
Joint Statement Regarding the Insolvency of Mt. Gox - velcro
http://blog.coinbase.com/post/77766809700/joint-statement-regarding-the-insolvency-of-mtgox
======
lkrubner
For historical perspective, consider the last great panic to sweep the USA
before the Federal Reserve was established:

[http://en.wikipedia.org/wiki/Panic_of_1907](http://en.wikipedia.org/wiki/Panic_of_1907)

What is (so far) missing in the world of Bitcoin is a single actor powerful
enough to play the organizing role that Morgan played during that previous
crash:

"Morgan summoned the presidents of the city's banks to his office. They
started to arrive at 2 p.m.; Morgan informed them that as many as 50 stock
exchange houses would fail unless $25 million was raised in 10 minutes. By
2:16 p.m., 14 bank presidents had pledged $23.6 million to keep the stock
exchange afloat. The money reached the market at 2:30 p.m., in time to finish
the day's trading, and by the 3 o'clock market close, $19 million had been
loaned out. Disaster was averted. Morgan usually eschewed the press, but as he
left his offices that night he made a statement to reporters: "If people will
keep their money in the banks, everything will be all right""

~~~
powera
If 50%+1 of the Bitcoin miners agree, couldn't they just mint 700000 extra
bitcoin to make the depositors at MtGox whole? The confidence it inspires
would probably be worth more than the impact of the inflation, and with
Bitcoin prices dropping miners need to support the price to stay above break-
even.

~~~
patio11
Technically speaking, yes. That would kill Bitcoin, though, because the
community depends on it having an (eventually) fixed supply rather than it
being having "an eventually fixed supply, except when we have a _really good_
reason to do quantitative easing."

~~~
intelliot
Technically speaking, no.

patio11: that is not how the Bitcoin protocol works.

Even if 99% of the Bitcoin miners agree, they cannot create extra bitcoin; it
is simply impossible because that is not something that miners control. Every
full node (client) on the Bitcoin network verifies the validity of each block.
A block that created more bitcoins than allowed by the protocol would be
rejected by the clients (and the miners who follow the original rules). The
"extra" bitcoins would be on a hard fork and thus invalid to anyone on the
main (original) blockchain.

More info:
[https://en.bitcoin.it/wiki/Weaknesses#Attacker_has_a_lot_of_...](https://en.bitcoin.it/wiki/Weaknesses#Attacker_has_a_lot_of_computing_power)

~~~
patio11
You're right, the defecting miners would have to convince people to download a
new client, or convince the sites which those people access Bitcoin through to
use the new client. Sorry, should have mentioned that, but I thought the
thrust of the concern was "Could we just rewrite the rules of Bitcoin to make
this retroactively not happen?" And the answer to that is "Yes, but the
community would explode."

~~~
judk
What you are describing has already happened once, with the rollback and the
0.7 -> 0.8 version upgrade.

------
waterlesscloud
"Acting as a custodian should require a high-bar, including appropriate
security safeguards that are independently audited and tested on a regular
basis, adequate balance sheets and reserves as commercial entities,
transparent and accountable customer disclosures, and clear policies to not
use customer assets for proprietary trading or for margin loans in leveraged
trading. It does not appear to any of us that MtGox followed any these
essential requirements as a financial services provider."

Did I miss the part where Coinbase, Kraken, Bitstamp, BTC China,
Blockchain.info, and Circle met those essential requirements?

I guess those things are just essential now, not in the past.

~~~
skywhopper
So, the Bitcoin community is calling for regulation?

~~~
clamprecht
It sounds like self-regulation. If exchanges would just prove solvency
periodically (which is possible with the blockchain), the whole world could
see it. Wouldn't it be nice if you could see the balance sheet of your bank,
in a way that accountants couldn't lie about it?

~~~
rdtsc
> It sounds like self-regulation.

