URGENT: What is next and legitimate on MtGox after the security issue?

[Bit_Happy]

you have no legal recourse in an unregulated exchange.

I find it both ultra sad and ultra hilarious people still have not understood the implications of this very thing.

I have yet to understand how anyone, and I mean anyone, could have put in a lump sum over the price of maybe 2 xbox games and a bag of cheetohs into BTC.
(Mining I can understand - that's some cents and spare time, but investing tens of thousands of currency onto uninsured, unregulated accounts? Well done! Financial Darwinism, hooooo!)

Multi-millionaires are very common in the USA compared to a couple of decades ago, due to the decline of the Dollar. For some lucky people tens of thousands of currency is still just play money.
^^^
So why do they panic so much when the price falls?   

[1714025735]

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[1714025735]

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[Veldy]

Is the fact that the BTC market was unregulated equaling that the exchange owner can just do anything?...

The classic libertarian free-market response is that they need to keep their customers happy in order to encourage future business.
In this case, without the roll-back they might not have a future.
The drama continues, stay tuned...

The free market response suggests that MtGox may suffer anyway, however, the mob psychology of the bitcoin traders is that if MtGox comes back up, they will probably start using it, maybe at high volume, or maybe at low volume.  There will be a mass exodus to TradeHill however, but, I am not at all sure that TradeHill is prepared for THAT rapid of an expansion.  Maybe they are preparing for it during the halt in trading; but I am not sure they have load tested their system at anywhere near the volumes of MtGox [nor am I sure that they have not ].  The better TradeHill does responding to the new comers, the less likely MtGox will recover the overwhelming dominance of the volume of trades that it had previously [as a percentage of the market as a whole].  This all assumes MtGox even survives.  I have already posted that they have a problem with rolling back "half trades" meaning that if somebody traded currency for bitcoins and withdrew the bitcoins to their secured wallet during this time then MtGox will have to come up with that amount in bitcoins [not currency] to roll back the trade.  Do they have enough?  Anybody even have an idea what that amount might be?  Most were legitimate trades, many of which were reacting to the market adjustment to the illegal activity [selling on the way down is the downfall of risk averse investors and thus they shouldn't be trading bitcoins purchased with cash .. mined coins might be considered differently due to the cost of actually acquiring them in the first place, but I digress], but that is a free market response [which is why the exchange should not be tampering with it, but instead, paying for the losses of those affected by their lack of security resulting in the theft of their property].  Either way, since the price dropped as a natural [to this market] reaction to a crime and not a more fundamental cause, I think that as long as people can trade, the price will recover rapidly if not almost immediately when trading is in full swing [well, can maintain volume to the point of satisfying most traders enough to continue with bitcoin as opposed to abandoning them for whatever they can get].  Probably there will be a bit of volatility due to low volume at first [due to MtGox not trading for awhile at least .. my supposition and TradeHill taking in much of the slack, but not ready to take on the high volumes at once thus spiking the price for the few that like to trade on volatility [adrenalin junkies buying and many of those selling have large supply of bitcoins to take advantage of the spike with low relative risk ].  I think it all hinges on volume in the few days following when trading restarts [and an imminent restart of trading at that].  TradeHill holds all the cards; if they are up to the task, they may split the market with MtGox assuming MtGox survives [and they seem to be quite resilient and nobody knows the extent of their outlay if the follow through with this stupid rollback; or for that fact, what it would cost to payback the victims accordingly if they do not do the rollback].

It will be interesting how it plays out, but the mob has proven fairly predicable (mostly "gut" ... said "emotional" based trading) for the most part, which is making some people rich I suspect [since they can see almost precisely when and why an event will happen ... except the crimes of course].

If anything I have written is some or all not agreed with by anybody, there is one thing that nobody can deny; the need for more stable and significant exchanges (and maybe the only reason why I don't want to see MtGox go dark at this point).

[Veldy]

Multi-millionaires are very common in the USA compared to a couple of decades ago, due to the decline of the Dollar. For some lucky people tens of thousands of currency is still just play money.
^^^
So why do they panic so much when the price falls?   

I suspect those with a high number of coins are not the people panicking.  I think it is the little guys, the flood of new people that jumped in without knowing what they are doing and buying on the way up and selling on the down [which almost always results in net loss if not extreme loss].  There are no traditional fundamentals to use for investing in virtual currency like there is in conventional currency [which is backed in part by the issuing nations and their economic output and monetary policy ... i.e. the US Federal Reserve and their redistribution of wealth via monetary easing a.k.a. legal counterfeiting].  I can't claim to know enough about securities trading to make a reliable and good analysis and even less about monetary trading/investing, but the mob sure looks like a mob and acts like a mob and the mob is not full of financial experts doing the trading, it is full of gamblers and risk takers.

