back to article Bitcoin collapses on malicious trade

The fragility of the Bitcoin peer-to-peer crypto-currency has been thrown into sharp relief when a large sell transaction sent the trade value of Bitcoins to zero. According to the Mt Gox exchange, the sell order came from a compromised account. Mt Gox has taken its exchange offline (however, a screen grab of Bitcoins’ …

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  1. Cronus
    Meh

    Quite revealing really.

    Frankly I can't believe it's taken this long. If the value of bitcoins can be reduced to 0 by one large sale that seems pretty significant. It doesn't have to be the result of a hack either. If we assume there's more than one account with that many bitcoins at present (and I'm sure there are plenty) then any one of them selling their bitcoins will crash the currency and wipeout the value of every other user with bitcoins. Seems like a dangerous game to play to me.

    1. Throatwobbler Mangrove
      Alert

      111100101011100101011101

      it's been quite interesting listening to the bitcoin fanbois talking about how they're going to buy bitcoin because it's a more stable and reliable store of value than normal currency (GYAC - it has been around long enough to be reliable and the volume of trading has been highly unstable) and how it's not just a big trick based on confidence that can fail at any moment (just like Bitcoin has today).

  2. Anonymous Coward
    FAIL

    If true this is a clever heist

    So the exchange lets you move out a maximum of $1000 worth per day. Which means that if a hacker gains control of an account with lots of bitcoins, all they can do is profit by $1000 before they're noticed and stopped.

    Unless, that is, the hacker gains control of enough accounts with enough bitcoins -- and one forum poster suggests that this one was in control of one-thirteenth of the *entire* bitcoin circulation. Then what they can do, is sell, sell, sell, driving the price down -- to a cent, say, or perhaps even to zero -- at which point, they can move out as many bitcoins as they like. Whatever the bitcoin then recovers to, even if it's less than the $17 or so they traded at before, the hacker has made a much healthier illicit profit.

    1. Adrian Esdaile
      Holmes

      so....

      It's working the same way as real-economy trades then?

      You have to be rich enough to control a significant share; then do a bit of insider trading to make a profit!

      Of course, insider trading is naughty and illegal, just like speeding; so no-one ever, ever does it.

      1. Anonymous Coward
        Headmaster

        Market Abuse

        I am not a lawyer, but I think you'll find (at least in the UK) that using a dominant position to influence price is called "market manipulation", not "insider trading". Insider trading involves the use of specific information which is not known to the market but which is "price sensitive".

        In the EU, market manipulation is unlawful under the Market Abuse Directive. In the UK, this directive is implemented by Part VIII of the Financial Services and Markets Act 2000 under which offences are civil, not criminal: section 118(5) addresses the type of manipulation described here, but in any event it doesn't apply because Bitcoin is not a "qualifying investment".

        In the UK, insider dealing is unlawful both as a civil offence under the same legislation and as a criminal offence under Part V of the Criminal Justice Act 1993.

        1. Lonesome Twin

          Reprise

          .... 'Of course, insider trading is naughty and illegal, just like speeding; so no-one ever, ever does it.'.

  3. Arctic fox
    Happy

    Not just the tax evaders but the speculators are now in the game.

    Comfy chair, check. Popcorn, check. Six-pack chilling in the fridge, check. I am so going to enjoy this.

    1. Arctic fox
      Happy

      On a purely practical note.....

      ........these people have little or no option other than to swallow any losses that occur. In order to have ordinary recourse to the assistance that the law can provide they will have to show that they lost something of value as the result of an illegal act. Now hacking their system is probably illegal but the moment they say that they have lost something of financial value which they almost certainly have not declared on their tax returns they are up the proverbial creek without benefit of toilet paper as far as the IRS is concerned. In other words they cannot ask for the help that any other citizen could ask for. Richly ironic in the circumstances. Now where is that popcorn.

      1. Anonymous Coward
        Anonymous Coward

        Declared on tax returns...

        Wouldn't Bitcoins count as a comodity? The same as buying an antique varse, so would any increase in value on the Bitcoins be required to be declared? I wouldn't have though so. Maybe at the time you sell it, but while you hold it I don't think you would be taxed on any increase in it's value. Feel free to correct me, but if that's the case then he's done nothing wrong.

      2. Anonymous Coward
        FAIL

        You demonstrate complete ignorance.

        If you buy Bitcoins at $1 and they go up in value to $1,000,000 YOU DO NOT HAVE TO PAY TAX ON IT.

        You only have to pay tax on any realized profit, not on value. In other words, until you actually sell the bitcoins (or realize the profit in another way) and pocket the $1,000,000 there is no tax to pay.

        If somebody steals the Bitcoins when they are worth $1,000,000 you can go to the police. It does not matter if the Bitcoins are now worth $1 again it is still a million dollar theft. Imagine, for example, somebody stealing a Ming vase worth a million dollars and then breaking it. They have still stolen a million dollar vase despite the fact that the pottery shards are worthless.