Because that has worked wonders for the other industries -- let's have pharma
companies, oil, food producers, just self regulate.

~~~
dmm
There are historical instances of self-regulation working. The movie and video
game industries control their own content ratings and before the invention of
dynamite, nitroglycerin was commonly used as an explosive in construction.
Shipping NG is very dangerous because of its instability and many accidents
occurred. They industry eventually developed extensive standards regarding
shipping that vastly improved the safety of shipping NG.

~~~
eropple
_> movie and video game industries control their own content ratings_

Not sure you're helping yourself here. The established movie industry uses its
content rating system as a bludgeon against independent filmmakers. The video
game industry's content controls are largely a joke, assigned arbitrarily by
people who never actually play the game.

~~~
bduerst
How are movie ratings used as a bludgeon against independent filmmakers?

~~~
dagw
Short version: Most cinemas and other outlets in the US won't carry your movie
if it's unrated, so in effect those who control the ratings control which
movies can get distributed. Also most cinemas in the US won't show NC17 rated
movies so the ratings people can also use that as a way to prevent your movie
being shown to a large cinema audience if they want to.

------
zoba
Wow, so Coinbase just changed the title. It used to read as velcro correctly
posted on HN. [http://i.imgur.com/dX8315e.png](http://i.imgur.com/dX8315e.png)

~~~
skywhopper
Yes, note the URL linked from this page (which now redirects to a new URL)
includes "the-insolvency-of-mtgox":
[http://blog.coinbase.com/post/77766809700/joint-statement-
re...](http://blog.coinbase.com/post/77766809700/joint-statement-regarding-
the-insolvency-of-mtgox)

~~~
micahgoulart
I know in this case it is true (I read it while it still had "insolvency" in
the title) but for future reference, the only part that matters is the id in
the URL, the second part can be made up like so
[http://blog.coinbase.com/post/77766809700/i-just-made-
this-u...](http://blog.coinbase.com/post/77766809700/i-just-made-this-up)

------
olefoo
This sort of thing is why finance is a regulated industry.

Although why anyone would have had money in Mt. Gox after they had their
stateside accounts frozen is beyond me. It's not like there weren't any
warning signs
[http://www.techmeme.com/130620/p53#a130620p53](http://www.techmeme.com/130620/p53#a130620p53)

~~~
Symmetry
You can't have progress without the possibility of failure. I'm glad my local
bank is regulated and insured by the government, but I'm also glad that the
world of Bitcoin exists for people who want to experiment with digital
currencies.

------
spiralpolitik
This is Coinbase, Kraken et al throwing MtGox under the bus to stop the taint
from spreading. Note there is no mention of any help for MtGox or its
customers. Just reassurance that they aren't MtGox.

This is the wagons being circled to stop the non MtGox price from tanking
further.

~~~
Narkov
Why should they help MtGox or its customers?

~~~
spiralpolitik
They shouldn't, but there seems to be the expectation that the community will
step in and help MtGox out of this mess for the sake of Bitcoin.

It isn't going to happen as MtGox has been a boil that's needed to be lanced
for a while now. This is the first step given that MtGox has decided to stay
silent.

~~~
zanny
The best thing for the sake of bitcoin is for Gox to be gone. Maybe we could
finally have a year where the incompetence of their engineering and management
staff doesn't skew the price all about like a merry-go-round.

------
dmitrygr
It is pretty entertaining to watch the bitcoin crowd slowly reinvent all the
controls that exist in the existing monetary systems as they slowly learn what
they are for. One lesson down, how many to go? :)

~~~
anywhichway
What controls? I see some empty reassurances, but nobody that I see is
proposing controls. I doubt controls for existing monetary systems would work
for bitcoins anyway as it requires a central organization that has power, like
printing money, and enough vested interest to through good money after bad
money to save the currency. Bitcoins have neither of these.

~~~
bduerst
From the Article:

>Acting as a custodian should require a high-bar, including appropriate
security safeguards that are independently audited and tested on a regular
basis, adequate balance sheets and reserves as commercial entities,
transparent and accountable customer disclosures, and clear policies to not
use customer assets for proprietary trading or for margin loans in leveraged
trading.

~~~
bertil
I believe that anywhichway hasn’t found the names of the “independent[…]
audit[ors]” in that document. He’s being harsh, but his point is technically
true: the text reads ‘should’ first. Hopefully, a matter of days.

------
username223
> the digital currency industry.

It's like the beanie baby industry, minus the stuffed animals.

