Category Archives: News
Bitcoin Exchange MtGox Is Effectively Dead
It has finally happened. MtGox is dead.
MtGox is a Japan-based Bitcoin exchange that once served 80% of the liquidity for Bitcoin. As of tonight, MtGox has disabled trading, taken its website offline, and there rumors abound of insolvency.
Even more than rumors, a group of up and coming Bitcoin companies have issued a joint statement regarding MtGox. The memo was signed by Coinbase, Blockchain.info, Circle, Kraken, Bitstamp, and BTC China.
This tragic violation of the trust of users of Mt.Gox was the result of one company’s abhorrent actions and does not reflect the resilience or value of bitcoin and the digital currency industry. There are hundreds of trustworthy and responsible companies involved in bitcoin. These companies will continue to build the future of money by making bitcoin more secure and easy to use for consumers and merchants. As with any new industry, there are certain bad actors that need to be weeded out, and that is what we are seeing today.
We are confident, however, that strong Bitcoin companies, led by highly competent teams and backed by credible investors, will continue to thrive, and to fulfill the promise that bitcoin offers as the future of payment in the Internet age.
In order to re-establish the trust squandered by the failings of Mt. Gox, responsible bitcoin exchanges are working together and are committed to the future of bitcoin and the security of all customer funds. As part of the effort to re-assure customers, the following exchanges will be coordinating efforts over the coming days to publicly reassure customers and the general public that all funds continue to be held in a safe and secure manner: Coinbase, Kraken, BitStamp, Circle, and BTC China.
We strongly believe in transparent, thoughtful, and comprehensive consumer protection measures. We pledge to lead the way.
Bitcoin operators, whether they be exchanges, wallet services or payment providers, play a critical custodial role over the bitcoin they hold as assets for their customers. Acting as a custodian should require a high-bar, including appropriate security safeguards that are independently audited and tested on a regular basis, adequate balance sheets and reserves as commercial entities, transparent and accountable customer disclosures, and clear policies to not use customer assets for proprietary trading or for margin loans in leveraged trading. It does not appear to any of us that MtGox followed any these essential requirements as a financial services provider.
This is the end of a turbulent final road for the embattled exchange.
Earlier this month, MtGox halted Bitcoin withdrawals blaming transaction malleability and causing a price scare. They were widely accused of spreading misinformation and not taking accountability.
Last week, MtGox resigned from its industry board seat on the Bitcoin Foundation.
Earlier tonight, MtGox deleted its Twitter history. It now shows over 28,000 followers with zero tweets.
And also tonight, there are rumors that MtGox has lost much of its reserve bitcoins and has issued an internal crisis strategy memo (note: the validity of this document is not confirmed).
We will monitor as this plays out. More than likely, a new era of Bitcoin begins tonight, where the core infrastructure will be built by stronger operators with sustainability in mind.
Bitcoin Week: MtGox, Transaction Malleability, Silk Road 2 Hacked
Last week was an exciting week for Bitcoin. Here are the top stories.
Mt.Gox, the Japan-based once-leading exchange, has fallen from grace. After halting Bitcoin withdrawals on February 7, the downward spiral continued when it made an announcement that its freeze was due to a critical bug in Bitcoin called “transaction malleability”. This was quickly refuted by Bitcoin core developers and community members alike as spreading misinformation. However, the announcement did have a negative effect on the global price of Bitcoin and sent the price specifically on MtGox tumbling below Bitstamp for the first time.
Read our full report on the transaction malleability claim and counter-evidence.
In more positive news, the Bank of Thailand changed its position on Bitcoin. Back in July, Thailand-based Bitcoin Co. Ltd. issued a release asserting that senior members of the Bank of Thailand advised the company that various Bitcoin trading activities are illegal in Thailand. In a letter (external link) issued by the national bank more recently, it was clarified that exchanges may operate in Thailand as long as they are converting Bitcoin only to and from the baht, the national currency. Exchange of foreign currencies is still prohibited.
Silk Road 2, the rebirth of the infamous anonymous drug marketplace, was hacked this past week with over 4,000 bitcoins stolen. You can read the full text of the announcement by the Silk Road 2 operator reposted on DeepDotWeb (external site). In the announcement, the operator writes:
I am now fully convinced that no hosted escrow service is safe. If I cannot trust myself to keep a hosted escrow solution safe, I cannot trust anyone. Multi-signature transactions are the only way this community will be protected long-term. I am aggressively tasking our devs on building out multi-sig support for commonly-used bitcoin clients. Expect a generous bounty if you have the skill to implement this.