        1. Arctic fox
          Thumb Down

          Re "You demonstrate complete ignorance"

          No, I do not. Whilst it is certainly true that you do not owe tax on *unrealised* profits you still have to declare your assets when filling in your tax form. *You* do not decide whether or not to declare assets on the basis of whether *you* think there is tax due on them. You *have* to declare the whole shite and then the *tax authorities* decide their attitude which you can appeal if you do not agree with them. What you *cannot* do is decide what you *feel* like declaring. If you have failed to declare your Bitcoins, whether *you* think there is tax due on them or not, you have broken the law - end of. Bottom line - ALL assets must be declared, whether *you* think there is tax due on them or not.

          1. Fred Bauer
            Thumb Down

            Yes, you are still ignorant

            at least of US tax code. As an individual, you only have to declare income, profit, etc. There is no requirement to tell the IRS every year what you OWN; they only care when you sell something. They don't even care when you buy something, as long as you can prove what it cost when you sell it.

            Now, corporations are a different matter, but I expect most BitCoin users are individuals.

            1. Arctic fox
              Thumb Down

              Am I to assume that you are of the opinion that the US tax system is.......

              .......the be all and end all of everything? I suggest you consider the fact that the world does not end outside the borders of the United States. I further suggest that you take notice of the fact that this is primarily (all though not exclusively) a *British* website and you might be expected to understand that postings will in general be rooted in (all though not exclusively) British circumstances.

            2. Anonymous Coward
              Anonymous Coward

              Fred

              theregister.CO.UK.

              I'd think it's fairly obvious we don't really care about the IRS.

              1. Anonymous Coward
                FAIL

                And here is the UK SA100 tax return

                http://www.hmrc.gov.uk/forms/sa100.pdf

                There is no section for assets. There are no supplemental pages for assets.

                ASSETS DO NOT HAVE TO BE DECLARED.

          2. Anonymous Coward
            Anonymous Coward

            Fred Bauer is correct.

            It is also true for UK tax law. Assets do not have to be declared, only income.

            For the UK Tax you have to declare any income from dividends/interest/employment/rent etc but at no point do have to say "I have X amount of assets", it is irrelevant for calculating your tax.

  4. FozzyBear Silver badge
    Unhappy

    Interesting

    This gives a very interesting insight into our financial systems and how fragile they can be against just a couple of corrupt individuals.

    I guess as a general rule whilst "people" maybe concerned over the health of the/a system overall, the individuals within the system are still just worried about accumulating more wealth/power for themselves regardless of the conseqpences.

    Sad really

    1. Stoneshop Silver badge
      WTF?

      "our financial systems"

      Err, whose financial systems?

  5. Pete 8
    Devil

    There is a parallel here

    with the central banking model.

    Scared yet?

    1. Dave Bell
      Holmes

      Instructive Parallels

      I infer that the Bitcoin market is minute, if such a small transaction can make such a huge difference.

      Real-world currency markets have a huge amount of trading, with large sums changing hands for tiny percentage change. And some of the doubtful features of real financial markets, such as futures trading, can be a benefit as they damp out swings. Markets need speculators, buying and selling, to ensure that there is always somebody willing to buy or sell.

      Bitcoins seem to be such a simple market that it cannot be stable. The real world markets are so huge that thet can't be understood, even by those who might be able to manipulate them.

      1. Anonymous Coward
        Anonymous Coward

        I think that the US...

        housing bubble and derivatives markets proves that even Real-world currencies have been proven to be manipulatable. Whether those currencies have been set up to fail and if so for what reason(s) are the interesting/fun questions.

    2. Adrian Challinor

      Sounds Greek to me

      The post is required, and must contain letters.

  6. SirWired 1
    FAIL

    BitCoins are defective by design.

    BitCoins are defective by design. Their backers confuse potential (dubious) value as an investment with usefulness as a currency; the two attributes are inversely proportional. It is NOT a sign of success when your currency, in relation to the Dollar, Euro, Pound, oz gold, whatever shoots up like a rocket.

    You want investments to appreciate in value, or, at the least, remain stable. Currency, on the other hand, you want to remain relatively constant in value in relation to something you want to exchange for. (Unstable currency inhibits the credit market. Nobody in their right mind wants to take out a loan in a currency that is subject to annual deflation of several hundred percent... it'd make a loan shark look cheap.)

    Keeping the value of currency stable is the primary reason virtually every modern economy uses fiat currency. (Some central banks are better at it than others admittedly.) Fiat currency allows the supply of money to increase (or decrease) with the size of an economy. BitCoins, due to the poorly chosen supply curve are extremely deflationary by design, putting the "currency" into a trap where it MUST massively deflate to be anything more than a niche toy, but that very same predictable attribute prevents their wide adoption.

    It's kind of funny... whenever you point out deflation to a BitCoin fan, they invariably point out that it can be subdivided into tiny units, and therefore deflation isn't a problem. As if illiquidity due to unit size is the only issue caused by deflation... (and, due to small trading volumes, the liquidity issue isn't really solved.)

    If people want to trade BitCoins as a hobby, more power to them... they just need to realize that when the fad wears off, somebody going to end up holding the bag, and that's likely to happen sooner rather than later. At least Beanie Babies were cute...

