SERVING THE QUANTITATIVE FINANCE COMMUNITY

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farmer
Posts: 13461
Joined: December 16th, 2002, 7:09 am

### End of bitcoin?

QuoteQ4. So why are so many of the input addresses feeding into transactions in the queue coming up empty?This is a complex technical issue to which neither of us know the answerAlmost makes me curious how this stuff works. What does this mean? The people who have private keys to process the block chains go into their chains, find the records of coins transferred to and from an address, and find the money has already been transferred away?It sounds like the system works pretty good. Nobody was able to spend money he didn't have, because it had been stolen.

Alan
Topic Author
Posts: 9783
Joined: December 19th, 2001, 4:01 am
Location: California
Contact:

### End of bitcoin?

btc continue to trade at mtgox, although nobody can get their coins/money out.It looks to me like they are doing about 1/3 of the worldwide volume.Here is the price action there in USD Feb-to-date (source: bitcoincharts.com)

farmer
Posts: 13461
Joined: December 16th, 2002, 7:09 am

Somebody did come up with a reasonable scenario of how double spending could have happened:QuoteMy current understanding and inference is that the remaining issues are because while MtGox was producing transactions of the bad form that the network won't relay anymore - some people decided to help out by 'fixing' these transactions like BC.i did for iphone users - making the signatures normal and broadcasting them. Of course, the new transactions - while functionally identical - have different TXIDs.The difference here is that the MtGox wallet software appears to have not handled this case gracefully at all, and apparently simply wouldn't notice transactions that it "didn't make" spending its own coins.As a result the Mtgox wallet believed some coins were available for spending which really had already been spent and it began double spending those inputs. This may have interacted particularly poorly with the earlier workaround I mentioned - trying to always use the oldest available coins - if they did implement that workaround.Worse, some of this may have resulted in users getting paid multiple times and could have been intentionally triggered with that end in mind if someone helpfully fixed some transactions and then noticed they got paid twice. (I think this is unlikely to have caused large losses, before people run off worrying about that, both because of the reuse of the oldest inputs and because of the hot wallet/cold wallet split).There have also been rumours of mtgox buying bitcoins. Consider that there was a months-long backlog for USD withdrawals. You can hypothesize that a lot of people elected to withdraw coins instead, so that the volume of withdrawals that could have been double might be based on some large numbers. Say $30 million in bitcoins from people trying to move to another exchange. Just based on the percentage of failed withdrawals I heard of, from people who had successes and failures over a series of withdrawal attempts. The system might have been automated to keep digging up coins until they found ones that hadn't been spent, until they ran out of bitcoins and had to actually buy some with cash to meet bitcoin withdrawals. And they could have done this with customer funds.I don't know how all this works, but mtgox also had some issue spending immature coins fresh from the miners. If this caused an error with the same symptoms as a double-spent coin, they may have put in a quick fix that sent all failed coins into cold storage, and then pulled the oldest coins out of cold storage, to meet daily withdrawal requests. So already-spent coins could have been automatically transferred into cold storage, creating an empty bank vault. It supposedly takes actual physical time and effort to get these cold-stored coins.Right now, the coins are trading at a discount on mtgox compared to bitstamp. One might theorize, if mtgox was doubling your money, bitcoins would have traded there at a premium during that time. The ponzi-scheme dude could have even been taking advantage of this, depositing bitcoins, and then withdrawing them twice. He may have noticed when you deposited the same coins you withdrew, to double your money again, the mtgox wallet discovered the redundant transaction id's. So he needed fresh bitcoins to double.Also consider that Apple banned the last bitcoin wallet from the app store, around the same time mtgox ran into these troubles. So there could have been large numbers of people downloading this money-doubling app, if it employed the same hack that BC.i used.My guess is the process was automated, and people kept submitting withdrawals when the first one failed. This went on at least until every coin not in cold storage was withdrawn or stolen. It should only take a day for people to steal every coin physically available. Given that it seemed to go on for multiple days, it is possible many coins in cold storage were also stolen. It may be every single coin was stolen.This is some ambitious speculation by me, considering I don't even know how the stuff works. But it fits nicely with mtgox claims 1) bitcoin withdrawals are suspended, and 2) they don't know what is going on or what happened, to the point where they decided to shut down the system and won't have any more information until Monday.I still theorize, with so many programmers and contractors and vendors and communications lines and hackers and spies, that it is impossible for bitcoins to not get stolen once they reach a certain value. Impossible at almost any exchange or other funnel where the data runs like salmon in a river. Last edited by farmer on February 8th, 2014, 11:00 pm, edited 1 time in total. farmer Posts: 13461 Joined: December 16th, 2002, 7:09 am ### End of bitcoin? Maybe bitcoins have been under-priced?It seems bitcoins have a huge value as a lottery ticket. If they become widely accepted as a universal currency, and the supply remains fixed, the sky is the limit. This speculative value seems legitimately worth more than the daily flows of criminals who need to buy and sell.I would guess that the chances of this arbitrarily high price have been reduced by at least 80% with the recent arrests, legal prohibitions, and tests of faith in the crytographic system. So the price should be down 80%. Unless people were smart and saw this coming, and predicted these sorts of things would happen.But to me, it seems it didn't have to be this way. There was a chance of the recent bad events not happening. So when they did happen, and that chance was removed, the price should have dropped 80%.It is after 10 AM in Tokyo and still no word from mtgox. Alan Topic Author Posts: 9783 Joined: December 19th, 2001, 4:01 am Location: California Contact: ### End of bitcoin? Bitcoin drops another 20% as Mt Gox highlights bug Source: bitcoincharts.com Last edited by Alan on February 9th, 2014, 11:00 pm, edited 1 time in total. daveangel Posts: 17031 Joined: October 20th, 2003, 4:05 pm ### End of bitcoin? QuoteOriginally posted by: AlanBitcoin drops another 20% as Mt Gox highlights bug Source: bitcoincharts.comI was just about to start full scale Bitcoin mining ! knowledge comes, wisdom lingers Alan Topic Author Posts: 9783 Joined: December 19th, 2001, 4:01 am Location: California Contact: ### End of bitcoin? haha! Well, you can probably get some good discounts on that mining hardware, now. Traden4Alpha Posts: 23951 Joined: September 20th, 2002, 8:30 pm ### End of bitcoin? QuoteOriginally posted by: daveangelQuoteOriginally posted by: AlanBitcoin drops another 20% as Mt Gox highlights bug Source: bitcoincharts.comI was just about to start full scale Bitcoin mining !There's always trading along with K2 as a fall back. daveangel Posts: 17031 Joined: October 20th, 2003, 4:05 pm ### End of bitcoin? QuoteOriginally posted by: Traden4AlphaQuoteOriginally posted by: daveangelQuoteOriginally posted by: AlanBitcoin drops another 20% as Mt Gox highlights bug Source: bitcoincharts.comI was just about to start full scale Bitcoin mining !There's always trading along with K2 as a fall back.Only if I can trade at yesterday's prices. knowledge comes, wisdom lingers farmer Posts: 13461 Joined: December 16th, 2002, 7:09 am ### End of bitcoin? I remember in the days of hostile takeovers, the stock would trade at$80, and the $80 puts would trade at$40, or something. If you didn't tender your shares, you would get left out and stuck at $40 in the new capital structure. Is mtgox trading like that?They are sloppy and probably drunk, but not stupid. I don't doubt they are suspending bitcoin withdrawals, in expectation of driving the coins as low as possible. Their press release attacked the value of bitcoins in general. So maybe they are buying bitcoins, in hopes to make up their lost bitcoins as cheap as possible, and still have some cash left to keep drinking.So if you hold your bitcoins long enough on account at mtgox, you may eventually withdraw them and get$80 instead of \$40.