And finally, Italy passed a new decree that banks must withhold 20% on inbound wire transfers as a prevention against money laundering and tax evasion. The taxpayer must take the initiative to prove that the money is not compensation. Read more at Il Sole (external link). Is this an opportunity for Bitcoin?
Money2020 Conference Introduces (Bit)coinWorld in Las Vegas 2014
Increased Focus on Distributed Payment Protocols and Crypto-Currencies to Help Catalyze Mainstream Adoption
Money2020, a leading global event for disruptive innovations in all aspects of how consumers and businesses manage, spend and borrow money, is embracing Bitcoin in a big way.
The conference organizers announced that ‘(Bit)coinWorld at Money2020’ will be included in the November 2-6 event at the Aria in Las Vegas.
With more than 5,000 attendees–including over 500 CEOs–from more than 2,000 companies and 50 countries expected this year, Money2020 has quickly become the largest and most important event for innovation at the intersection of Payments, Financial Services, Retail, Mobile, Marketing Services, Data and Technology.
“We represent the broadest ecosystem of innovation in money and bring together otherwise disparate and siloed segments, including companies as wide ranging as banks, processors, retailers, payment networks, mobile operators, e-commerce and m-commerce enablers, Internet companies, data companies, marketing services providers, industry and equity analysts, venture capitalists, hedge funds, start-ups, trade groups, regulators, media and much more,” said Simran R. Aggarwal, co-founder and president of Money2020. “This allows us to serve as a catalyst for the development and growth of the ecosystem. By adding (Bit)coinWorld as a key element of this year’s Money2020, we’re expanding our coverage of technology that we believe has real disruptive potential.”
(Bit)coinWorld at Money2020 is a platform where leaders in distributed payment protocols and cryptocurrencies and leaders responsible for driving commerce innovation can interact, learn and forge critical partnerships. To help accomplish this goal, Money2020 is:
- Creating a dedicated agenda track to include extensive coverage of distributed payment protocols and crypto-currencies, featuring the pioneers and leaders in the industry,
- Increasing exhibitor and sponsor presence, showcasing the latest organizations and innovations, and
- Introducing targeted networking events designed to connect critical stakeholders and industry participants.
“Money2020 is at the heart of today’s most important dialogue in payments and financial services. At our 2013 event, we started to see mainstream interest in bitcoin and other crypto-currencies and we believe that, in 2014, this will evolve into broader and more meaningful dialogue and partnerships, ” said Aggarwal. “We’re thrilled with the support we have from all of the key stakeholders in bringing this unique program together.”
“To realize its full and transformational potential, Bitcoin–and the companies that are making it a reality– must work effectively with merchants, regulators and other established institutions,” said Tony Gallippi, chief executive officer of BitPay. “As the premier payments event, Money2020 is well positioned to make that happen and we’re excited help by bringing our expertise and leadership to (Bit)coinWorld.”
“We believe that bitcoin is nearing a tipping point for broad consumer adoption and recognition worldwide,” said Fred Ehrsam, co-founder of Coinbase. “As the largest and fastest growing bitcoin wallet service in the U.S., we’re thrilled to be a part of (Bit)coinWorld at Money2020 as these discussions are vital to the acceptance and evolution of crypto-currencies.”
“Bitcoin represents a disruptive, distributed and global paradigm shift, with substantial human and financial capital now moving into Bitcoin,” said Nicolas Cary, chief executive officer of Blockchain.info. “It will require responsible stewardship, thought-leadership and partnership to move Bitcoin into the mainstream and Blockchain.info is proud to partner with Money2020 for (Bit)coinWorld to help accomplish that.”
“Over time, I believe Bitcoin will become widely regarded as one of the most important inventions ever, and (Bit)coinWorld at Money2020 will be a great place for everyone to learn more about it and its broad, global implications,” said Roger Ver, a highly regarded early Bitcoin angel investor and evangelist.
“As the fastest and lowest-cost settlement networks in the world, distributed payment protocols, like Ripple and Bitcoin, represent an expansive business opportunity for established banks and payments companies, and the opportunity for the world of value to be woven together just like our information web,” said Chris Larsen, co-founder and chief executive officer of Ripple Labs, creators of the Ripple protocol. “Amidst this economic paradigm shift, Money2020 is a fantastic venue for a meeting of the minds between the worlds of cryptocurrency and financial institutions to advance the movement. I’m looking forward to (Bit)coinWorld.”