~~~
lmm
Or like the collectible card game industry.

~~~
poolpool
Do you know any sites to sell and trade TCG and CCG cards?

~~~
lmm
Not yet, but I heard some guy in Japan was thinking of setting up an online
exchange for magic the gathering cards.

------
anigbrowl
Thinking about this...

 _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._

The best way to build trust in the 'resilience of Bitcoin' would be to
leverage the blockchain technology to help document who lost what and monitor
if/when any of those coins appear in the future. This is going to cost money
as well as development time.

It's one thing wax pious about how and why this happened and to say it must
never happen again etc. But the best thing the exchanges could do for their
long-term credibility would be to each put up a chunk of cash and engage an
expensive law firm to set up a trust and audit the whole affair as completely
as possible. That's going to require a collective commitment of of a million
dollars, or possibly a few million.

It's either that or get put under the microscope of existing financial
regulators on their schedule, which (IMHO) will relegate BTC to the status of
a disaffection currency that is only convertible in fringe markets.

------
throwaway5857
MtGox failed because they relied upon the correctness of their own
implementation of the bitcoin protocol.

This was a huge mistake, one which I am sure will haunt all involved for a
long time.

Coinbase is making the exact same mistake.

They rely on their own implementation of the bitcoin protocol.

Their client has been hard forked repeatedly.

Some of these incidents were random, but many were forced; not by attackers
but by whitehats trying despirately to show them their error.

The danger of using their own implementation cannot be overstated.

For the love of god move to the reference client.

------
whileonebegin
"So, my Coinbase account was hacked, bitcoin stolen, now what?"
[https://news.ycombinator.com/item?id=6946832](https://news.ycombinator.com/item?id=6946832)

FYI, after some time, Coinbase followed up with my support ticket and said
tough luck, bitcoins lost, better luck next time. No mention was made of any
effort to track-down the hacker or fraudulent transaction. They probably
didn't even block the hacker's IP address.

And yet, Coinbase declares, "We strongly believe in transparent, thoughtful,
and comprehensive consumer protection measures. We pledge to lead the way."

------
Moral_
[https://www.mtgox.com](https://www.mtgox.com) \-- The site is now blank

~~~
lazyloop
Wow, watching this thing unfold is like watching a train wreck in slow motion.

~~~
Moral_
If you join the MTGOX irc channel its like watching the soviet union collapse.

~~~
icpmacdo
link please. Freenode?

~~~
Moral_
irc.freenode.net ##mtgox-chat

~~~
gizzlon
_#mtgox-chat Cannot join channel (+i) - you must be invited_

:(

~~~
dscrd
Two #s, that was not a typo

------
catmanjan
Anyone else getting the sense that a lot of people on HN have a large
investment in MtGox?

Not usually this much nay-saying (denial?) on here.

~~~
minimaxir
A lot of people _everywhere_ have a large investment in MtGox.

~~~
notacoward
Um, no. The vast majority of people even among wealthy/high-tech countries
have absolutely nothing to do with MtGox, and people in the rest of the world
are even more distant from it. It might loom large on the horizon for you and
for a significant percentage of HN users, but let's not completely lose
perspective here.

~~~
erichurkman
If the other post is to believed, they have around 740,000 BTC. There are
roughly 12,400,000 coins total at the moment. That pegs Mt. Gox's share at 6%.

~~~
zanny
I'm sure a lot more than 6% of all total bitcoins are lost to dead wallets and
such already, though. Only drives up the scarcity of the rest of em.

I highly doubt Gox's coins are "gone" though. Someone has those wallets and
almost certainly is going to make a pretty penny fucking over the customer
base, but caveat emptor.