    (On technical grounds, I also have doubts about the scalability of the system once the BitCoins are subdivided.)

    1. Lord Elpuss Silver badge
      Boffin

      Sir

      Great post, and very informative. One question I have is if Bitcoins were to be adopted by a significant number of people (say a few tens of millions) would it then become inherently more stable? Presumably it would then take a much larger Sell to cause a run, thereby reducing the chance of said 'Sell' and increasing the overall stability of the ecosystem?

      It's tempting to compare Bitcoins to a real-world currency of a very small country - is this a fair comparison from an economic ecosystem perspective?

      1. El Cid Campeador
        Black Helicopters

        Fiat lux

        A fiat currency (virtual or paper; as if there's a difference these days) relies on people believing that it's worth something--so sure, the more people believe, the more stable it will be, and it takes a Soros-sized manipulation to screw around with it as an individual. However, there is still the problem that fiat currencies rely on faith alone... which is why currencies that have been successful in the long term are backed with gold or (less stably) silver--if you get antsy you can (at least in theory) march into the back, plunk down that piece of paper, and get a chunk of precious metal you can take home. The funny thing is that when people know they can do this, they rarely actually do it, but the currency is much more stable. Unfortunately, after World War II the influence of Keynesian economics tempted governments to move away from backed currencies to fiat currencies so they, being the government, could print more money whenever they wanted to buy the votes of the indolent, ignorant, and unproductive, and we are now paying the price, both with the Euro and the dollar.

        Before everyone downvotes me, a couple of points: 1) I am aware that both the gold/silver standards and the move away from them are more complicated than what I've just stated--to the point where technically we're not quite at fiat currencies--but the basic principle holds true. 2) I realize that backed currencies are NOT immune from manipulation--just look at the Byzantine devaluations; but at least it takes a government to do it... you don't have Soros moments when your currency represents something real, and government manipulations are very clear to all... much more difficult to pull Fed type smoke and mirrors

        1. Anonymous Coward
          Headmaster

          @El Cid Campeador

          I'd just like to point out that gold is also a fiat currency. It has "value" because people *believe* it has value.

          There's no more of an intrinsic value in gold than in the $5 federal reserve note in my pocket. You can't eat it, can't burn it for warmth, nor live in it. (Well, with enough of it I suppose you could construct a shelter but you get the point.)

          1. Anonymous Coward
            Anonymous Coward

            @@El Cid Campeador

            Yes, but Gold, Silver, and Copper have been used successfully for millennia. Fiat currency is a new and I think proven failure as a currency type. Of course, most won't see that until fiat currencies really collapse. The US gov sent trillions of dollars to banks to buoy them when they could have to paid off US household/credit card debt to much greater effect, although that kind and good act wouldn't have further lined the pockets of the already stupendously wealthy.

        2. Anonymous Coward
          Pirate

          US debt ceiling

          So why doesn't US just print money instead of trying so hard to raise its debt ceiling, or defaulting on its obligations?

          1. PT

            @US debt ceiling

            Because, strangely enough, the US government CANNOT print money. The Federal Reserve (a wholly private enterprise) prints the money, and lends it to the US government in exchange for bonds and other debt instruments. The detailed workings of this arrangement are beyond me, not least because the Federal Reserve is exempt from normal oversight that might help to explain how the whole tottering house of cards is constructed and sustained.

  7. Oliver Burkill
    Gimp

    article not accurate

    The value of bitcoin was not driven to 0. All the buy orders on the Mtgox exchange where fulfilled by a large sale (half a million coins not 60 as stated) leaving the price they you could sell at on that exchange at 0. Trades on the exchange are all internal and no actual bitcoin transaction take place. The hacker was only able to transfer out $1000 because due to cash out limits at the exchange.

    MtGox has suffered a a CSRF vulnerability, DDOS attack and now account information leaked through SQL injection. None of this has any thing to do with the security or (long term) stability of bitcoins. Mtgox was a one man show run as a hobby. Newer exchanges, notably tradehill, are run by professionally teams with relevant industry experience.

    The recent "heist" was the theft of someone unencrypted wallet file. The official bitcoin client should make managing wallet.dat files easier but individuals do not have to "implement personal security better than the likes of Sony, Nintendo or RSA can manage". Simply keeping the bulk of your cash on offline storage such as USB sticks makes it quite safe from theft.

  8. Rich 3
    WTF?

    Can someone explain "rollback"

    I thought the whole concept of the bitcoin was that a transfer was irrevocable and there were no superusers?

    How does the exchange get to rollback transactions?

    1. Dunstan Vavasour

      Bitcoin != MtGox

      When you trade on Mt Gox they are acting as your stakeholder. Transactions in the Bitcoin block chain are irreversible, trades on Mt Gox don't enter the block chain until the Bitcoins are withdrawn - until then they are just entries in Mt Gox's ledger.

      If someone bough a bunch of coins while the price was through the floor and then withdrew them before Mt Gox was suspended, then presumably Mt Gox will be left holding the loss.

