Billions in Bitcoins gone?

[BridgeTroll]

http://www.latimes.com/business/la-fi-bitcoin-collapse-20140226,0,5968430.story#axzz2uQge7dPN

Bitcoin virtual currency is on verge of collapse

The closure of the world's largest bitcoin exchange triggers a massive sell-off and may have scared investors away from it for good.

A major bitcoin exchange based in Japan has gone bust after secretly racking up catastrophic losses, a potentially fatal blow for the exotic new form of money. (Feb. 25)

By Chris O'Brien and Andrew Tangel
February 25, 2014, 7:31 p.m.

It was supposed to revolutionize the global monetary system. Instead, the bitcoin virtual currency that has captured the imagination of investors and financiers is on the verge of collapse.

In a stunning blow to a novel way to buy products and services, the world's largest exchange for trading bitcoin currency shut down Tuesday, triggering a massive sell-off and sending many prospective investors away — perhaps for good.

"This is extremely destructive," said Mark Williams, a risk-management expert and former Federal Reserve Bank examiner. "What we're seeing is a lot of the flaws. It's not only fragile, it's fragile as eggshells."

The mysterious circumstances that triggered the failure of the exchange, Mt. Gox in Tokyo, is only adding to the renewed anxiety over the virtual currency, which just a month earlier had been gaining momentum and supporters.

After saying users could not withdraw their funds, Mt. Gox suddenly ceased all operations, including shutting down its website. Mt. Gox users may have lost more than $300 million worth of bitcoins in what was the latest and biggest in a series of recent setbacks for the virtual currency.

The currency exists only online, and its value is based on an algorithm. Investors buy bitcoins with dollars, euros and other real currency. A purchase with bitcoins typically involves transferring an amount from the buyer's bitcoin "digital wallet" to the seller's wallet on the Internet.

The blow to bitcoin's credibility has highlighted all the fears critics have been trying to raise. Because it is unregulated and anonymous, there is probably no way for users to know who may have seized the thousands of missing bitcoins — and no way to recover them.

This sudden reversal of fortune is particularly painful for enthusiasts who believed just a few weeks ago that bitcoin was on the cusp of mainstream acceptance because of growing support from venture capitalists, banks and regulators.

Instead of triumph, the bitcoin community is now focused on repairing the damage. Mt. Gox is nothing more than a "collapsed tower of toxic sludge," said Williams, who is also a finance professor at Boston University School of Management.

The recent weeks have been troubled ones for bitcoin. In late January, the chief executive of another bitcoin exchange was arrested on money-laundering charges, Russia banned the virtual currency, and Apple Inc. pulled a popular bitcoin app from its App Store over concerns about its legality.

But the fall of Mt. Gox trumps all of these stumbles in size and scope, and has clearly left many in the bitcoin community stunned and confused. Although there are other exchanges where people can buy and sell bitcoins, Mt. Gox was the biggest.

"Having Mt. Gox shut down is to bitcoin what having the New York Stock Exchange shut down is to our equity market," said James Angel, a professor of finance at Georgetown University.

Problems at Mt. Gox first surfaced earlier this month when the exchange stopped letting users make transactions because of what appeared to be a glitch that was also affecting other exchanges. But although the other exchanges came back online, Mt. Gox remained dark through last weekend.

On Monday, users noticed that the site seemed to be disabled and the home page was blank. Later that day, a "Crisis Draft Strategy" document was obtained by somebody and posted online, purporting to be from Mt. Gox.

The document, whose authenticity has been questioned, raised further alarms because it indicated that Mt. Gox may have lost 744,000 bitcoins to theft over several years. It also explored whether to shut down Mt. Gox completely or re-launch it under a new name.

What really happened? Mt. Gox issued only a short statement Tuesday: "In light of recent news reports and the potential repercussions on Mt. Gox's operations and the market, a decision was taken to close all transactions for the time being in order to protect the site and our users. We will be closely monitoring the situation and will react accordingly."

Across the bitcoin community, Mt. Gox faced swift and harsh criticism for its handling of the crisis.

"This tragic violation of the trust of users of Mt. Gox was the result of one company's actions and does not reflect the resilience or value of Bitcoin and the digital currency industry," read a joint statement from several bitcoin companies posted on the Coinbase blog. "As with any new industry, there are certain bad actors that need to be weeded out, and that is what we are seeing today."

