange software is extremely cautious concerning Bitcoin transactions. Currently it has suspended processing Bitcoin withdrawals due to inconsistent results reported by our bitcoind wallet, caused by a denial-of-service attack using transaction malleability to temporarily disrupt balance checking. As such, Bitcoin withdrawal processing will be suspended temporarily until a software fix is issued.
The statement goes on to reveal that no funds have been lost, nor are any at risk.
Antonopoulos was keen to stress that, although this is a serious attack, it doesn’t spell the end of bitcoin. He believes the DDoS attack will be “thwarted” and exchanges will be running as usual by Friday.
“I expect things will go back to normal and the honey badger of money can continue showing its resilience,” he said.
“The death of bitcoin has been prematurely announced so many times already that the obvious conclusion is that bitcoin is far more resilient than its critics would like to think. I am confident that in a few days, those who predicted the death of bitcoin will once again be proven wrong,” Antonopoulos concluded.
3a. One of the most prominent of the Bitcoin exchanges has gone down, amid claims of theft of $365 million worth of Bitcoins.
Mt. Gox, the Tokyo-based Bitcoin exchange that halted withdrawals this month, went offline as a document surfaced alleging long-term theft of about $365 million in the digital currency.
A document posted online that appeared to be an internal strategy paper said unidentified thieves stole 744,408 Bitcoins from the exchange — about $365 million at current rates — and that the theft “went unnoticed for several years.”
“The reality is that Mt. Gox can go bankrupt at any moment, and certainly deserves to as a company,” according to the document.
The document, which outlines plans for leadership changes, re-branding and a possible move to Singapore, was posted online by blogger Ryan Galt. A person briefed on the situation at Mt. Gox, who asked to remain anonymous because the document is private, said he believed it is authentic.
Bitcoin fell 5 percent to $517.71 at 4:48 p.m. London time, according to the CoinDesk Bitcoin Price Index, which averages exchange prices. That’s down from as high as $1,151 on Dec. 4.
Mt. Gox went offline to “protect the site and our users,” according to a statement on its website. “We will be closely monitoring the situation and will react accordingly,” it added.
A group of Bitcoin-related companies sought to distance themselves from Mt. Gox, and promised to protect customer funds to promote usage of the currency.
“This tragic violation of the trust of users of Mt. Gox was the result of one company’s actions and does not reflect the resilience or value of Bitcoin and the digital currency industry,” San Francisco-based Coinbase said in a joint statement on its website with Kraken, BitStamp, Circle and BTC China, other prominent Bitcoin companies.
Is Bitcoin Real Money?
“As with any new industry, there are certain bad actors that need to be weeded out, and that is what we are seeing today,” the companies said in the statement.
Efforts to reach the http://www.mtgox.com website earlier today directed users to a blank white page, a day after Mt. Gox Chief Executive OfficerMark Karpeles resigned from the Bitcoin Foundation, an advocacy group for the digital money. At one point today, the site read “put announce for mtgox acq here.”
“We are shocked to learn about Mt. Gox’s alleged insolvency,” the foundation said in an e-mailed statement.
Bitcoin was introduced in 2008 by a programmer or group of programmers under the name Satoshi Nakamoto and has since gained traction with merchants around the world. The digital money, based on a peer-to-peer software protocol, has no central issuing authority, and uses a public ledger to verify transactions while preserving users’ anonymity.
The Bitcoin Foundation said that, despite the troubles at Mt. Gox, the Bitcoin protocol was functioning normally. In recent days, Mt. Gox had stopped withdrawals, citing an alleged flaw in the protocol.
Since at least 2011, enthusiasts have been trading Bitcoins for dollars and other traditional currencies, and in early 2013 Mt. Gox was one of the biggest exchanges. Mt. Gox said this month that it identified a bug that enables people to withdraw the same Bitcoins more than once, leaving it vulnerable to hackers.
Prices quoted on the exchange plunged on speculation that account holders wouldn’t be able to get their coins back.
The troubles at Mt. Gox are the latest setback for Bitcoin after authorities in Russia, China and Israel sought to restrict the digital money, while the U.S. seeks ways to prevent money-laundering and illicit sales without killing the new technology.