[Veldy]

I'm just going to keep mining and holding on to my BTC until a better exchange comes around.  (hint, there already is one, I'll omit the name for fear of being accused of advertising)

Just say it since just about everybody knows it anyway.  It is TradeHill.  If you didn't post a referral to get discounted trade rates then you aren't advertising; simply stating an opinion or communicating your experience.

I have used both obviously, and the only thing that TradeHill was missing is volume of trades [so prices tend to move slowly and lag a bit].  I think MtGox has just changed that to TradeHill's advantage; especially if they are up to the task [of the increased volume which ought to be moderately to massively significant].

[bitdragon]

Wanting to tie this in with the fiat stock market approach on mistrades

http://www.boerse-frankfurt.de/EN/index.aspx?pageID=44&NewsID=356

"By means of the Mistrade Rule, at Frankfurt Stock Exchange Scoach protects investors and issuers against erroneous order execution. This rule enables the cancellation of a trade if it has been made at a price that is not in line with the market. Such non-market-driven prices can arise from technical errors or wrong entries.

First of all, it is determined if a Mistrade application is perusable. On the basis of a comparison between the determined price and the price of the underlying instrument at the time of the transaction, a procedure involving trading participants examines whether the order was executed at a non-market-driven price.
"

And our Swiss friends:
http://www.six-swiss-exchange.com/participants/trading/on_order/mistrades_en.html
"
SIX Swiss Exchange may investigate trades on the stock exchange. If it identifies mistrades, it will declare these null and void. The stock exchange may investigate specific trades on request or at its own discretion.
When can an investigation be carried out?

    * If the parties concerned have doubts about the validity of the trade in question.
    * If at least one of the two parties requests a decision as to the validity of the trade.

When does the stock exchange declare a trade null and void?

    * If the price of the trade deviates significantly from the market price.
    * If fair and orderly trading is not guaranteed.

How does the stock exchange proceed in the event of a suspected mistrade?

The stock exchange establishes an appropriate market price for the trade in question. It then decides whether the effective price deviates significantly from the market price and thereby represents a mistrade. Although the stock exchange is entitled to ask other parties for their opinion, its decision is final.

Provided the market price is fair, any trade executed on the basis of incorrectly entered information for orders or quotes remains valid.
"
Such rules are not outlined on Mtgox in my opinion, but it seems not uncommon in our world to have mistrades and the operator of the exchange has some discretion it seems- These rules seem broad in my view.

For examples of such mistrades: http://www.scoach.de/EN/Showpage.aspx?pageID=86    mistrades tab

[S3052]

Thanks for the diligent perspective. Very helpful+++

Still, it seems like MtGox can do almost anything with this unclarity...

[Veldy]

Wanting to tie this in with the fiat stock market approach on mistrades

http://www.boerse-frankfurt.de/EN/index.aspx?pageID=44&NewsID=356

"By means of the Mistrade Rule, at Frankfurt Stock Exchange Scoach protects investors and issuers against erroneous order execution. This rule enables the cancellation of a trade if it has been made at a price that is not in line with the market. Such non-market-driven prices can arise from technical errors or wrong entries.

First of all, it is determined if a Mistrade application is perusable. On the basis of a comparison between the determined price and the price of the underlying instrument at the time of the transaction, a procedure involving trading participants examines whether the order was executed at a non-market-driven price.
"

And our Swiss friends:
http://www.six-swiss-exchange.com/participants/trading/on_order/mistrades_en.html
"
SIX Swiss Exchange may investigate trades on the stock exchange. If it identifies mistrades, it will declare these null and void. The stock exchange may investigate specific trades on request or at its own discretion.
When can an investigation be carried out?

    * If the parties concerned have doubts about the validity of the trade in question.
    * If at least one of the two parties requests a decision as to the validity of the trade.

When does the stock exchange declare a trade null and void?

    * If the price of the trade deviates significantly from the market price.
    * If fair and orderly trading is not guaranteed.

How does the stock exchange proceed in the event of a suspected mistrade?

The stock exchange establishes an appropriate market price for the trade in question. It then decides whether the effective price deviates significantly from the market price and thereby represents a mistrade. Although the stock exchange is entitled to ask other parties for their opinion, its decision is final.