Created in 2009 by a programmer using the pseudonym Satoshi Nakamoto, bitcoin is based on a software standard that runs across a wide number of servers around the world for regulating the creation and trading of bitcoins. It is not controlled by any nation, governing body or business.

The original computer code established the number of bitcoins in circulation and tracks ownership of the currency. The absence of government or corporate interference made bitcoin popular among technophiles with strong libertarian views.

But the same attributes that made Bitcoin so appealing to some may be its greatest weaknesses, critics say.

"Concerns regarding Mt. Gox's potential insolvency highlight the fact that one of bitcoin's most attractive qualities — rapid transactions that are non-reversible — are also flaws," said Alex Ferrara, a partner at Bessemer Venture Partners, who has been exploring possible investment opportunities over the last year in the bitcoin industry. "If Mt. Gox or any of the exchanges are hacked and bitcoins are stolen, they cannot be replaced."

That bitcoin's reputation has been so badly battered is all the more painful for backers who had been seeing venture capital starting to flow to bitcoin start-ups.

Silicon Valley venture capitalist Marc Andreessen recently revealed his venture firm had invested about $50 million in bitcoin start-ups. Bitcoin incubators and accelerators had begun popping up around the country. On the very day Mt. Gox appeared to collapse, SecondMarket, a New York City firm, announced plans to create a new exchange with some major banks as possible partners.

Many Bitcoin backers insisted there was a silver lining to the collapse. Bad firms like Mt. Gox would be weeded out and replaced by trustworthy ones that would make bitcoin more credible and secure, they argued.

"It's a shame that many people lost money, but when underperforming businesses are replaced by innovative ones, the economy grows stronger," said Jordan Kelley, chief executive of Robocoin, which makes bitcoin ATMs, in a statement. "It's a good day as Bitcoin continues to grow up — a few blemishes along the way are natural and healthy. We expect Bitcoin to grow even faster in the days ahead."

But before it can do that and search for new converts, it's going to have to find ways to reassure the faithful. Ryan Galt, a bitcoin blogger, wrote a post expressing his fear that this could be a fatal blow.

"This is catastrophic, and I am sorry to share this," he wrote about Mt. Gox's problems. "I do believe that this is one of the existential threats to Bitcoin that many have feared and have personally sold all of my Bitcoin holdings."


http://www.latimes.com/business/la-fi-bitcoin-collapse-20140226,0,5968430.story#ixzz2uQi1rHMY

[ChriswUfGator]

What? An internet 'currency' controlled by 22 year old hackers and the russian mob isn't safe?

[JeffreyS]

For every $10 you put in my paypal account I will issue you a $hitcoin that you can redeem with $hintrest at a later time.

[BridgeTroll]

For every $10 you put in my paypal account I will issue you a $hitcoin that you can redeem with $hintrest at a later time.

Apparently alot of people did just that...

[Todd_Parker]

Weren't the Winklevoss twins (of Facebook fame) heavily invested in Bitcoins? Gee, I would hate to hear that they were taken to the cleaners.

[BridgeTroll]

http://abcnews.go.com/Technology/wireStory/japan-minister-calls-bitcoin-collapse-expected-22713601?singlePage=true

The Mt. Gox bitcoin exchange in Tokyo filed for bankruptcy protection Friday and its chief executive said 850,000 bitcoins, worth several hundred million dollars, are unaccounted for.

The exchange's CEO Mark Karpeles appeared before Japanese TV news cameras, bowing deeply. He said a weakness in the exchange's systems was behind a massive loss of the virtual currency involving 750,000 bitcoins from users and 100,000 of the company's own bitcoins. That would amount to about $425 million at recent prices.

The online exchange's unplugging earlier this week and accusations it had suffered a catastrophic theft have drawn renewed regulatory attention to a currency created in 2009 as a way to make transactions across borders without third parties such as banks.

It remains unclear if the missing bitcoins were stolen, voided by technological flaws or both.

"I am sorry for the troubles I have caused all the people," Karpeles, a Frenchman, said in Japanese at a Tokyo court.