  9. Anonymous Coward
    Facepalm

    It's the price you pay...

    ...for participating in an economy regulated by an algorithm.

    1. copsewood
      Mushroom

      "regulated by an algorithm"

      Very funny. The thing about the bitcoin fanbois I find most amusing is that they all seem to believe this. Bitcoin isn't regulated by an algorithm if not all clients implement the same algorithm. There doesn't seem to be much reason why they should if some players are capable of supplying bitcoin client software to others which is not as advantageous to others as the algorithms they run for themselves. That doesn't stop clients programmed to a different algorithm communicating using the same protocol, which seems to state 1CPU cycle == 1 vote, as far as validation of transaction blocks is concerned, but I'd be very surprised if all clients can do this with equal efficiency.

      1. Anonymous Coward
        Anonymous Coward

        Try reading about the subject before posting...

        Interesting podcast which concentrates mainly on the technical and cryptographic elements rather than the wild hype about the new economy: http://goo.gl/HvYZ2

        Essentially, the algorithms and the distributed database (or block chain) go hand in hand: if the integrity of the block chain depended on everybody being honest about the client they were using, it would have long since been debased.

    2. Anonymous Coward
      Thumb Up

      Re: Mr Algorithm

      Hello Sir. Please forward me the details of this Mr Algorithm. The security company in Lagos is holding some monies that I need to send him.

      Yours sincerely,

      George Aketuketukwengo

  10. SilverWave
    WTF?

    Glad I didnt buy £100 worth yesterday :-)

    Maybe worth looking in to doing it tomorrow though looks like we are down to $10?

  11. Anonymous Coward
    Anonymous Coward

    Trial run

    In some ways the bitcoin 'phenomenon' could be looked at as being a trial run for crypto-currency, enabling people to look at the larger picture over time of how unseen events can affect the whole infrastructure of the currency and the currency holders reactions to the events.

    Perhaps the biggest 'fault' of the currency is that it can be converted into 'real' money when there are no major banks or organisations that back the currency, as a bartering mechanism for relatively low value services/physical objects the bitcoin appears to be a rather useful thing, it's when someone manages to accumulate a lot of them that it has the potential for things to go completely haywire.

    Just my 0.02 bitcoin (I really do have just 0.02 bitcoin, it's a novelty thing :) )

  12. Paul Shirley
    Flame

    gamblers, screw 'em

    Without any real world guarantors bitcoin is little more than gambling.

    Gamblers don't get to complain if they get wiped out, that's the nature of the beast.

  13. the spectacularly refined chap

    Normal economics at work

    This is nothing unusual but rather a natural consequence of trading in a fairly illiquid commodity. It is this kind of chaos that encourages all kind of financial institutions to promote liquidity in a wide variety of currencies, shares and commodities.

    However, I am left with one question, isn't Bitcoin supposed to be decentralised? In which case how can transacations be rolled back? Even if only the currency exchanged are unrolled the question arises as to what happens if someone has already spent the "currency" they have bought?

    1. DrXym Silver badge

      Illiquid like penny stocks

      Bitcoin has certain parallels to a penny stock. A penny stock doesn't trade much and when it does the share price is extremely volatile due to the low number of sellers & buyers. And penny stocks can be the unwitting participants in pump and dump scams where someone buys up large numbers of stocks in the company, and sends out spam that grossly exaggerates the company's future prospects and bottom line (e.g. they're about to sign a huge contract) so that rubes buys the overvalued stock before it collapses.

      In this regard Bitcoin is basically behaving in a similar manner and the outcome is likely to be similar too.

      As for rolling back transactions, I assume MtGox holds the accounts and matches buyers and sellers. So if persons A is selling coins from their account and person B is buying coins from their account then no actual transaction has occurred on Bitcoin transaction chains. MtGox will still be holding the bitcoins and they don't go any where, just a record on their databases of how many coins are owned by each person. It's only when someone transfers cash or bitcoins out that it comes off MtGox's books.

      So I assume they can roll back everthing to prior to the hack and no harm is done. Assuming that their bitcoin wallet wasn't lifted which it may well be. Without regulation / auditing who can say?

    2. Bronek Kozicki Silver badge
      Angel

      See explanation above

      Exchange transaction were not settled yet, thus there is nothing special about them being cancelled. It happens all the time on "real" exchanges, although on relatively smaller scale. Also, not matter how decentralized bitcoin is, exchanges are points where it meets fiat currencies and there aren't that many to choose from, really.

  14. The Cube
    FAIL

    This was only going to end one way

    It will end up all falling down around them one of two ways;

    1) Security is repeatedly compromised and thieves destroy confidence in the currency reducing it's value to zero

    2) The currency becomes sufficiently legitimate for Bankers to get involved who then manipulate the exchanges creating speculative bubbles and crashes whilst stuffing their pockets with everybody else's money. Repeated collapses of the exchange destroy confidence in the currency and reduce it's value to zero. Meantime the wunch of bankers demand that taxpayers cover their losses.

    Frankly, I'd rather it was people who admit to being thieves who collapse the exchange, there is half a chance of them paying tax on it after laundering, there is no chance of a banker paying tax.