Additional details about (Bit)coinWorld will be announced in the coming weeks and months, including speakers, sessions and special onsite experiences to take place during Money2020, November 2-6, at the Aria in Las Vegas.
Failing Bitcoin Exchange MtGox Spreads Misinformation Creating Price Scare
MtGox, a Japan-based Bitcoin exchange that was once the darling of the Bitcoin world, has effectively driven the final nail in its own coffin.
The exchange has been plagued with liquidity and security issues over the last year. These include denial of service attacks in April 2013 and halted USD withdrawals in June 2013. Each event caused a price panic.
Because it was hard to withdraw USD, the price of Bitcoin on MtGox was always artificially higher than other exchanges. This high price made it alluring to traders and investors, but was ultimately a symptom of unsustainability.
Then this past week MtGox suddenly halted Bitcoin withdrawals without explanation. This made the exchange basically worthless and the spread between MtGox and Bitstamp, another popular exchange, collapsed.
MtGox finally broke its silence today with a lengthy statement on its website. But instead of taking responsibility for its own failings, MtGox blamed the latest issues on a bug in the Bitcoin protocol.
As you are aware, the MtGox team has been working hard to address an issue with the way that Bitcoin withdrawals are processed. By “Bitcoin withdrawal” we are referring to transactions from a MtGox Bitcoin wallet to an external Bitcoin address. Bitcoin transactions to any MtGox Bitcoin address, and currency withdrawals (Yen, Euro, etc) are not affected by this issue.
The problem we have identified is not limited to MtGox, and affects all transactions where Bitcoins are being sent to a third party. We believe that the changes required for addressing this issue will be positive over the long term for the whole community. As a result we took the necessary action of suspending Bitcoin withdrawals until this technical issue has been resolved.
The price of Bitcoin fell dramatically. In fact it hit $100 on BTC-e, an exchange based in Bulgaria, before recovering to $640. [Editor’s note: To be clear, the $100 price was a single sell order likely due to an error by the seller. The price rebounded instantly after this order, but still at a lower level than previously trading for the past week. Here is a screenshot of the trade http://i.imgur.com/XDcjlts.png]
As of this writing, the price on Bitstamp is down over 7% from yesterday and 20% from a week ago.
What Gox Said and why it is misleading
MtGox blamed its troubles on something called transaction malleability, which is defined on the Bitcoin wiki.
While transactions are signed, the signature does not currently cover all the data in a transaction that is hashed to create the transaction hash. Thus while uncommon it is possible for a node on the network to change a transaction you send in such a way that the hash is invalidated. Note that this just changes the hash, the output of the transaction remains the same and the Bitcoins will go to their intended recipient. However this does mean that, for instance, it is not safe to accept a chain of unconfirmed transactions under any circumstance because the latter transactions will depend on the hashes of the previous transactions, and those hashes can be changed until they are confirmed in a block. (and potentially even after a confirmation if the block chain is reorganized) In addition clients must always actively scan for transactions to them; assuming a txout exists because the client created it previously is unsafe.
To a relatively new Bitcoiner this sounds like a fatal flaw. But in reality this is an issue that has been known since 2011 and is easily handled at the Bitcoin wallet level.
Core developer Greg Maxwell explained in an interview with CryptoCoins News.
“The Gox press release seems a little ‘spun’ to me,” said Maxwell. “They portray characteristics of the Bitcoin system well known since at least 2011 (which even have their own wiki page) as something new.”
He continued, “These characteristics are annoying but don’t inhibit basic operation. They are slowly being fixed – but fixing them completely will likely take years as they require changing all wallet software. Correctly-written wallet software can cope with the consequences, and I cannot understand why they would gate their withdraws on external changes.”
Maxwell said that MtGox is using transaction malleability as a scapegoat. “The challenge for me in offering something here is that this isn’t news to me – for years – and it’s never been a particularly large concern. This wouldn’t make the top ten list of dangers in the Bitcoin technology.”
And finally, “MtGox is at fault for not implementing in a way that copes with behaviors in the Bitcoin protocol which have been known since at least 2011.”
It appears therefore that MtGox did not build these protections into its own codebase, and the exchange itself has a fatal flaw, not the Bitcoin protocol.
