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Step 1: create USD out of thin air.

Step 2: buy BTC at $1200.

Step 3: sell BTC at $200.

Step 4: profit!




Yes, this is exactly right, but you should clarify:

Step 1: create USD_FAKE out of thin air.

Step 2: buy BTC at 1200 USD_FAKE on MtGox.

Step 3: sell BTC at 1100 USD_REAL on Bitstamp.

Step 4: profit!


The Bitcoin community has had a term for your USD_FAKE concept for a long time: GoxBux.


Whoever sold you BTC in Step 2 isn't going to accept USD_FAKE for their coins. Doesn't this scam fall apart right there?

There's something like $600M missing. Were people really leaving that much fiat on account at Gox?


Mt. Gox didn't let you withdraw real currencies other than JPY, most interestingly the dollar, from approximately last August. This meant that when you were selling BTC for USD, you were actually accepting a USD liability of Gox -- Bitcoiners sometimes called them GoxBux or GoxUSD. It's a number in a database and now, apparently, something which you'll eventually be allowed to assert as a claim in their liquidation, but it is not actually a dollar.

The failure to allow withdraws in currencies they supported is why many people were speculating that Mt. Gox was insolvent, for much of the year prior to them admitting insolvency. As it turns out, we were probably right.


I don't follow your argument. The person selling the bit coin in 2 assumes that when the number in their account balance goes up by USD_FAKE that there was really money to back it up. They have no way of knowing that Mt Gox didn't ever have that money.

I think that is the point they are trying to make.


Also:

Step 1: Spend users' deposited BTC until you can no longer cover withdrawals.

Step 2: Freeze Bitcoin withdrawals.

Step 3: Wait while the internal Gox BTC price plummets as people try to get their money out.

Step 4: Buy up the "bad" BTC at the deflated prices until it's all gone. Nobody will ever know the difference.


I think that is called quantitative easing.


Start : (Markus: $0) (Joe: 1BTC)

Step 1: (Markus: $1200) (Joe: 1BTC)

Step 2: (Markus: 1BTC) (Joe: $1200)

Step 3: (Markus: $200) (Joe: 1BTC, $1000)

Step 4: Piss off Joe by preventing him from withdrawing his imaginary profits.

I don't understand what Markus gains in this situation.


Markus' $1200 isn't his (in fact, it never existed), whereas Joe's $200 is very real. Markus gains $200.


Assuming "Joe" represents the entire userbase of Mt. Gox, which deposited its own money into the system:

Start : (Markus: $0) (Joe: 1BTC, $200)

Step 1: (Markus: $1200) (Joe: 1BTC, $200)

Step 2: (Markus: 1BTC) (Joe: $200 + 1200)

Step 3: (Markus: $200) (Joe: 1BTC, $1200)

Assuming Markus withdraws fiat before Joe does, Mt. Gox only had $200 in real money and $1200 in fake make-believe numbers, so Joe is left unable to withdraw.


But it seems like if they were pumping the price up, then a lot of active traders would be holding fake USD. Mt. Gox can't tell if it is accepting real or fake USD while dumping. I think my first post outling a possible scenario that generate nothing except perceived loss to users once they can't withdraw.


When a user does not yet have sufficient USD on deposit with Gox to buy the bitcoins they want, they deposit more, and MtGox now has more real USD under their control. It's not a matter of selling the coins for real vs fake USD.


The question is how much new cash was really put into Mt. Gox to buy while they were dumping and the price was crashing?


I wonder if the information even exists to create a ledger of all the real dollar deposits and withdrawals that Mt. Gox carried out. I suppose even if that ledger made sense they could be sending the $200 to an account (or multiple accounts) controlled outside of the business.




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