Karpeles had not made a public appearance since rumors of the exchange's insolvency surfaced last month. He said in a web post Wednesday that he was working to resolve Mt. Gox's problems.

The loss is a giant setback to the currency's image because its boosters have promoted bitcoin's cryptography as protecting it from counterfeiting and theft.

Bitcoin proponents have insisted that Mt. Gox is an isolated case, caused by the company's technological failures, and the potential of virtual currencies remains great.

Debts at Mt. Gox totaled more than 6.5 billion yen ($65 million), surpassing its assets, according to Teikoku Databank, which monitors bankruptcies.

Just hours before the bankruptcy filing, Japanese Finance Minister Taro Aso had scoffed that a collapse was only inevitable.

"No one recognizes them as a real currency," he told reporters. "I expected such a thing to collapse."

Japan's financial regulators have been reluctant to intervene in the Mt. Gox situation, saying they don't have jurisdiction over something that's not a real currency.

They pointed to the Consumer Affairs Agency, which deals with product safety, as one possible place where disgruntled users may go for help.

The agency's minister Masako Mori urged extreme caution about using or investing in bitcoins. The agency has been deluged with calls about bitcoins since earlier this year.

"We're at a loss for how to help them," said Yuko Otsuki, who works in the agency's counseling department.

It's hard to know how many people around the world own bitcoins, but the currency has attracted outsize media attention and the fascination of millions as an increasing number of large retailers such as Overstock.com begin to accept it.

Speculative investors have jumped into the bitcoin fray, too, sending the currency's value fluctuating wildly in recent months. In December, the value of a single bitcoin hit an all-time high of $1,200. One bitcoin has cost about $500 lately.

Roger Ver, a Tokyo resident who has provided seed capital for bitcoin ventures such as Blockchain.info, a registry of bitcoin transactions, said he believes bitcoin will survive, possibly emerging with better technology that's safer for users.

He said Mt. Gox people were likely sincere but had failed to run their business properly.

"Mt. Gox is a horrible tragedy. A lot of people lost a lot of money there, myself included," he said ahead of the bankruptcy filing. "I hope we can use this as a learning experience."

Some countries have reacted sternly to bitcoin's emergence, but many people remain fans of its potential.

Vietnam's communist government said Thursday that trading in bitcoin and other electronic currencies is illegal, and warned its citizens not to use or invest in them.

Late last year, China banned its banks and payment systems from handling bitcoin, although people still use them online. Thailand earlier put a blanket prohibition on using bitcoins and Russia has effectively banned them.

There was still considerable appetite for bitcoin in China, where it has become attractive as an investment since tightly-regulated state banks offer very low interest rates on deposits.

Even some with money tied up in Mt. Gox were undaunted.

Huang Zhaobin, a 21-year-old student in Chengdu, said he had lost 50,000 to 60,000 yuan ($8,125 to $9,750) from the Mt. Gox closure.

"Actually this money itself is the benefit from bitcoin investment," said Huang, who plowed 10,000 yuan into bitcoins about three months ago.

"If it is legal, I will continue to invest for sure as it is the trend in the world."

In Singapore, Tembusu Terminals, a joint venture specializing in crypto-currencies, announced Friday its first bitcoin ATM in the city-state and plans for many more. In Hong Kong, a group opened what it said was the world's first bitcoin retail store.

Yang Weizhou, analyst at Mizuho Securities Co. in Tokyo, said laws to regulate virtual currencies may have to be created by countries including Japan.

She said lawsuits from those who lost money were likely, and any court rulings would chart unexplored territory and help define the reach of virtual money.

The trend toward such technology for peer-to-peer payments wouldn't replace traditional money but was here to stay because of its convenience, she said.

"It is undeniable," she said. "One must separate the Mt. Gox problem from the overall concept."

——

[JayBird]

Meanwhile, in Ponte Vedra ...

[FSBA]

The document that started this whole situation

http://www.scribd.com/doc/209050732/MtGox-Situation-Crisis-Strategy-Draft

Bitcoin is not Mt. Gox. This is just one exchange. At this time last year, it was 80% of the market. Just before the news broke, it was maybe 10%.

There's other exchanges that are solvent, and much more competently run.

Don't leave coins on an exchange unless you're trading them. There's no reason to if you aren't trading them.