------
whistlerbrk
Wow, reading the comments about ways to solve this above and I'm speechless...
let's follow demands for regulation/self-regulation/FDIC-style insurance to
its logical conclusion - it seems to me that everything will eventually come
full circle and every financial institution and mechanism that people do not
like today which moves them towards Bitcoin will ultimately be recreated by
this new wave.

Bitcoin is not a revolution, it is not a movement, it's an iteration, and a
significant one.

The same thing for the internet, today vs 1996, all the same huge media
companies as before dominate the web with some new ones mixed in that jumped
in early.

------
tlrobinson
Also:

[http://www.circle.com/2014/02/24/joint-statement-
regarding-i...](http://www.circle.com/2014/02/24/joint-statement-regarding-
insolvency-mt-gox/)

[http://blog.blockchain.info/2014/02/25/joint-
statement/](http://blog.blockchain.info/2014/02/25/joint-statement/)

[https://vip.btcchina.com/page/notice20140225](https://vip.btcchina.com/page/notice20140225)

[http://www.reddit.com/r/Kraken/comments/1yux6n/joint_stateme...](http://www.reddit.com/r/Kraken/comments/1yux6n/joint_statement_regarding_mt_gox/)

~~~
skywhopper
Whoa, I just noticed the CEO of Circle is one of the creators of ColdFusion.

~~~
vijucat
Not sure. The JJ Allaire mentioned here :
[http://www.rstudio.com/about/](http://www.rstudio.com/about/) is probably
different from the Jeremy Allaire mentioned here :
[http://www.circle.com/about/](http://www.circle.com/about/)?

~~~
npongratz
If Wikipedia can be believed [0], JJ Allaire [1] and Jeremy Allaire are
brothers [2].

[0] I mean no slight against Wikipedia, I only mention this since the
statement "He now runs a bitcoin start up in Boston" is supported by no
citation (as of 2014-02-24).

[1]
[http://en.wikipedia.org/wiki/Joseph_J._Allaire](http://en.wikipedia.org/wiki/Joseph_J._Allaire)

[2]
[http://en.wikipedia.org/wiki/Jeremy_Allaire](http://en.wikipedia.org/wiki/Jeremy_Allaire)

~~~
whistlerbrk
Yes indeed they are brothers. Homesite/Dreamweaver/CFML forever baby, that's
how I got my start coding. ColdFusion so, so, so far ahead of it's time.

------
tskweres
Although we shed a tear for not being included in this Industry Leading
announcement, I think we can all make a group announcement on top of this
joint announcement that announces that Mt.Gox is pretty crappy.

Travis Skweres - Cofounder, CoinMKT

~~~
notacoward
Classy.

------
_pmf_
> We strongly believe in transparent, thoughtful, and comprehensive consumer
> protection measures. We pledge to lead the way.

Words are cheap.

------
tokenadult
Since a Hacker News participant first told me about Bitcoin Ticker[1] (back
when a regulatory action in China caused a sharp drop in Bitcoin prices in
U.S. dollars), the Bitcoin price has dropped still more. That's not the kind
of volatility I look for in an investment.

[1] [http://bitcointicker.co/](http://bitcointicker.co/)

~~~
brazzy
> That's not the kind of volatility I look for in an investment.

Are you aware that any investment that produces nothing other than a rising
market price is pretty much guaranteed to have very high volatility?

------
VikingCoder
So the story goes:

The new Russian President found a note in the desk of the old Russian
President, "To my successor: When you find yourself in a hopeless situation
which you cannot escape, open the first letter, and it will save you. Later,
when you again find yourself in a hopeless situation from which you cannot
escape, open the second letter."

A few months later, there was a massive problem. The new Russian President
opened the first letter, which said, "Blame it all on me." He did. It worked
great.

A little bit later, there was another massive problem. The new Russian
President opened the second letter, which said, "Sit down, and write two
letters."

I feel like this is the Bitcoin community collectively blaming the old Russian
President. (Never mind the inherent flaws in the system.)

