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back to article Bitcoin value plunges as Mt.Gox halts withdrawals and Russia says 'nyet'

The value of Bitcoins dropped sharply on Friday after leading Bitcoin exchange Mt.Gox suspended all withdrawals and the Russian Federation declared virtual currencies illegal. The exact reasons why Mt.Gox isn't letting customers withdraw their Bitcoins remain murky. According to a statement released on Friday, the exchange had …

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I wonder if it was deliberate?

If Mt Gox sees a lot of people trying to unload bitcoins at once they stop the sale to keep the price from going into freefall. Similar to the "circuit breakers" stock markets use to prevent overly large drops from all the program trades if something happens that makes them all want to sell at once.

In fact, I wonder if the program traders have got into the bitcoin game? It has very volatile pricing and multiple disconnected markets. That's the perfect market for program trading. I'm sure Russia banning Bitcoin trading would be exactly the sort of event that would cause every program to sell sell sell all at once.

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Re: I wonder if it was deliberate?

Which came first, the Russian "nyet" or the Mt Gox "technical issue"? That wouldn't rule out insider trading if some got wind of Russia's move before it went public.

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Re: I wonder if it was deliberate?

They're crude but yes :)

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Aren't transactions rather slow?

Program trading only works if you can move funds quickly. They need to make hundreds, if not thousands, of transactions per day.

From what I've read (not actually being a player) it seems bitcoin transactions can take many minutes to an hour to confirm.

Relative to that, the stock exchange is fast. You can execute a stock trade in less than 10 seconds. Currency trades too.

How does that pub that sells pints in bitcoin work? Surely he can't be expecting customers to wait 10+ minutes while a payment goes through?

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Re: Aren't transactions rather slow?

good point about the pub, I wondered that myself.

the transaction confirmations can be sped up by offering a sightly higher fee to those doing the mining, though still far below the ransom demanded by the traditional processor cartel. in the real world even with "default" settings there would be at least one or two confirmations by the time you finished your pint.

the pub or their 3rd party BTC handler could also set up a deal with trusted wallet provider like localbitcoins, or you could pre pay your piss up before you even leave the house.

instant it ain't, but where theres a will and a few quid to be saved, there's a way!

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Thumb Up

Re: Aren't transactions rather slow?

I guess if you are running a tab it is not a big deal. Close your tab while finishing your last beer is common. Not all bars allow that though.

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Re: Aren't transactions rather slow?

"I guess if you are running a tab it is not a big deal. Close your tab while finishing your last beer is common. Not all bars allow that though."

But generally, you're already running late, or there's a taxi waiting, or the pub is shutting and the poor sod wants to go home. Now everyone must wait 10 minutes for the transaction to happen? Imagine if 20% of a pub's customers were to want to pay this way - a shambles.

As a currency that's broken. These days everyone wants to be able to pay instantly. Swiping a card even takes too long, hence all these NFC payment methods.

Perhaps bitcoin can work effectively as a "backbone" currency, but there still needs to be some other currency for day to day payments.

Or maybe I don't understand properly...

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Anonymous Coward

Re: Aren't transactions rather slow?

> How does that pub that sells pints in bitcoin work? Surely he can't be expecting customers to wait 10+ minutes while a payment goes through?

I have no idea, but presumably it is the same as if you're paid by cheque (which used to be very popular in France). You take the customer on trust until the funds are (hopefully) cleared.

If all the risk you're exposed to is the price of a few beers, it's probably quite acceptable in the interests of convenience.

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Re: I wonder if it was deliberate?

Of course it could be that these trading firms don't have enough real money to redeem all the Bitcoins that have been "mined". Nah, that couldn't be it, because that would make Bitcoin a Ponzi scheme...

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Boffin

Re: Aren't transactions rather slow?

You can verify that a transaction has valid input and outputs, that the inputs contain the money specified, and that the signatures are correct so it is the owner of the coin that is spending them. You can do that yourself, locally, and it takes almost no time.

What that quick verification doesn't protect you from is double-spending. If the punter has a mate in a different country who tries to spend the same coin at the same time, only one of them will succeed, and it may not be the one who spent first (because "first" depends on network delays). Waiting 10 minutes mitigates that risk, and waiting for 6*10 minute confirmations generally makes it negligible. For small transactions, the risk of double-spending is low because the benefit is low, and its tricky to set up and you risk the wrong transaction winning anyway, and if it succeeds you probably won't be allowed in the pub again, so you might as well just do a runner instead.

Eventually vendors will probably be able to get insurance against double-spending, and we may even get "green-listed" bitcoin addresses which some trusted entity promises will not double-spend. There is still a role for banks, insurance companies and credit card companies in bitcoin, if/when they want to get involved.

(I don't know what that pub actually does.)