3b. Whereas the failure of Mt. Gox was blamed on the same software glitch that has subverted both “legitimate” and underground Bitcoin markets, hackers associated with Bitcoin are claiming deliberate malfeasance on the part of the Mt. Gox operators.
The Bitcoin community has been angrily pressing for details on what the Bitcoin exchange Mt. Gox has described as a massive hacker attack that stole hundreds of millions of dollars worth of its users’ bitcoins and left the company bankrupt. Mt. Gox’s staff isn’t talking. So another group of hackers say they’ve broken into the company’s servers to provide answers of their own.
On Sunday, hackers took over the Reddit account and personal blog of Mark Karpeles, Mt. Gox’s CEO, to post an angry screed alleging that the exchange he ran had actually kept at least some of the bitcoins that the company had said were stolen from users. “It’s time that MTGOX got the bitcoin communities wrath instead of [the] Bitcoin Community getting Goxed,” wrote the unidentified hackers, referring to the multiple occasions over its three year history when Mt. Gox has gone offline, delayed trades or suspended withdrawals, events so common that Bitcoin users coined the phrase to be “goxed”–to suffer from Mt. Gox’s technical glitches.
The hackers also posted a 716 megabyte file to Karpeles’ personal website that they said comprised stolen data from Mt. Gox’s servers. It appears to include an Excel spreadsheet of over a million trades, a file that purports to show the company’s balances in eighteen difference currencies, the backoffice application for some sort of administrative access to the databases of Mt. Gox’s parent company Tibanne Limited, a screenshot of the hackers’ access to those databases, a list of Mark Karpeles’ home addresses and Karpeles’ personal CV.
A screenshot posted by Mt. Gox’s hackers, seeming to show administrative access to the company’s database of trades.
Update: Users on Reddit are warning that the hackers’ files may contain malware designed to steal bitcoins. Other Reddit users have confirmed that they found their own account history in the data, indicating that it’s not fake. But for security reasons, I don’t recommend anyone download the collection of hacked files.
In the hackers’ summary of Mt. Gox’s balances in various currencies, they point to a claimed balance of 951,116 bitcoins, which they take as evidence that Mark Karpeles’ claim to have lost users’ digital currency to hackers is fraudulent. “That fat fuck has been lying!!” a note in the file reads.
I’ve reached out to Karpeles for comment, but haven’t yet heard back from him. Mt. Gox’s embattled chief executive has remained almost entirely mum as his company has imploded over the last weeks.
In a possibly related incident, a user on the BitcoinTalk forum posted a message–since deleted by the forum’s moderators–claiming to be offering for sale a 20 gigabyte stolen database from Mt. Gox, including the personal details of all its users and even scans of their passports. “This document will never be elsewhere published by us,” wrote the user, who went by the name nanashi____. “Selling it one or two times to make up personal loses from gox closure.” The hacker asked for a price of 100 bitcoins for the database, about $63,600 at current exchange rates.
‘I’ve reached out to nanashi____ via an email address he or she provided, and I’ll update this post if I hear back.
I couldn’t verify that Sunday’s database dump was real, or that it showed any of the “lying” that the hackers claimed. In fact, it may simply show how Mt. Gox’s accounting mismatched with its actual store of Bitcoins–that it was counting bitcoins as being safe in its coffers when they had already been stolen by thieves.
But as Bitcoin experts pore over the hacked files, they may yet offer clues to the mystery around Mt. Gox’s fate. The Bitcoin community has been puzzled by the apparent lack of movement of Mt. Gox’s bitcoins since the company declared bankruptcy last month. Despite stating that it lost 850,000 bitcoins in total in its bankruptcy filing, Bitcoin experts haven’t seen the movement of those coins in the Bitcoin blockchain, the public ledger of transactions that prevents fraud and forgery in the Bitcoin economy.
Moderators on the Bitcoin subforum on Reddit deleted the hackers’ post a few hours after it first appeared, stating that posting stolen content violated the forum’s etiquette rules. But users on the forum didn’t hesitate to draw their own conclusions: the top post on the forum Sunday afternoon read “Mt. Gox scam was just exposed — MK [Mark Karpeles] officially stole our funds.”
“We’ve been goxed!” it added.
