
3rd largest Bitcoin exchange lost its wallet.dat - mef
https://bitomat.pl/Home/Statement
======
dedward
Everyone keeping their bitcoins in exchanges/(think banks, or broker accounts)
instead of their own wallets is completely subverting the point of the idea of
bitcoin.

BTC has some great unique properties as a p2p cryptocurrency - which goes out
the window when everything sits in a few exchanges rather than a bunch of
wallets.

~~~
kiba
Find a way to easily trade bitcoin without centralizing wallets and you got
the thousand bitcoin idea.

Next step is to turn the thousand bitcoin idea into an actual reality and get
rich.

~~~
aw3c2
I thought one can directly send bitcoin to another address without the need
for a middleman?

~~~
kiba
Yes, but dollars and euro and yens almost always require a middleman, unless
you're doing cash exchange.

~~~
aw3c2
Ah, I did not realise that this was about a "transformation" between bitcoin
and normal money. But in that case wouldn't it make sense to keep the money on
the exchange just as long as needed?

~~~
wcoenen
The bitcoin exchanges typically require 6 confirmations of a transaction in
the block chain before crediting your account with bitcoins. This takes about
1 hour.

If you are speculating on bitcoins and you hear about some news that might
cause the price to drop, then you don't want to wait 1 hour before you can
sell them.

~~~
sp332
Can you offer more money for the verification, to get it done faster? I think
the default is 0.01 BTC, so if you offer 0.05 BTC will you get priority?

~~~
DavidSJ
At the moment even no-fee transactions usually make it onto the block chain as
quickly as possible. The ~1 hour (6 block) confirmation time is due to the
recipient being cautious that the sender won't try to double-spend the money
by rewriting history with lots of computation power. As more time elapses from
when the transaction occurred, this becomes harder, and not as a function of
your transaction fees.

------
kiba
I guess the bitcoin economy is ruthless on its entrepreneurs and users.

Failure to backup, improper trust in individuals, improper understanding of
the technology, poor security practice, and bad decisions will wipe out early
adopters' wealth continuously and relentlessly.

I doubt we will see much of the early adopters retaining their bitcoin wealth
from these early days. Those who did are either incredibly lucky, or
incredibly competent.

I am an early adopter of bitcoin and I hope to survive or avoid the many
dangers and poor decisions that ensnared many of peers on the road to bitcoin
richness.

~~~
bcl
I think that's a bit over the top. It really isn't that hard to keep your
coins in your own wallet and back it up.

What this demonstrates to me is that people are too trusting. You really
shouldn't trust any of these services until they become more transparent in
who is backing them, what their infrastructure looks like, their disaster
plans, etc.

~~~
Duff
It isn't, but since the primary thing to do with Bitcoin is to speculate it,
keeping it on your PC is problematic.

------
_delirium
If this kind of thing keeps happening, isn't Bitcoin inherently deflationary?
With gold, for example, only a small proportion is ever permanently "lost";
even shipwrecks can be recovered in the future. And of course more gold is
always being dug up. But if bitcoins from a fixed set are slowly being lost in
various ways, irreparably shrinking the money supply, it seems like it'd have
trouble being a viable long-term currency.

~~~
SkyMarshal
Yes, BTC is inherently deflationary, but one of the fascinating things about
it is that since it can be infinitely subdivided, this may not be as much a
problem as it for meatspace currencies.

Currently BTC is divisible down to 8 decimal places, enabling a maximum
possible 2.1 quadrillion atomic units. But that is only an artifact of the
data structure used in the current implementation, and could potentially be
modified to allow even more granularity.

So, as the value of BTC rises against goods, services, and other currencies,
the market can reprice in smaller and smaller increments of BTC, and the
incentive to save/hoard that is typically associated with deflationary
monetary systems may be weaker with BTC.

~~~
jahnu
> the incentive to save/hoard that is typically associated with deflationary
> monetary systems may be weaker with BTC.

I don't see how that is possible. The coins may undergo a process similar to a
stock split but any holders of the coins end up with equal purchasing power.
The incentive to hoard does not go away if the currency is deflationary.

------
otoburb
Was this a relatively young BitCoin exchange? One would hope that the
wallet.dat was backed up somewhere else (another EC2 instance, EBS, offline).

This doesn't bode well for establishing credibility in BitCoin exchanges and
operators. Although nobody necessarily needs to use the exchanges, for better
or worse, people use them to establish market values to more easily value
their transactions.

It's obviously easy to criticize after the fact, but I am genuinely curious
how backing up critical data wasn't considered. Unless, this was a very young
/ recently launched BitCoin exchange as a weekend hobby project that took off?