  15. KrisMac

    So.....

    "...first, steal the Bitcoin account, then use a large trade to drive the value down, buy the coins back at the new, lower value, and then try to trade out completely..."

    Naked short selling hits the virtual world... I'm surprised its taken this long....

    1. Bronek Kozicki Silver badge
      Angel

      not

      naked short selling is selling assets one doesn't posses (yet)

  16. David Hicks

    One compromised account

    One, single, compromised account managed to crash the market completely. Wow.

    And the reactions to the 'rollback' are understandable. What's done is done. Anyone that bought low (and had half a brain) would have moved the coins out of mtgox as soon as possible. The rest is just compensation to people who lost out.

    Also it's amusing that the guy says Bitcoin will be back around 17.5 when the market is restored! Undoing a bunch of trades surely doesn't magically make it worth what it was before...?

    This whole thing just shows exactly how shaky the bitcoin economy is. The high value is there simply because the volumes are so damned low. Any one of the early adopters that's sitting on a few thousand 'coins' could destroy the whole thing at a stroke.

    1. Anonymous Coward
      Boffin

      One single compromised account...

      The NYSE flash crash (at least the government hypothesis, for what that is worth) was due to one single trading firm doing a single 4.1B trade-- certainly much smaller percentage wise than the BitCoin crash.

      And many ensuing trades were cancelled. Nothing new there.

  17. Dunstan Vavasour
    Thumb Down

    MtGox != Bitcoin

    The currency wasn't compromised, but the most widely used exchange was. The integrity of the block chain was not compromised. Indeed, the conversion rates at other exchanges stayed pretty much unchanged.

    Mt Gox is not a financial grade conversion facility, and the willingness of people to entrust large sums of money to an "exchange" about which so little is known is testament to people's stupidity (and greed). At the same time, the bitcoin block chain will keep running onwards, an interesting little backwater, where both techies and ne'er-do-wells have entries in a fascinating peer-to-peer replicated ledger, whose entries are secured with strong encryption.

    This episode may well be the beginning of the end of Mt Gox, but Mt Gox != Bitcoin

  18. Heff
    Facepalm

    err, what?

    how are they going to "roll back" trades? I thought the whole Bitcoins-be-awesome point was untraceable, irreversible transactions?

    It is nice to see the bitcoin thing learn one of the fundamental rules of commerce and economics, though : all currencies are based on the concept of barter, of a thing _representing another thing_ you can say "a bitcoin is worth $17" but unless there are daily trade and investitures of bitcoins to establish that as a worth, then all you have is your word, which makes it as shaky and pointless as IPOs on pre-profit web companies. E.G : your bank account is not a statement of some box somewhere in a vault with some money in it. its a statement of how much money you have loaned the bank. the bank invests this, buying and selling with it, on its own behalf, and agrees to gives you services, or interest on your loan or both. Bitcoins aren't.

    Scarcity != worth : by the sounds of it the majority of bitcoin 'users' are sitting on large quanitites of this 'currency'; (how is it generated? real currencies suffer inflation by producing more currency backed by governments borrowing against themselves through a variety of means, and back the worth of this inflation through, effectively, fiscal promises) What are bitcoins promised on? This is 'money' that isn't invested in the economy, isn't backed by a government and isn't a market-valued promissory. Its a broken model : considering so many geeks are involved in its creation and administration, Im amazed none of them can do basic math. Wheelbarrow of 'papiermarks', anyone?

    I'd use the genius icon, but I dont even have a degree in this shit and it seems painfull obvious that its an accident waiting to happen.

    1. Bronek Kozicki Silver badge
      Boffin

      I'm not

      "considering so many geeks are involved in its creation and administration, Im amazed none of them can do basic math"

      money is a social phenomen and it has evolved recently quite a lot. Few geeks are know for their social skills so not surprise few understand money. Those who do can't be bothered - they are busy with far more interesting (and usually profitable) things.

    2. TheOtherHobbbes
      Thumb Down

      Not barter

      Faith.

      Money is a faith-based belief system.

      It's called "confidence" but it's essentially the same thing - a belief, which is often irrational, that a representation of value can be redeemed for some other representation of value at some point in the future.

      Once a representation of value loses customer faith, it becomes worthless.

      Bitcoin has been pumped by libertarian fundies who want to have faith that it can compete with official value representations.

      But official, national representations of value aren't just fiat money, as the fundies claim - they're backed by a state's ability to wage war for profit, to collect taxes, to set policy, and to give preferential treatment to certain classes of actors.

      Bitcoin can do none of these things. It's monopoly money, without the monopoly.

      So it will never be more than a hobby.

      And practically, it's unlikely security will ever be good robust enough to make it more than that.

    3. sisk Silver badge

      Re: Heff

      "all currencies are based on the concept of barter, of a thing _representing another thing_"

      Once upon a time that was true. It's not anymore and hasn't been for a very long time. Using the US dollar as an example because it's the one I'm most familiar with, it has been based only on consumer confidence, or 'faith' in the currency, for 40 years now. Despite that, it's one of the most important currencies in the world. Granted that's OPEC's doing, but the cause for the current situation is beside the point. The point is that not only are not all currencies based on something tangible but that some of the ones that aren't are some of the most important in the world.