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Re: Aren't transactions rather slow?

When a client makes a transaction it is broadcast onto the network and takes just a few seconds to reach most of the network. At this point the transaction is not confirmed but the payment processor the vendor is integrated with will check for other unconfirmed transactions on the network that would indicate a double spend.

The vendor can decide whether this is sufficient security and for low value transactions like taxi fares and restaurant tabs it probably is.

For larger value transactions one confirmation is targeted to take approximately ten minutes, it can vary significantly though sometimes it can be much longer. The vendor decides how many confirmations are required before considering the transaction irreversible and thus accepted.

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Interesting

I am curious to see if we will end up in the slightly insane situation where most governments make virtual currencies illegal, which should not be enough to stop the underground trade.

I look forward to explaining my children why it's illegal to exchange messages consisting in large numbers.

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Re: Interesting

"I look forward to explaining my children why it's illegal to exchange messages consisting in large numbers."

It's already unlawful. See copyright law.

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Anonymous Coward

Re: Interesting

Given that both US and EU financial leaders have expressed cautious support for virtual currencies - albeit while cautioning that there are potential dangers - it seems unlikely that Russia's move presages a wider clampdown, at least in the short to medium term. Russia is making it fairly clear that anything that gives voice or capability to a potential enemy (whether it's uncompliant newspapersor foreign NGOs) is on the chopping block.

In the end this might actually be *good* for Bitcoin, because it will lessen the odds of btc being a haven for the Russian mob, and thereby deny ammunition to its Western opponents.

That's going on the assumption that the Russian mob isn't the same thing as the government in the first place, of course...

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Re: Interesting

How is "trading messages including numbers" any different than sending an email ordering a trade of 50 kilos of heroin or 50 eight year old Thai girls?

The content of the message isn't at issue, it is what the content represents - which in all cases (yours and my silly examples) represents something of value to others. You can argue that Bitcoin trading shouldn't be illegal, but not on that basis.

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g e
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Re: Interesting

So barter is illegal, then.

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Re: Interesting

True, but I still think there's a difference in your example. What does the content represent? In your example, there is intent to commit a crime, but in the Bitcoin example, the mere manipulation of numbers in a network would be illegal.

Although I think the real issue is not that it would be criminalising trading of numbers - I still think that theft of Bitcoins should be treated as theft of anything else of value, even if it's "just numbers". The worry would be criminalising trading of a currency at all - has there been any precedent for this?

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barter

Barter is surely different in that it is trading things that have intrinsic value.

I give you some eggs and you give me some milk.

A bitcoin has no intrinsic worth. It is just some bits. If those bits encode music or something then it could be argued those bits have some intrinsic value.

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Legality of trading currency

" The worry would be criminalising trading of a currency at all - has there been any precedent for this?"

Yes. Many places have had, or still have, currency trading restrictions. South Africa had limits in the 1900s (and perhaps still does), UK has had them, Russia was one of those and still might be.

Not so long ago, rubles could only be legally exchanged for other national currencies (USD, GBP) at official banks. Black market traders gave you far better rates because they wanted/needed off-the-books forex. Some of that was for money laundering, some for smuggling, and some was a way to get money out of the country to set up a nest egg for leaving the country.

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Re: barter

"Barter is surely different in that it is trading things that have intrinsic value."

you mean like small carbon monocrystals and aluminium oxide with trace amounts of iron, titanium or chromium? (that's diamonds and sapphires for the uninitiated) There's no such thing as "intrinsic value".

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Anonymous Coward

Re: Interesting

> How is "trading messages including numbers" any different than sending an email ordering a trade of 50 kilos of heroin or 50 eight year old Thai girls?

The latter is more likely to use UTF-8?

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Re: barter

>>"A bitcoin has no intrinsic worth. It is just some bits. If those bits encode music or something then it could be argued those bits have some intrinsic value."

People get overly hung up about whether individual bits have intrinsic value or not. It doesn't matter - not all crime is about property. If by taking an action (in this case moving some numbers around a network) you cause harm to another (they lose purchasing power or money they would have had), then it doesn't matter whether those numbers have "intrinsic value" or not. What matters is one person taking an action that harms another and that can be the basis for making something illegal.

It's just the same as copyright infringement. People keep shouting about how it's not theft because the numbers are just numbers, ignoring the actual harm caused / wishes of the legal owner.

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Re: Interesting

Don't be so silly - messages can't be deemed illegal, any more than a number could be deemed illegal.

09 F9 11 02 9D 74 E3 5B D8 41 56 C5 63 56 88 C0

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Re: Interesting

Well, Russia here is a slightly special case. Its constitution has inherited the USSR age provision for "only our currency is legal tender". Effectively, you are not allowed to conduct any transaction in any other currency on their territory.