Bitcoin guru Andreas Antonopoulos recently shared a similar view in an interview with CoinDesk. “Mt. Gox has built an exchange based on a hodgepodge of technologies that are really not suitable for running an exchange. And it’s being run by people who don’t really have experience building and operating scalable systems.”
Burning the Bitcoin Community
The Bitcoin community immediately expressed outrage at MtGox’s statement. Some said this was just typical practice for the failing exchange, while others suggested MtGox was breaking financial or consumer laws by releasing information that would send the price crashing.
“So Gox decided to take the Bitcoin ship down with them blaming their shortcomings on well known and documented protocol limitations. Shame!” expressed one person.
Another said simply, “Gox has done the greatest service & disservice to Bitcoin.”
If there is one rule of thumb about Bitcoin, it is to engage and support the community. Companies that don’t follow this rule will be alienated and criticized publicly until they are gone.
The spread between MtGox and Bitstamp had now inverted.
Alleged Silk Road Mastermind Ross Ulbricht Pleads Not Guilty
“Silk Road is going to become a phenomenon and at least one person will tell me about it, unknowing that I was its creator.” — Journal entry from the confiscated laptop of Ross Ulbricht
On Friday, Ross Ulbricht, alleged “kingpin” behind massive online black market Silk Road, plead “not guilty” to charges of conspiring to traffic in narcotics, hack computers, and launder money.
Ulbricht has been charged under a provision typically reserved for mafia dons and cartel bosses, the “Continuing Criminal Enterprise Statute” also known as “The Kingpin Statute.” The Kingpin Statute carries a mandatory minimum sentence of 20 years imprisonment (a maximum sentence of life imprisonment), a fine of no more than $2 million, and forfeiture of profits and any interest in the enterprise.
Additionally, Assistant U.S. Attorney Serrin Turner alleged that Ulbricht spent $730,000 hiring hit men to to kill six of his enemies. However, Ulbricht will not be charged with murder as their is no evidence of any killings being carried out.
According to a recent Forbes article citing Addiction journal, during Silk Road’s two-and-a-half-years in operation (beginning “in or about January 2011″), nearly 20 percent of drug consumers in the U.S. used narcotics bought on Silk Road. the site facilitated more than a million transactions and generated the equivalent of more than $1.2 billion in revenues and approximately $420 million in commissions.
The official indictment issued Tuesday by the U.S. Attorney for the Southern District of New York states that Silk Road included a “Bitcoin-based payment system that served to facilitate the illegal commerce conducted on the site, including by concealing the identities and locations of the users transmitting and receiving funds through the site.”
Image: Ross Ulbricht used a series of fake IDs to run his Silk Road enterprise
“The idea was to create a website where people could buy anything anonymously, with no trail whatsoever that could lead back to them,” wrote Ulbricht in a journal on his confiscated laptop. Ulbricht’s plea of “not guilty” to masterminding Silk Road is surprising considering the wealth of evidence that exists against him. Prosecutors claim to have between eight and ten terabytes of evidence that can potentially be used as evidence in Ulbricht’s trial.
A man of Libertarian ideals, Ulbricht’s Linked In account contained the following passionate statement of intent:
Now, my goals have shifted. I want to use economic theory as a means to abolish the use of coercion and aggression amongst mankind. Just as slavery has been abolished most everywhere, I believe violence, coercion and all forms of force by one person over another can come to an end. The most widespread and systemic use of force is amongst institutions and governments, so this is my current point of effort. The best way to change a government is to change the minds of the governed, however. To that end, I am creating an economic simulation to give people a first-hand experience of what it would be like to live in a world without the systemic use of force.
Video: the story of the Dread Pirate Roberts
Ulbricht’s “king pin” moniker of the “Dread Pirate Roberts” is a reference to an idea from the popular film The Princess Bride. In the film, the heroine Buttercup discovers that the fearsome Dread Pirate Roberts who has kidnapped her (from her original kidnappers) is actually her long lost love Wesley.
How could this be? Wesley explains that the original Dread Pirate Roberts retired rich years before and that there have been many Dread Pirate Roberts since. With the name of “Dread Pirate Roberts,” the truth isn’t essential, the idea is what changes reality. Perception is reality. Wesley tells his love Buttercup, “The name is the important thing for establishing the necessary fear. You see, no one would surrender to the Dread Pirate Wesley.”
Ulbricht is quoted as saying, “Every action you take outside the scope of government control strengthens the market and weakens the state.” Ulbricht’s trial is slated to begin in early November and run for four to six weeks.
