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.
Next step is to turn the thousand bitcoin idea into an actual reality and get rich.
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.
One of the problems with ever realizing a "true free market" in bitcoin trading is the time spent waiting for block confirmations. There are barriers to entry in that you can not just transfer your coins to an exchange and sell instantly. Because of this a lot of people who trade bitcoins keep a certain amount in their exchange accounts.
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.
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.
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.
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.
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?
Only way of profiting legally from the exchange was interest on the capital deposited by users on exchange owners bank account.
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.
Of course, that doesn't mean you'll have any legal recourse against them.
You might, extremely conservatively, sell BTC to people in exchange
for a promise of a greater amount of future BTC (i.e., you might lend
BTC out). Step 1 in that scheme: find anyone who will borrow BTC who
isn't either a lunatic (and therefore unlikely to be able to repay the
loan) or a thief. After subtracting lunatics and thieves, you're left
with people who will take some BTC, sell it for EUR, attempt to make
money, and then at a future date buy BTC for with any EUR they've
made. I.e., with people who will need to pray almost as hard and as
long and with as much chicken blood and magic circles as an exchange
that took your suggestion to get interest from a bank. Your
borrowers won't have to fear a sudden demand for the money, but
they'll still have to fear the BTC:EUR exchange rate.
Meanwhile, approximately 100% of BTC holders are speculating in the currency.
This will means that exchanges will tend toward competency rather than incompetency.
Regulations is something that you will have to design first or else you get regulatory capture or "TOO BIG TO FAIL" or some kind of unjust monopoly. Adding a regulator means that we will have to shift our focus in making sure that the regulators are doing its job rather than ruthlessly killing off companies that can't keep customers' money safe.
Incompetent exchange goes out of business. Said exchange try to compensate their customers. Customers learn better to scrutinize other exchanges for their backup policies and how they run their business.
Of course, this is the free market. Failure to be competent, either as an investor, user, or exchange, result in monetary loss.
To others, this is horrible. To me, this is the way I like it.
I wish for the accurate consequence of my decisions, not a jacked up distorted picture of reality. This prevent crisis from becoming a minor blip in the bitcoin economy into something that fundamental destroy the bitcoin economy.
Adding regulators who have a hold on the whole Bitcoin economy with no alternative for said regulators, with no incentives to for regulators to regulate the market right is a recipe for disaster. You want regulation and regulators? Show me the incentives for them to make things right. Show me why they will not fall prey to regulatory capture. Give me precise details of how this is all suppose to work and what the rules are.
Otherwise you'd accept any level of inefficiency as the market working, at which point it's just an ideological label.
Although it's not clear that regulation of bitcoin is even possible, we can still consider losses due to its absence.
Our economy, despite recent "deregulation" is the most regulated, especially when you count criminal and civil law as well, in the world. There are countless laws against selling known-bad products (lemon cars, toxic mortgages, etc) and we could have almost everyone involved in the recent collapse behind bars if we tried.
We pay through the nose for the regulation, especially in the collateral damage from false positives and economic friction, and it's totally worthless at catching the biggest criminals (in terms of dollars stolen) in world history.
If I want regulation I can use a regulated exchange. Or rather, if I felt like using beta-software I'd be doing it and would be thankful to be allowed even if I had just lost my test fund. Forced regulation would remove the choice.
And ultimately regulation implies that rules stop the bad guys and we know that's true. Thanks, but I'll wait until an open-source and audit-able exchange comes along, and then I'll listen to the experts I respect.
This one was just (apparently) incompetence. Wait until the real crooks get going.
Bitcoin has unique properties in terms of exchanging wealth. If you don't actually need those properties though you probably shouldn't be using bitcoin for anything other than playing with it.
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.
We know how well they work in real life, though.
As for the people who 'can least afford it', well they need to learn how to be paranoid, the sooner the better.
Reputation is, to me, the best way to ensure trust. Build a public reputation through transparency and actions. Of course this takes time, but in the end is better than than an external entity imposing regulations.
Plus, backup is just a good policy. Practice it lest you end up homeless or have to find another job.
This thread has just about reached the point of absurdity.
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.
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.
The hit to confidence in bitcoin might decrease the value of the remaining bitcoins more than the loss of these bitcoins increased it. I suppose we'll have to look at the exchanges...
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 firstname.lastname@example.org. Best regards Bartek Shabbat Service Administrator www.bitomat.pl
There was need to increase the amount of RAM in the server. As a result of that procedure - suddenly all data stored on the server has been lost! [..] the disappearance of the data was the result of the introduction of virtual server settings, which he never would have introduced.
For Amazon persistent storage, you don't just change a setting, you need to pay extra for EBS storage and design your service to use it, so saying the following:
We are constantly trying to determine who made changes to these settings and whether it will be able to recover lost data.
Suggests a continuing lack of understanding, and that makes it seem more likely that the service was built on quicksand and is now sunk. Even if we assume that they did have EBS volumes available and someone had redesigned their service to not use them, that they have no access audits, no regular setup audits, no long term backups, no revision control history, no change procedure and no email records (and nobody who remembers anything about it) to give them a clue what happened, that's pretty damning in itself for a financial service.
Once I realized that I deleted the machine [..] At the moment I am unable to clearly determine the causes of crashes
Maybe an artefact in the translation, but you can't accept that you caused it while also being unable to determine the cause!
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
If this is a serious admission that their Amazon account was hacked, the assurance that unpaid cash from the sale of bit coins is safe seems a bad idea, and hiding it at the bottom of another announcement is really poor form. If it's not a serious admission then it reeks of pointing the blame anywhere except 'here' and is also poor form.
Is anyone else reminded of Leafyhost about now?
2. Why didn't they use EBS and take frequent snapshots to S3?
It sounds like they were running an instance store EC2, then fired up a larger instance and stopped the first one? This has to be a textbook case of how not to use EC2.
edit: After re-reading my post it probably wasn't clear to people who don't use EC2; so your reply is probably for the best. :)
I have to repeatedly tell people that EBS-backed is not persistent. Amazon did everyone a big disservice by calling something -backed when it was actually transient.
Does anyone know if they disclosed the address at which they stored their bit coins?
I currently had ~13 BTC in my Bitomat account- when I login they correctly show my balance, so I'm slightly confused as apparently their database wasn't lost, but their wallet data was? How does that happen? And why was the wallet data not backed up on a non-EC2 instance?
All of this is making me lose some faith in the exchanges- between the MtGox BS and this, is TradeHill the only exchange that can be trusted? Can they even be trusted? It seems they are by far the most competent from a technical perspective, but at this point who wants to trust any of these exchanges with any significant amount of money?
With that said, I think you could pick a better site to be the shining beacon of Poland's world class talent than the site that just lost a bunch of people's money because the only place they were keeping it was on a single EC2 instance store. If this is the top, I'm not sure I wanna see the rest of the class.
People should get rid of that "poland is europe's mexico" notion. It's the EU - you have the same legal security as in the UK, France or Germany.
EUR here is just some strange artifact of google translate
> Serwis www.bitomat.pl zostaje wystawiony na sprzedaż za kwotę 17000 BTC.
> Www.bitomat.pl service is on sale for EUR 17,000 BTC.
This is likely because its corpus for Irish is made up largely of Irish government documents (all Irish govt documents are translated into Irish, but Irish isn't used by many people and there's not all that much else written in it), and these documents are rather similar to British civil service documents.
However, it looks like the original page says BTC, so it looks like just a translation error.
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.
Seriously, was that your best argument?
Supply and demand. Right now there is a demand for BTC which means people can supply them for a cost.
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.