That was the norm in USSR and the rest of the soviet block before the fall ofthe wall. We all know the result - everyone used to use Dollars and Euros anyway.

Do the Russian powers that be like it or not, it is a small world and in order for a country to participate in the world markets it needs to be able to transact in any currency. One of the reasons why the ruble cannot reach a freely convertible status after all these years is exactly that - this line in the Russian constitution. You cannot have a convertible currency if you forbid any other currencies into which you want to convert to exist on your territory.

In any case - this is a bit different from the anti-Bitcoin drive by other governments. Other governments try to deal just with uncontrolled currencies. Russia is trying to forbid anything but ruble on its territory out of principle.

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Re: barter

Intrinsic value is purely a matter of personal opinion. Good luck getting a vegan interested in your eggs and milk currency!

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Re: Interesting

I don't think it's principle so much as "ripping off the wealthy through an inflation stealth tax".

It's what the govt. in the UK is doing by printing mon... er... quantitative easing.

Imagine if someone came up with a currency based on a basket of commodities with intrinsic value; in this case, intrinsic value dictated by the interests of the currency's "customers". A bit like air miles...

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Anonymous Coward

Re: barter

I can cut glass with the diamonds, and use the sapphires in making equipment for spectroscopy.

So there is a bit of intrinsic value there. Though most people seem to want them for artistic reasons, or for rarity value (and rate them higher than a 1978 Kenner Star Wars figure still in its box)

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Anonymous Coward

Re: Interesting

"I don't think it's principle so much as "ripping off the wealthy through an inflation stealth tax"."

Yeah, that 2% inflation is really starting to bite, isn't it? How will they survive?

You do realize that deflation is tending to be seen as the larger macroeconomic danger right now, don't you?

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Re: Interesting

I don't think it's principle so much as "ripping off the wealthy through an inflation stealth tax".

it's what the govt. in the UK is doing by printing mon... er... quantitative easing.

DanDanDan,

As someone else said, I don't think 2% inflation is all that awful. Although admittedly it's higher than it looks, because interest rates are so low. But it's not high by any recent historical measure.

Also QE isn't money printing. At least not yet. In theory the bank of England has bought that government debt with printed money, but must start selling it back into the market as the money supply and inflation rises - when the economy gets back into the hot part of the next boom. Although admittedly the dirtly little secret is that QE had less of an inflationary effect than thought, so they may think they can sneakily cancel it in a few years time, and no-one will complain too much. The alternative view is that there were more deflationary pressures on the economy than thought - and QE may have saved us from them. I gues we'll find out, over the next decade or two. My personal opinion is that it's something you can get away once or twice a century.

The alternative is what the ECB did. They un-wound their stealth QE. The Germans wouldn't let them but government bonds, so they lent over €1 trillion to the banks, via the LTRO. This allowed the banks to buy the government debt instead. They've almost un-wound this now, and this year took over half a trillion Euros out of the Eurozone system (and money supply), which is one of the reasons they're flirting with deflation. Much beloved of many Bitcoin fans, deflation is horribly bad for economies.

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Coat

Unleash the dogecoins of war

Sorry, I had to.

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Life imitates art

Anyone who's played EVE Online for any extended period of time will tell you about the ponzi schemes and out-right back stabbing and theft that occurs. I've been waiting for Bitcoin, et all, to eventually do the same.

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Is it possible for "crypto currencies"

-- To contain clandesting "messges"

-- To be routed to specific recpients

Imagine if real currency had an unusual number of phony coins, not just physically circulated for purchases and debt settlement, but for containing microdot-like transmission of dead-drop-valuable info. ANY government would want to shake that money tree and drop those coins into a forensices hopper.

Imagine if, when a payment is made, a person could say, "These monetary instruments, these specific bills, serial nos: "xxxxxxxxxxxx", shall be by the bank specified, transferred to the recipient specified, and to no others along the route, and no others trying to sniff the route shall be granted to "wrapper accesses" at any time..

I'm starting to wonder whether crypto currencies have a payload capability. Or, some sort of "keyhole manipulation" (lock/unlock/lock share/joint-keys-for-highly-uncrackable-decrypt-unlock) functions.

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Re: Is it possible for "crypto currencies"

Messages have been in the block chain since early times. As for secret transmission, that's hampered by the need to share the block chain.

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Re: Is it possible for "crypto currencies"

"Imagine if real currency had an unusual number of phony coins, not just physically circulated for purchases and debt settlement, but for containing microdot-like transmission of dead-drop-valuable info."

Someone already did imagine that: Hermione Granger's phony galeons in "Harry Potter".

"ANY government would want to shake that money tree and drop those coins into a forensices hopper."

And Hogwart's Administration did.