3c. The question suggests itself as to just “who’s zooming who” with regard to the Mt. Gox failure. It may well be that the entire leak of Mt. Gox records “leaked” by hackers may have been a gambit to steal Bitcoins. The leak contains malware that searches for, and steals, Bitcoin wallets! “. . . . It seems that the whole leak was invented to infect computers with Bitcoin-stealer malware that takes advantage of people’s keen interest in the Mt. Gox topic,” Lozhkin said. . . .”
An archive containing transaction records from Mt. Gox that was released on the Internet last week by the hackers who compromised the blog of Mt. Gox CEO Mark Karpeles also contains bitcoin-stealing malware for Windows and Mac.
Security researchers from antivirus firm Kaspersky Lab analyzed the 620MB file called MtGox2014Leak.zip and concluded that in addition to various Mt. Gox-related documents and data, it contains malicious binary files.
The files masquerade as Windows and Mac versions of a custom, back-office application for accessing the transaction database of Mt. Gox, a large bitcoin exchange that filed for bankruptcy in Japan in late February after claiming it had lost about 850,000 bitcoins to cyber thieves.
However, they are actually malware programs designed to search and steal Bitcoin wallet files from computers, Kaspersky security researcher Sergey Lozhkin said Friday in a blog post.
Both the Windows and Mac binaries are written in LiveCode, a programming language for developing cross-platform applications.
When executed, they display a graphical interface for what appears to be a Mt. Gox database access tool. However, in the background they launch a process—TibanneSocket.exe on Windows—that searches for bitcoin.conf and wallet.dat files on the user’s computer, according to Lozhkin. “The latter is a critical data file for a Bitcoin crypto-currency user: if it is kept unencrypted and is stolen, cybercriminals will gain access to all bitcoins the user has in his possession for that specific account.”
The malware, which Kaspersky has named Trojan.Win32.CoinStealer.i (the Windows version) and Trojan.OSX.Coinstealer.a (the Mac version), uploads the stolen Bitcoin wallet files to a remote server that used to be located in Bulgaria, but is now offline.
“It seems that the whole leak was invented to infect computers with Bitcoin-stealer malware that takes advantage of people’s keen interest in the Mt. Gox topic,” Lozhkin said.
“Malware creators often using social engineering tricks and hot discussion topics to spread malware, and this is great example of an attack on a focused target audience,” he said.
3d. Something that belongs in the “The dog ate my homework!” category: Mt. Gox claims that it found 200,000 Bitcoins in a “forgotten” digital wallet, worth $116 at current prices! If you believe that, we’ve got a great deal on the Brooklyn Bridge, payable only in Bitcoins! “The dog ate my Bitcoins!”
Embattled exchange Mt.Gox said Friday that it has found 200,000 bitcoins in a “forgotten” digital wallet — a haul worth $116 million at current prices.
Mt.Gox CEO Mark Karpeles said in a statement that the bitcoins had been uncovered in an old-format wallet that was thought to be empty. Bitcoin wallets allow users to store the digital currency and execute transactions.
“On March 7, 2014, Mt.Gox Co., Ltd. confirmed that an old-format wallet which was used prior to June 2011 held a balance of approximately 200,000 BTC,” the statement said.
Karpeles said that the discovery was reported to lawyers on March 8. The bitcoins were later moved to “offline” wallets.
Mt.Gox was one of the world’s largest Bitcoin exchanges until last month, when it stopped investors from withdrawing money and blamed the disruption on technical issues and cyber attacks.
The Japan-based company then filed for bankruptcy in Tokyo and the U.S., with debts totaling $64 million.
At the time of its closure, Mt.Gox said that it was unable to locate 850,000 bitcoins, the vast majority of which belonged to customers. The discovery reduces the number of lost bitcoins to 650,000, but also raises questions about what really happened to the missing currency.
While the search for the missing bitcoins will continue, many investors harbor little hope that all will be recovered. Japanese authorities had not regulated the exchange, and no deposit insurance was offered.
Related: ‘I lost money with Mt.Gox’
Responding to the wave of doubt generated by the exchange’s failure, several other exchanges and digital wallet providers have sought to reassure investors.