      I'm not suggesting Bitcoin could achieve such a status, mind you. Without the backing of a government its chances of widespread acceptance are pretty slim. It's based on more or less the same thing as the dollar though, which is how well it trades against other currencies. As is the British Pound if I'm not mistaken (though, admittedly, I might be on that point).

  19. Anonymous Coward
    WTF?

    bit-what?

    I know what bitcoins are, but I don't really know what the purpose of them is, why they exist, why they are "self-regulated", why they are valued in USD and why this is possible, and whether or not I should give a toss about them?

  20. Martijn Otto
    FAIL

    Terribly misleading

    This is a terrible one-sided and misleading article.

    Mtgox has been brought down, yes. However it does not represent the value of bitcoin on it's own. It is only *one* of many exchanges. Other exchanges seem mostly unaffected by this.

  21. Anonymous Coward
    Anonymous Coward

    Rollback?

    "Rollback all trades..." I thought the whole point, the whole raison d'etre of the Bitcoin, was that it was totally anonymous, untraceable, untrackable, and analagous to cash. You can't just decide to 'rollback' a variety of cash transactions if you decide afterwards that people were trading in a stupid way. So how is it now suddenly possible with this 'cash-replacement'? Presumably if this capability exists, it means the Bitcoin operators could be served with a court order, mandating all or some transactions to be rolled back, revealed, or perhaps the network just shut down entirely. Not exactly that resilient, untraceable, peer-to-peer, fight-the-man currency they're promising, is it...

  22. frank ly Silver badge

    Blue is an appropriate colour here

    I've never seen this kind of diagram before. Am I right to assume that the diameter of each circle represents the total volume of trades? If so, does the number of concentric circles from a point represent the number of individual trades or is the stepped blue gradient just to help you find the centre of the circle?

    As for one large sell trade driving the value down so quickly; surely that would only happen if a significant number of people were using automated trading systems, with panicky algorithms?

    1. Paul Williams

      So you can arb BitCoins?

      If the value of BitCoins is significantly different between exchanges then that opens up arbitrage trading - free money for some, a nightmare for most, since it destroys value.

      Its also suggests that the BitCoin market isnt terribly efficient.

    2. Old Handle

      Once again...

      All Mt. Gox transactions are "on paper" (or database rather) only until someone cashes out, either in conventional money or in Bitcoins. Up till then, they can very easily reverse any trade, since they are the only one who has any record of it.

      Whether they *should* is another matter, but technically speaking, they *can*.

    3. Old Handle

      My Understanding

      My understanding is that essentially all the selling was from the one compromised account, and it just made a sale so large it simply soaked up every single Buy order in the market.

  23. Anonymous Coward
    Thumb Down

    Tax evaders?

    You're evidence for this is?

  24. SuperTim

    not the same as cash...

    I am not sure about the whole legitimacy or security of bitcoins. People keep comparing them to cash, but then banks have been regulated to the hilt for decades. Bitcoins on the other hand would never pass muster in the regulated financial world due to this sort of thing. Sure, online hacks can end up stealing real money, but then the required audit trails tend to point out the perp (or at least prove there WAS a theft). And it doesnt reduce the value of money to zero.

  25. This post has been deleted by a moderator

    1. Your Retarded

      Yes

      Yes, I am evidence for this is.

  26. Anonymous Coward
    Anonymous Coward

    Interview with 2 of the Bitcoin people.

    http://www.youtube.com/watch?v=TwNfBgwbqng starts @ 7 mins.

    The real revelations start at 15 min 20 sec when Amir starts to talk, It becomes quite obvious that there are some very shady people behind this who are making all sorts of rediculous claims about the future of Bitcon. erm.. Bitcoin.

  27. DrXym Silver badge

    And none of this was entirely predictable

    Oops, I meant to say all of it was entirely predictable. There are so many points of attack against Bitcoin from hackers, thieves, and legislators that I wonder what the hell anyone saw in this currency.

    Of course if you "got in early" as the pyramid scheme saying goes then now might be the time to cash out and leave and let some other rube be holding so many worthless bits. Once the panic starts the sellers will quickly exhaust the buyers and that exchange rate is going to hit 0.

    The funny part is many of the boosters seem to think they're participating in some kind of libertarian exercise. I guess a good con always tries to appeal to a mark's greed while convincing them they're investing in a cause.

    1. Tom 13

      I think they are participating in

      some kind of libertarian exercise. And reaping the concomitant rewards.

      Libertarians make interesting observations about personal freedom and we ignore those observations at our own risk, but as arbitrators of what works in complex society they are failures.

  28. Anonymous Coward
    Anonymous Coward

    Bitcoins collapse

    Ahahah! Sorry, my nerves gave away, I couldn't control myself.

    Also:

    "the more Bitcoins exist, the slower new ones will be created"

    The opposite of the USD then.