farmer
Posts: 13461
Joined: December 16th, 2002, 7:09 am

### End of bitcoin?

A cool announcement from mtgox right now would be the availability of bitcoins to borrow for shorts.

Posts: 23951
Joined: September 20th, 2002, 8:30 pm

### End of bitcoin?

QuoteOriginally posted by: farmerA cool announcement from mtgox right now would be the availability of bitcoins to borrow for shorts.Is shorting even possible in a system intrinsically built for anonymity? If you lend 1 BTC to someone, how do you ensure you will be repaid?

farmer
Posts: 13461
Joined: December 16th, 2002, 7:09 am

### End of bitcoin?

QuoteOriginally posted by: Traden4AlphaQuoteOriginally posted by: farmerA cool announcement from mtgox right now would be the availability of bitcoins to borrow for shorts.Is shorting even possible in a system intrinsically built for anonymity? If you lend 1 BTC to someone, how do you ensure you will be repaid?Easy, mtgox just doesn't let the borrower withdraw anything.

Alan
Topic Author
Posts: 9783
Joined: December 19th, 2001, 4:01 am
Location: California
Contact:

### End of bitcoin?

my impression is that all bitcoin exchanges are like internet retail before amazon -- they all suck -- becausethey think they can magically automate stuff without real customer support. At some point a Jeff Bezos ofbitcoin will come along and take away all this business. This probably won't happen for a while becausethe market is too small to be worth the effort. But 10 years from now, if bitcoin is still around, all these crapbusinesses will be washed away.

Posts: 23951
Joined: September 20th, 2002, 8:30 pm

### End of bitcoin?

QuoteOriginally posted by: farmerQuoteOriginally posted by: Traden4AlphaQuoteOriginally posted by: farmerA cool announcement from mtgox right now would be the availability of bitcoins to borrow for shorts.Is shorting even possible in a system intrinsically built for anonymity? If you lend 1 BTC to someone, how do you ensure you will be repaid?Easy, mtgox just doesn't let the borrower withdraw anything.Mtgox would have to let the borrower sell the BTC for some other currency but then not let the borrower withdraw the currency. Holding on to someone's dollars would make mtgox subject to financial industry regulations which I can't imagine they want to do. As long as Mtgox is just exchanging stuff or holding a currency not controlled by any country, it's semi-free to do what it wishes. But if it acts as a bank in some country's currency, it's going to be subject to regulation.The second, more interesting problem is that Mtgox would have to let the borrower sell borrowed BTC while maintaining the illusion that the original owner of the borrowed BTC could spend it, too. How can that work given the structure of the blockchain and the way transactions are linked to it.