------
Aqueous
This was signed by:

Jesse Powell — CEO of Kraken

Nejc Kodrič — CEO of Bitstamp.net

Bobby Lee — CEO of BTC China

Nicolas Cary — CEO of Blockchain.info

Jeremy Allaire — CEO of Circle

Fred Ehrsam — Co-founder of Coinbase

but NOT:

Brian Armstrong - CEO of CoinBase?

~~~
ericd
Maybe he's on a flight? Its not really necessary that it be signed by everyone
at each company.

------
chris_wot
Hold on... which exchanges were using customer funds for margin loans?!? Was
Mt. Gox doing this?

------
crazypyro
Interesting to see these companies assume that the report is real. I wonder if
they had contact with the owners of MtGox or if they simply wanted to get a
jump on what is sure to be a major downswing in BTC prices.

~~~
Aqueous
This is coordinated. Which means they've known long enough to coordinate every
exchange.

~~~
crazypyro
That is an interesting point. How long would it actually take to coordinate
between those exchanges though? Its been a big day in BTC news and I'm sure
everyone with some skin in the game is watching the news like a hawk.

~~~
Aqueous
Probably not very long. But I'd wager they've known since at least this
morning. Given last night's resignation of Mt. Gox from the Foundation, I'd
say since last night.

------
iamchmod
Wow! I can see a misguided politician already saying something like "Maybe all
bitcoin exchanges/wallets/etc need money transmitter licenses or FDIC
insurance"

------
zacinbusiness
I think it would be cool to hear what the creator of Bitcoin thinks about all
this. Is it annoying? Or is it the beauty of a new technology that's still
cutting its teeth.

~~~
knodi
Good luck finding Satoshi Nakamoto. Also this wasn't a bitcoin issue, it was
an exchange issue.

~~~
zacinbusiness
I know it's not a bit coin problem, but I'd like to hear his (or her) thoughts
on how people are implementing the technology, how these sorts of problems are
being handled and what he sees as the major lessons learned (other than don't
trust some non-insured entity with your cash).

------
thinkcomp
My response:

[http://www.aarongreenspan.com/writing/essay.html?id=100](http://www.aarongreenspan.com/writing/essay.html?id=100)

------
fixermark
So it seems, in essence, that the fundamental issue is that MtGox became "Too
big to fail," and this is what the repercussions on a currency market of the
failure of a large and trusted institution look like.

It's an interesting object lesson for armchair economists, and I'm sure some
hay will be made drawing comparisons to the US housing market crash and the
value of the dollar.

------
pdovy
I think there should be some discussion about setting up a SIPC equivalent for
Bitcoin exchanges. Each exchange/operator contributes dues that provide a fund
for compensating losses in the event of a member's insolvency. That would also
provide a strong incentive to for members cry fowl about bad practices, self-
audit, etc.

------
nasalgoat
After the first rumblings of problems at MtGox, I moved my BTC over to a local
wallet. Best decision I made all last year!

------
chrisBob
Is it possible to fine the bit coins that were stolen and then effectively
devalue them? One thing the miners should be able to do is refuse to verify
transactions with the stolen BTC.

~~~
danielweber
There is always that option. But what if you got some bitcoins today that
turned out to have been stolen two months ago?

It might be a good idea, but it's antithetical to the community.

------
bakhy
isn't the bitcoin scene beginning to resemble a modern government in
recession? carefully crafted statements, avoiding to say much, but very
reassuring... markets be praised!

the leaked "Crisis Strategy Draft" slideshow seems like it was actually
authored by these companies, not MtGox.

------
dustcoin
"In order to re-establish the trust squandered by the failings of Mt. Gox,
responsible bitcoin exchanges are working together and are committed to the
future of bitcoin and the security of all customer funds."

As someone with funds stuck in gox, I optimistically hope that "all customer
funds" includes gox customers, in the form of some sort of industry-led
bailout.