Provided the market price is fair, any trade executed on the basis of incorrectly entered information for orders or quotes remains valid.
"
Such rules are not outlined on Mtgox in my opinion, but it seems not uncommon in our world to have mistrades and the operator of the exchange has some discretion it seems- These rules seem broad in my view.

For examples of such mistrades: http://www.scoach.de/EN/Showpage.aspx?pageID=86    mistrades tab

The reversal rules cited for regulated exchanges don't apply quite as it might seem to this situation.  The criminal act caused a significant change market price.  Also, unlike securities exchanges, there is only one thing for sale in this market, bitcoins.  This is like a very small market with a single company's stock.

Damage is done.  I saw part of the youtube interview of Adam at Mtgox and I have to say the interviewers were not prepared or very knowledgeable.

[unk]

The reversal rules cited for regulated exchanges don't apply quite as it might seem to this situation.  The criminal act caused a significant change market price.  Also, unlike securities exchanges, there is only one thing for sale in this market, bitcoins.  This is like a very small market with a single company's stock.

Damage is done.  I saw part of the youtube interview of Adam at Mtgox and I have to say the interviewers were not prepared or very knowledgeable.

right, the governing law is unclear, but at least contract law would apply. japan is a signatory to the CISG, too, so if bitcoins are treated as 'goods' (an open question under the relevant law) then the contractual relationships between bitcoins and its users will be governed mostly by that body of contract law, which is quite sensitive to trade usage and custom.

mt. gox cannot simply do as it pleases, unless it hopes to escape all regulation and private lawsuits.

the calls like 'mt. gox should be arrested' are obviously too extreme, but i think many people would be a lot more comfortable if mt. gox were investigated or at least if it were able to verify some of its claims. it has proposed taking a course of action unilaterally that, for all anyone knows, merely serves mt. gox's private interests. the people raising hypothetical questions like 'how do we know the hacked account was mt. gox's?' and 'how do we even know the account was hacked?' are asking the right sort of conceptual questions.

i'm not condoning particular conspiracy theories, but it doesn't take an especially cynical mind to avoid giving blind faith to an oligopolistic foreign exchange whose regulatory status is unclear, which allowed accounts to be compromised and sensitive customer data leaked, and which has not put forward a complete and consistent story of the events that justify its proposed unilateral decision to cancel trades.

with each new thing they say, i am less and less impressed with their response to the situation, particularly their unfounded accusations that the 'hacker' and one of the beneficiaries of trades with that hacker were coordinating their efforts. (if that is true, the case for a rollback would be very strong, but mere allegation is obviously not proof.)

[cryptoanarchist]

I say don't use them, or at least don't leave too many bitcoins on their site. Use their competitors.

[unk]

I say don't use them, or at least don't leave too many bitcoins on their site. Use their competitors.

i go even further and say 'don't use any exchanges at all, at present'.

but for people who have, it's important they understand that they're not merely at the whims of mt. gox. they have other options, from public pressure to lawsuits to dwolla/bank chargebacks.

[cryptoanarchist]

I say don't use them, or at least don't leave too many bitcoins on their site. Use their competitors.

i go even further and say 'don't use any exchanges at all, at present'.

but for people who have, it's important they understand that they're not merely at the whims of mt. gox. they have other options, from public pressure to lawsuits to dwolla/bank chargebacks.

I don't think that's necessary for anyone but the person who actually had their bitcoins stolen.

[Veldy]

I say don't use them, or at least don't leave too many bitcoins on their site. Use their competitors.

i go even further and say 'don't use any exchanges at all, at present'.

but for people who have, it's important they understand that they're not merely at the whims of mt. gox. they have other options, from public pressure to lawsuits to dwolla/bank chargebacks.

If there is no trading exchange .. or people simply don't trade in exchanges, then an already [relatively] small "economy" becomes very many micro economies and will simply stagnate potentially die since nobody would have any reference to bitcoin value.  The bitcoin exchange, which MtGox can be applauded for starting, was a necessary adaption to the needs of the free market of the bitcoin economy and played a big part taking it to the next level.  Additional exchanges [perhaps some that only do small amounts, or only large amounts .. or some niche that needs to be filled] will naturally form and evolve.  TradeHill is certainly different than MtGox and yet performs largely the same central functions with significantly different [or perhaps additional] peripheral functions.

Trading is essential and it won't stop because of or in spite of MtGox.  As is the case with all economic events, good, bad and ugly, they benefit the market in some way and that is to harden it, allow it to adapt and evolve [not so different than Darwinism]; people learn from it, adapt to it and protect it as a natural result of their participation (and thus personal interest) in the market.