  29. Mage Silver badge
    Pirate

    So...

    It's dead really.

    As predicted.

    Next time someone designs a virtual currency:

    1) Assume people are as evil as can be

    2) Assume accounts will be hacked

    3) Assume people want to exchange to other currencies, not just "pay" for goods and services.

    4) Assume there will be speculation.

    1. Arctic fox
      Happy

      @Mage

      Just like a regular day in the forex market then!

    2. Old Handle

      Death Greatly Exaggerated

      Mt. Gox is not Bitcoin. It's just one market, though admittedly it was the most popular. Others are still up and running and while the price has fallen, arguably "crashed", it's far from dead. Still way above where it was a couple months ago before it got so much media attention in fact.

  30. Your Retarded
    Thumb Down

    To quote Duncan Bannatyne...

    The whole scheme sounds ludicrous.

    To go off the contents of this comment thread, it seems the only people who know anything about Bitcoin are the kind who have severe communication difficulties.

    I for one won't be investing. "Am oot".

  31. Anonymous Coward
    Anonymous Coward

    Article may be misleading

    Mt.Gox may be in trouble, but BitCoin itself seems to be rumbling on nicely

    http://bitcoincharts.com/markets/

    How valid any of the above it or how viable BitCoin may be, I really have no clue.

    1. Ru
      Trollface

      Weeeell, if one were feeling reaaaaally cynical,

      one might wonder if El Reg might be speculating on bitcoins too.

    2. DrXym Silver badge

      Rumbling along nicely?

      Hanging over the precipice would be a more accurate description. The exchange rate is extremely volatile and these hacks & thefts are indicative of what will happen to the entire market when the mass panic starts and everyone tries to get out.

  32. david 63

    Two days...

    ...two bitcoin stories.

    Summat's afoot.

    Either they are fatally broken or someone is looking for some publicity.

    I like the idea of an unregulated currency but after a bit of digging to understand how they work it all stinks of fish to me.

  33. Joe Harrison Silver badge

    Sadville

    Why are there so many Bitcoin stories in my face all the time? Reminds me of the flood of Second Life articles a while ago where the actual story didn't seem to matter so long as people kept hearing about the product.

  34. Southern
    Holmes

    Bitcoins

    It does seem rather incredible that one compromised account causes such an effect.

    While fascinating to look at from an outsider's perspective (new currency, virtual system of currency production, use of the internet for purposes as yet not implemented etc) I'm sure it will fail one way or another but give raise to a better system that will improve processes that give rise to these situations.

    1. Dave Bell

      Comparing the hype.

      Second Life certainly overlaps with this. There's an in-game (I could argue SL was the stadium rather than the actual game, but that suffices as a label) currency which converts to real money. There are in-game sales and purchases of creative works. There have been occasional odd swings in the value of the Linden Dollar.

      But Second Life is only there because people are still having fun. That's what underpins the value of the SL currency.

  35. Colin Millar
    Holmes

    Show the dog a bone

    Derivative Is the model they are aiming for but they haven't worked out what their angle is so they are not attracting the scale needed to provide stability. They need to tell the punters what the bet is and get them to the table in large numbers.

    They need to have a market thousands of times larger than any event which can be trigerred by an individual in the market or they will never be stable. It doesn't matter whether or not the event was malicious - a market shouldn't have to make that distinction - in fact it isn't a market if it is capable of making that distinction.

  36. g e
    Black Helicopters

    So, if you were a government

    ... and you wanted to destroy confidence in a new currency you couldn't control or track,

    What might you have your Super Sneaky Agency of Freedom Management do?

    Yes. Black helicopters. Damned right.

  37. Alan Brown Silver badge
    FAIL

    hmmm

    > A fiat currency (virtual or paper; as if there's a difference these days) relies on people believing that it's worth something.

    Or even a backed currency: The Roman Empire collapsed in less than 18 months when confidence in the currency failed.

    As far as being a Bitcoin millionaire goes - it's just like holding stocks. They're just bits of paper until you cash 'em out and I've witnessed people with tens of millions of dollars in stocks suddenly have them worth less than the paper they're printed on.

    1. Tom 13

      Reminds me of a plot to a Maverick show

      He bought shares in a defunct mine to use for a confidence scheme because it was cheaper than printing new notes. And added to the plausibility of the confidence scheme in the process because the sole holder DID make some money off it.

  38. Anonymous Coward
    Mushroom

    That which is inherently worthless

    Is worthless.

    Have you got that, now, world?

    No?

    I didn't think you would,

    1. Charles 9 Silver badge

      Thing is...

      ...how do you KNOW it's inherently worthless. I have a saying. Wealth isn't MADE. It's FOUND. Take petroleum. People didn't think much of it (except perhaps as a source of sticky, impermeable pitch or tar) until the mid-19th century when people learned to refine the stuff into kerosene, petrol/gasoline, and other products we still use today. The wealth had always been there, but it took a little innovation to find the wealth. On a more down-to-earth note, charcoal briquettes were innovated as a way to find a use for the tons of "wasted" sawdust coming out of sawmills.