~~~
WarDekar
They've been around for a few months and were one of the higher volume
exchanges. They were doing ~800 BTC in trades/day for the month prior to this,
so ~$11k/day with their commission of .006*2 (I think it was .006, and on both
sides) they were pulling in ~$130/day.

~~~
scotty79
Everything (transactions, withdrawals, deposits) was free of charge.

Only way of profiting legally from the exchange was interest on the capital
deposited by users on exchange owners bank account.

~~~
djcapelis
Or "losing" the wallet.dat after a few months.

You're operating in an unregulated market. Your legal protections for when
someone outright steals your money are much weaker. You might be able to sue
them... if you could get to Poland. Not only is your market unregulated, you
don't share a jurisdiction with the "bank" unless you live in Poland.

So it's not the only way of profiting legally as much as it's the only way of
profiting ethically.

I don't think this particular case was malicious, but I think people are
vastly underestimating their risk exposure to a malicious exchange.
Thankfully, the bad guys seem as incompetent as the people running bitomat.

~~~
icebraining
If it's a scam, lying about losing the file is useless, since all the BTC
transactions are publicly logged. You can just input their address(es) on the
Bitcoin Block Explorer and see if any of them are being used.

Of course, that doesn't mean you'll have any legal recourse against them.

~~~
doublec
The addresses being used don't necessarily indicate the exchange owner was
lying. An enterprising AWS engineer might have been able to recover the wallet
somehow. At a value of $200,000+ USD it'd be worth looking for.

------
jonknee
Sometimes you don't appreciate regulation until it's gone.

~~~
bcl
I disagree. Regulation has given people a false sense of security, leading to
them trusting these unknown and untested entities.

Instead of regulation what they need is more transparency. Tell your customers
who you are, how you are building your service, what you will do in the case
of a disaster.

In this particular case you have someone who is playing with the technology
without having even a basic understanding of how to build the required
infrastructure.

~~~
jonknee
What's to prevent a firm from lying about who they are and what they are
doing? Without regulations (and accompanying penalties for breaking the
rules), it's the wild West. It sounds good on a libertarian check list, but in
practice the people who can least afford it get absolutely destroyed.

~~~
kiba
Bankruptcy.

Plus, backup is just a good policy. Practice it lest you end up homeless or
have to find another job.

~~~
jonknee
It's hard to go bankrupt when you steal for a living.

~~~
joelhaus
Believe it or not, it's even harder to go bankrupt without regulation...
_Bankruptcy refers to the legal status of an entity_!

This thread has just about reached the point of absurdity.

------
sliverstorm
On the bright side, if the wallet has truly been lost and not stolen,
everybody else's BTC got just a bit more valuable.

In other news, funneling thousands of trades through one wallet.dat... how on
earth do you successfully back that up when it has new data every minute? If
exchanges are going to become a "thing", I'd think you'd want something like
multiple redundant networked databases storing the BTC.

~~~
doublec
The individual trades in exchanges don't hit the wallet. Only deposits and
withdrawal's do. The trades themselves are handled by the exchanges database.

You can pre-generate addresses in a wallet and then do a backup. This backup
is valid and can be used to recover funds as long as that pre-generated pool
doesn't run out.

There's also a 'backupwallet' RPC command that the bitcoin daemon provides to
safely copy/backup the wallet. So lots of options available.

------
mef
Looks like the admin stored the wallet.dat and backups on an ec2 instance, and
then shut it down while doing a RAM upgrade without realizing he would lose
everything on the disk.