Sorry, but I had to chuckle (and warn anyone thinking of a juicy patent that J.K.Rowling was the first).

Any sufficiently advanced technology is indistinguishable from magic...

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Anonymous Coward

Re: Is it possible for "crypto currencies"

> -- To contain clandesting "messges"

Yes. Except it isn't clandestine, everybody can see it if they care to look. The very first Bitcoin block (Genesis block) contains the message:

The Times 03/Jan/2009 Chancellor on brink of second bailout for banks

Whoever mines a block can include extra data (text/audio/video/?) in that block. The only constraint is a size limit.

> -- To be routed to specific recpients

That is the purpose. You route some Bitcoins to a specific address.

> I'm starting to wonder whether crypto currencies have a payload capability.

Yes they do have a payload. The process for authenticating that you can spend the Bitcoins you are attempting to spend is performed with a script. You also specify what the recipient has to do to spend the coin. This is usually the equivalent of "Sign this with the private key associated with the address xxxxxx" but it isn't limited to that. One of the transactions was a puzzle that you had to solve in order to spend the BTC.

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Paris Hilton

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

YOU MEAN THE VALUE OF BITCOIN CAN FALL?

????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????

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Joke

Worse

Its on a computer, THAT MEANS IT CAN CRASH !!!!!!!

<!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!>

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Anonymous Coward

Re: !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

Yup, almost as much as Twitter. :)

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Why would anyone trust Mt Gox in the first place?

It's not like they have a track record of stability and security...

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Trollface

Re: Why would anyone trust Mt Gox in the first place?

Why, who wouldn't trust the Magic The Gathering Online eXchange with their money? Seems like a fine financial operation they got there.

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Facepalm

Oh no!

Now how can I afford to buy my Twitter shares now?

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Anonymous Coward

Re: Oh no!

> Now how can I afford to buy my Twitter shares now?

I think you'll find it's your lucky day. :)

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for what it's worth

It took the best part of three days for me to transfer bitcoins *in* to MtGox last week, so I would say that the "technical" explanation is probably correct.

Oh, and if anyone is looking for tips on trading BTC, just watch what I do, and then do the opposite.

-A.

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WTF?

The prosecutor's statement goes on to cite the usual concerns about money laundering

Yeah, money laundering was never a problem before Bitcoin came on the scene...

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Not for the bigger banks, no.

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Devil

Well You Know What They Say...

Don't steal - the Goverment hates competition.

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"In accordance with Art. 27 of the Federal Law 'On the Central Bank of the Russian Federation', the official currency of the Russian Federation is the ruble ... Bitcoin are money substitutes and cannot be used by individuals and legal entities,"

I guess that the Russian players in Everquest II and World of Warcraft are going to be out some Gold then. Since any magical weapons and armor purchased with in-game money are tainted by currency violations, those must be seized as well.

This lends a whole new meaning to the term "raiding party".

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"leading Bitcoin exchange Mt.Gox "

Not since last April. http://bitcoincharts.com/charts/volumepie/ shows Bitstamp leading, Mt Gox in 3rd place. For several months it's been hard/impossible to withdraw money in USD, significantly limiting its use.

"That last point was certainly proven this week, when news of Mt.Gox's withdrawals problem sent the real-world value of a single Bitcoin – which had been stable at more than $900 for some time – into a nosedive that bottomed out at $660 before recovering slightly to around $760."

Where are these figures from? From http://bitcoincharts.com/charts/bitstampUSD , on Bitstamp (the actual leading exchange), the value was hovering around $800, hasn't been above $900 since 12 Jan.

Quoting Mt Gox prices is misleading, if you're trying to imply what Mt Gox's effect on the rest of the world was. Its prices have been inflated for months due to the difficulty of withdrawing money (so people can't actually take advantage of the higher price) - that inflation is now lost, since people can't withdraw Bitcoin either, making the price somewhat meaningless for anyone who hasn't already got money on Mt Gox (and even those who do, can't actually do anything with it other than trade back and forth). Yes, there was a drop in price, but not to the magnitude that The Reg claims. The sooner Mt Gox becomes insignificant and stops affecting Bitcoin prices for everyone else everytime it messes up, the better.

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I had wondered why MtGox's prices were always MUCH higher than other exchanges - Now I know.

Thanks!

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"stable at more than $900 for some time"

What is some time? It has only been stable at $900 for about a month.

Pulling circuit breakers to prevent stock markets free-falling is one thing, but doing that to a "currency" is something completely different.

If we all drink of the bitcoin dream, you should be able to do all your worldy transactions in the stuff including buying your groceries and paying the rent. For that to work, a currency must be operational. If people are going to periodically stop it working then it loses its viability as a currency.

The money laundering concerns are well founded. Bitcoin is a perfect medium for money laundering and cannot be properly vetted.

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