      So I say it's very difficult to declare anything inherently worthless because you never know if someone can find treasure out of someone else's trash. Heck, one man's crap could become another man's fertilizer, you never know.

      1. Anonymous Coward
        Anonymous Coward

        Major Clue

        to start with, is that it either physically exists, or represents (without too many layers of abstraction) something that does.

        1. Charles 9 Silver badge

          What about information?

          That can be valuable as well (knowledge is power, etc.), even though it may be too far removed from physical reality to satisfy your criteria.

  39. sisk Silver badge

    The problem is hoarders

    When 99% of the currency is being hoarded I'm not suprised that it only takes one large sale to collapse it. It's not the currency's fault really. It's the fact that people who have lots of Bitcoins really have no incentive to use them. There simply aren't enough places that accept them for regular transactions to make it worth while to do anything with them other than trade them for cash.

    It's really too bad. I rather like the idea of a digital currency in principle (and yes I would report my income to the IRS). It's just getting harder and harder to like the way it works in the real world. That's even with having already decided not to bother with it months before the mainstream media noticed it.

    1. Old Handle

      Hoarders

      Indeed, but unfortunately, the Bitcoin model kind of encourages that. Knowing that there's a limited quantity that will ever be made, and that it will be increasingly expensive to mine them as more people get interested, early adopters who acquired large "fortunes" while it was still easy will understandably be tempted to just hold on to them for a long time to see how high the price goes.

      If I understand correctly, as of the two-year mark, when Bitcoins started to make a splash, roughly 1/4 of the coins that will ever be issued already had been, all while the price was less than s dollar.

      I'm not sure of the veracity of this claim, but I heard someone estimate that the hacked account may have held as much as 1/13 of all Bitcoins in existence.

  40. Aidan Thornton
    Flame

    Do not rely on the official bitcoin forums!

    Despite what the article suggests, you shouldn't look at the official forums if you want to know how bitcoin users feel about this. The moderators have been quietly systematically deleting threads that are negative about Bitcoin or make "alarmist" statements such as arguing Mt Gox shouldn't be trusted. Oddly enough, threads saying that users should continue to trust Mt Gox despite CSRF vulnerabilities, a hacker-induced market crash, and their entire user database getting leaked just days after the site owner claimed it was impossible have remained. (So have ones saying that only trolls would argue there's anythign wrong with Mt Gox, for that matter.)

    I think this policy was introduced in the last price crash to keep up confidence.

  41. Anonymous Coward
    FAIL

    They're just numbers...

    Want to know what's so special about bitcoins? When you hash a number with a secret number, you get a result that starts with a certain number of zeros. That's it. And people are equating these special zero-prefixed-hash-code-producing-secret-numbers with VALUE... trading them... swapping real life money for these numbers. Are they truly insane?

    1. Charles 9 Silver badge

      Either they're not...

      ...or we're ALL insane because the same can be said about bank accounts. And even cash can be reduced to slips of paper and cheap metal: only holding value on a government's say-so.

  42. KingofthePaupers

    Turmel: Timebanking is the real underground currency revolution

    Jct: Speculative Bitcoin online poker chips bite the dust. But the UNILETS Timebank Bitchips can be done P2P! http://johnturmel.com/uniset.htm for how I set up to register my Hours given and received. Set you timebarter network lifeboat up while you can. Find "Big Lie of Economics" to find out why they're hiding Shift B inflation.

  43. Henry Wertz 1 Gold badge

    I've been curious about that...

    What backs bitcoins? I mean, i know USD are not backed by anything either, that Euros are not backed by anything, and so on. But, I cannot obtain hardware and start generating dollars or Euros either. People can earn Bitcoins just by doing computations? And, apparently, not even factoring primes or something that may have some cryptographic purpose but just generating hashes with arbitrary properties? This seems supremely odd to me.

    1. DrXym Silver badge

      It should seem extremely odd

      The idea is that a bitcoin is a limited resource, in this case being the solution to a cryptographic problem, and it is this scarcity which allows it imbibes it with the characteristics that make it a tradable commodity. The remainder of the protocol then deals with how bitcoin ownership is determined and how values are transferred, divided up and so forth.

      At this level it all sounds very reasonable. The problem is the scheme doesn't account for human greed and national interests and that fatally undermines the currency. Early adopters are hyping the currency like a pump and dump meaning it's likely to crash. Meanwhile you have conmen running ponzis and other scams on top. And criminals running drug trading sites like Silk Road. And thieves cracking exchanges and running trojans to steal wallets. And naive programmers who didn't consider some of these issues. And you have legislators looking at the criminality of the scheme and it's implications for tax evasion.

      The thing is going to be squashed out of meaningful existence. Probably by panic selling induced by hacks, the bottom falling out of the market, or legislative threats.

  44. Captain Thyratron

    Who?

    I keep seeing comments about Libertarians, but the only people I've ever met who cared about Bitcoins were introverted cryptography nerds who thought it would be cool to have a currency based on math for the sake of having a currency based on math. I will not address why this is a terrible idea, since plenty of other people did it just fine already.

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