Translation of post:

DECLARATION I hereby inform all users of the service www.bitomat.pl of system
failure that occurred on 26 July 2011 and its consequences. At the outset I
would like to apologize for such a long delay in publication of this
statement. I explained that it was dictated only by the good service
investigation conducted to determine the causes of failure and the people
responsible for it. Unfortunately, to date, despite intensive efforts, could
not determine these issues. However, I believe that the longer pause to
disclose this communication at this stage would be unreasonable. I am also
aware that service users are the appropriate explanation. On 26 July 2011 at
about 23:00, I noticed that absorbs all Bitcoin server machine resources, and
probably not used for making. So there was need to increase the amount of RAM
in the server. As a result of that procedure - suddenly the whole virtual
machine has been erased, all data stored on the server has been lost!,
Including records concerning bitcoinowego portfolio and its backups (backups).
I have taken action have established that the disappearance of the data was
the result of the introduction of virtual server settings, which he never
would have introduced. Amazon Web Services Company, which is located servers,
website says that the machine that has been cleared has been set up in such a
way as to be irretrievably destroyed automatically with the data on disks
attached to it at the time of her arrest by the shutdown. We are constantly
trying to determine who made changes to these settings and whether it will be
able to recover lost data. Unfortunately partnership with Amazon Web Services,
which was placed servers service is difficult. Once I realized that I deleted
the machine have redeemed the biggest package of technical support, I talked
to the manager, asked about the security of disk space, I explained, so far
unsuccessfully. Still exerts pressure on the Amazon Web Services to accelerate
their activities but without concrete results. At the moment I am unable to
clearly determine the causes of crashes, I suppose that it is the result of
actions of third parties, which are causing the server tried to cancel to hide
their illegal activities, or intentionally wanted to website disappeared. If
my suppositions are confirmed, the fact will let police and prosecutors. At
the same time if possible take action through which it would be possible to
recreate lost data. But what I need to interact with the server's owner, and
that as I mentioned above is difficult. At this point I wish to inform and
assure you that your cash deposited into your bank account service and not
converted into BTC and unpaid cash from the sale of BTC remain safe and
intact. Any further findings will you keep. At the same time I am counting on
your help in solving the problem. I realize that the situation is very
difficult, and you fear for the fate of their BTC. We are constantly working
on a solution to the crisis, and I'm open to your suggestions. Currently going
to: cancel all active orders so far, to restore service to operate to allow
the performance of any operation (in particular the payment of PLN). Please
your suggestions and ideas. I wish to inform you that I had several
conversations with potential investors from home and abroad. Www.bitomat.pl
service is on sale for EUR 17,000 BTC. If interested, please contact us at
bartek@szabat.com. Best regards Bartek Shabbat Service Administrator
www.bitomat.pl

~~~
jpr
There's a reason real banks use mainframes, not cloud services...

~~~
tghw
This is not why they use mainframes instead of the cloud. This is why they
employ competent sysadmins.

------
scotty79
Other thread about same subject here:
<http://news.ycombinator.com/item?id=2828091>

------
noonespecial
The time seems right for the first bitcoin insurance company.

~~~
SODaniel
Only problem. Who would insure a data file of unknown value?

~~~
weavejester
That's not really a problem. You'd insure individual bitcoin addresses, and
the amount of bitcoins assigned a bitcoin address is public.

The real problem is figuring out whether an address has been actually stolen,
or whether the user is indulging in a spot of insurance fraud.

------
tedjdziuba
And nothing of value was lost.

~~~
drivebyacct2
I can sell my BitCoins immediately for about $250 (what I originally put in).
How can you sit and say it has "no value"?

~~~
zb
Some people believe that price and value are the same thing. Others, not so
much. It's not inconceivable that Ted here holds the latter opinion.

~~~
drivebyacct2
I don't really understand the difference I guess. Does Ted like to do
something else with his dollar bills that I don't want to or can't imagine?

------
sgornick
> At this point I wish to inform and assure you that your cash deposited into
> your bank account service and not converted into BTC and unpaid cash from
> the sale of BTC remain safe and intact

The funds are likely held in aggregate in a single bank account under a single
name. Without having the data showing which accounts hold which amounts, I
wonder how those funds could be returned to the rightful owners.

~~~
sliverstorm
It sounds like they lost the bitcoins, not the database.

------
nradov
Ha ha! A fool and his money are soon parted. Anyone stupid enough to waste
real currency on bitcoins deserves what he gets. Bitcoins are the modern
equivalent of speculating on "limited edition" Beanie Babies. The truth hurts
so I expect all the bitcoin fanboys will downvote me now. Go ahead do your
worst. :-)