~~~
anigbrowl
Nothing personal (I don't know you at all)but I find it ironic that you want
bitcoin users on other exchanges to pick up the tab for your poor investment
decision. _Cavest investor_ , and all that. The irony of a bitcoin bailout is
pretty damn thick.

~~~
dustcoin
Before the news of gox's massive 740k BTC loss, I had considered the
possibility that a competing exchange would buy out MtGox, cover the small
hole in customer balances (10-50k BTC) and gain a larger customer base while
also boosting the confidence of the bitcoin community.

A "bailout" could have been mutually beneficial. 740k BTC is way too much.

~~~
anigbrowl
Yeah, I should have added that by bailout I meant financed by other industry
participants rather than via some notional hit on everyone's BTC holdings -
but ultimately the cost would have to be passed back to the users in the form
of increased transaction costs.

------
conanbatt
This feels like taking advantage of Gox's demise.

~~~
chris_wot
Mt Gox were pretty pathetic, I can't really blame them. But then again, they
are worried about how it will affect bitcoin as a whole.

~~~
conanbatt
For all they did wrong, known for a very long time, they were the lead
chargers in bitcoin and all these exchanges got "real investors" and after
Mtgox was successful. If Mtgox were trading magic cards, the story would have
been probably different for most exchanges. They deserve to shut down, and
stop business. They dont deserve to get ridiculed because they didnt measure
up to the expectancy created around an instrument they dealt with when it was
worth nothing.

~~~
chris_wot
They took a lot of money and mismanaged it. They absolutely deserve the
ridicule. They had _a lot_ of time to get their act together.

------
NickSharp
And now coinbase.com is down. Not a good sign...

------
jamesk_au
Note that the "industry leaders" who "stand by this statement" have published
slightly different variations of it.

See, for example, Circle's statement[1], which styles itself as a joint
statement regarding "the Insolvency of Mt.Gox", and describes Mt Gox's actions
as "abhorrent". At the end of Circle's statement, after listing some of the
high standards to which Bitcoin custodians should be held, the author(s) make
this observation: "It does not appear to any of us that MtGox followed any
these essential requirements as a financial services provider."

The statements of Kraken[2], BTC China[3] and Blockchain.info[4] also describe
Mt Gox's actions as "abhorrent" and make the same observation about Mt Gox in
relation to its compliance with appropriate standards.

Coinbase's statement[5], on the other hand, does not use "abhorrent" and does
not express any view on whether Mt Gox complied with the "essential
requirements" of a Bitcoin custodian. But the Coinbase statement does include
this sentence: "Mtgox has confirmed its issues in private discussions with
other members of the bitcoin community". That sentence is conspicuously absent
from the other statements.

Finally, the Bitstamp.net[6] statement is completely different. It says that
the "known losses" of fiat currency and Bitcoin "are limited to those balances
that were in MtGox's care", and that Mt Gox "can best explain how this
happened".

The names of the industry leaders appear at the bottom of each statement. Have
they signed off on all of them?

Did some leaders edit the "joint" statement to avoid potentially defaming Mt
Gox?

Or do some of them know something we don't?

\---

[1] Circle: [http://www.circle.com/2014/02/24/joint-statement-
regarding-i...](http://www.circle.com/2014/02/24/joint-statement-regarding-
insolvency-mt-gox/)

[2] Kraken:
[http://www.reddit.com/r/Kraken/comments/1yux6n/joint_stateme...](http://www.reddit.com/r/Kraken/comments/1yux6n/joint_statement_regarding_mt_gox/)

[3] BTC China:
[https://vip.btcchina.com/page/notice20140225](https://vip.btcchina.com/page/notice20140225)

[4] Blockchain.info: [http://blog.blockchain.info/2014/02/25/joint-
statement/](http://blog.blockchain.info/2014/02/25/joint-statement/)

[5] Coinbase: [http://blog.coinbase.com/post/77766809700/joint-statement-
re...](http://blog.coinbase.com/post/77766809700/joint-statement-regarding-
the-insolvency-of-mtgox)

[6] Bitstamp.net: [https://www.bitstamp.net/article/Statement-by-Bitstamp-
regar...](https://www.bitstamp.net/article/Statement-by-Bitstamp-regarding-
MtGox-insolv/)