“This tragic violation of the trust of users of Mt.Gox was the result of one company’s abhorrent actions and does not reflect the resilience or value of Bitcoin and the digital currency industry,” an industry group said in February.
In related news, the team of volunteer computer developers who manage the Bitcoin software program has fixed some of the technical issues that Mt.Gox initially blamed for its troubles — a quirk in the way Bitcoin works called transaction malleability.
3e. In a new twist, hackers have launched denial of service attacks on startup tech firms, and demanded ransom for ceasing those attacks–payable in Bitcoins!
. . . Warren E. Buffett referred to the currency as a “mirage” in an interview last month and told people to “stay away.” Would-be adopters and investors have grown fearful as hackers develop new ways to steal Bitcoin and major Bitcoin exchanges shut down. . . .
. . . . Hackers have recently taken to mounting large scale denial-of-service attacks on tech startups–most recently, Meetup.org, a social meeting site; Vimeo, the video sharing service; and Basecamp, a project management software company–and demanding payments via Bitcoin as ransom to cease. . . .
4. Patrick Byrne, CEO of Overstock.com–the first retailer to accept Bitcoin as a payment vehicle–is a disciple of the Austrian school of economics. The Austrian school is a fundamental element of the Bitcoin milieu and is also central to the milieu of Edward Snowden and the “Paulistinian Libertarian Organization.”
. . . . The problem with the modern economy, Byrne says, is that it rests on the whims of our government and our big banks, that each has the power to create money that’s backed by nothing but themselves. Thanks to what’s called fractional reserve banking, a bank can take in $10 in deposits, but then loan out $100. The government can make more dollars at any time, instantly reducing the currency’s value. Eventually, he says, laying down a classic libertarian metaphor, this “magic money tree” will come crashing down.
But bitcoin is different. It’s like online gold: The supply of the digital currency is controlled by software running across a worldwide network of computers, and its value is decided not by the feds or the big banks, but by the people. “It can make our country more robust,” says Byrne, a disciple of the Austrian school of economics, which holds that our economy should rest on the judgments of individuals, not a central authority. “We want a money that some government mandarin can’t just whisk into existence with a pen stroke.”
Zombies. Magic money trees. Mandarins. As Byrne admits, it’s a ten-dollar answer to my ten-cent question about his plans for the future of Overstock.com, and although I know the man well, I can’t help but wonder how much of this is just him calling attention to himself. But a week after this phone call, Byrne will make good on his promise, as Overstock becomes the first major online retailer to accept payments in bitcoin, letting you buy everything from patio furniture to smartphone cases with the fledgling digital currency. And the following month, during Overstock’s quarterly earnings call, he will reveal that he has personally converted millions of dollars into bitcoin. The Overstock CEO is placing more than one big bet on an unpredictable future, but Byrne has proven himself prescient before — about the internet and the media as well as the economy. . . .
5. Bitcoin is already demonstrating exactly the same concentration of wealth that plagues the very conventional economy it is supposed to replace. The difference is that bitcoin is already demonstrating a far more pronounced concentration than the conventional economy–the top one hundredth of one percent of bitcoin owners control 50% of the wealth.
The fall of Mt. Gox has a lot of people saying Bitcoin is dead. Yes, the Tokyo-based exchange may be gone, but the virtual currency has much more than a single exchange (which wasn’t even the largest at the time that it collapsed). There’s still a great deal of roomfor Bitcoin to grow, particularly in the West: Mt. Gox’s collapse hasn’t done much to temper curiosity among regulators and entrepreneurs.
Of course, the drawback to consolidation is that those benefits will be concentrated in the hands of a relative few. That dynamic is already playing out among individual holders of Bitcoin, with a growing gulf between the Bitcoin-rich and the Bitcoin-poor. According to Risto Pietilä, a Finnnish entrepreneur, the overwhelming share of Bitcoin wealth is held in just a few dozen wallets. Half of all bitcoins belong to around 927 “individuals.” If those figures are right, then half of the world’s 12 million or so bitcoins is held by a tenth of a percent of all accounts. That’s a stunning statement of inequality, since in the real world 46 percent of the world’s wealth belongs to 1 percent of the global population. The Bitcoin world, then, is even less equal than the real world.