[Veldy]

I say don't use them, or at least don't leave too many bitcoins on their site. Use their competitors.

i go even further and say 'don't use any exchanges at all, at present'.

but for people who have, it's important they understand that they're not merely at the whims of mt. gox. they have other options, from public pressure to lawsuits to dwolla/bank chargebacks.

I don't think that's necessary for anyone but the person who actually had their bitcoins stolen.

And I still don't think even that should be "reversed".  MtGox can choose to pay for the damages to the victims.  It can choose to go after and possible catch the thief/thieves and maybe even get the bitcoins returned [or perhaps a fiat currency equivalent].  These are new trades [although, perhaps unwilling if it is the thief giving back his loot] and remain part of the market.  Even in highly regulated trading environments, things like this occur.  The housing bubble and the trading of exotic derivatives [who the hell wants to buy bad debt ... but they do! ... they gamble that they will sell it at a profit before getting stuck and burned by the hot potato], the Enron collapse, and the list goes on.  All of these are because of dishonest and greedy people.  Many in the market will suffer for it; many may gain as well.  It is the nature of markets and the risks of participating [which in the case of the nation that you live in the fiat currency daily business is done it, you have very little choice ... you still suffer from bubble bursting recessions and benefit from times of growth [reasonable or artificial]. 

[cryptoanarchist]

I'd like to see each exchange continue to be free to operate in whatever way they see fit, and let the customers decide. If they can catch a crook, and prove he did it - great.

As for me, this whole thing proved my suspicions that mtgox was too big for this stage of the game, and in relation to their competition. They were either going to be a target for TPTB, or they actually were already co-op'd. Either way, I was out.

There are a whole bunch of other exchanges - most of them are better than mtgox. People should do themselves a favor and use them.

[Vladimir]

Rollbacks will cause lots of legal issues down the road. Someone who bought 100 BTC at 3$ and got rolled back might not find it viable to file lawsuit in Japan now, but once BTC hits 100$ these people all of the sudden will find money for lawyers.

Chances are that Mt.Gox will be haunted by lawsuits for years should they decide to continue shifting their liabilities and risks to users and traders.

@bitdragon, note that the normal exchanges to get that kind of flexibility to null and void trades make all market participants to sign hundreds of pages worth of small script in contracts and other paperwork. How many pages in mtgox contracts and terms and conditions? Right, just about 0, isn't it?

From my point of view it looks like they have no qualified legal counsel at all.

[cryptoanarchist]

Rollbacks will cause lots of legal issues down the road. Someone who bought 100 BTC at 3$ and got rolled back might not find it viable to file lawsuit in Japan now, but once BTC hits 100$ these people all of the sudden will find money for lawyers.

Chances are that Mt.Gox will be haunted by lawsuits for years should they decide to continue shifting their liabilities and risks to users and traders.

I guess they could try, but if I was on the jury I'd definitely find in favor of the defendant. They bought stolen money. If you bought a stolen credit card, you don't get to sue Visa for shutting the card off.

[Valalvax]

I think the rollback is the right way to do things, I think a good portion of the people who are against it got orders in for <1 USD/BTC and are upset they didn't strike it rich like they thought they would

Did they lose anything? No, did people who sold lose anything? No, did people who bought immediately before it crash lose anything? No. No one lost anything, no one gained (well, some people did, whether moral or not I'm not sure, I wouldn't feel right having done it, but that's me) anything (sales/buys alone, not counting withdrawals)

[Vladimir]

Look, I am not saying that rollbacks good or bad. I do not know this. I am just saying that this all will end in tears, either way, and lawyers will have a "field decade" over this.

[Veldy]

I think the rollback is the right way to do things, I think a good portion of the people who are against it got orders in for <1 USD/BTC and are upset they didn't strike it rich like they thought they would

Did they lose anything? No, did people who sold lose anything? No, did people who bought immediately before it crash lose anything? No. No one lost anything, no one gained (well, some people did, whether moral or not I'm not sure, I wouldn't feel right having done it, but that's me) anything (sales/buys alone, not counting withdrawals)

I am against and for none of the reasons that you mention.  It is wrong to reverse honest trades (all other exchanges were affected and are not rolling back trades, nor should they.  It is an ethics breach.  I think half of the people that traded will be happy about it (thinking purely about the bottom line) and the other half unhappy.  Further there are significant complications around trades that occurred and bitcoin proceeds immediately withdrawn (which is what I always do).

Mtgox should simply pay the victim(s) back for their losses and be done with it (and take their lumps).  The market properly reacted to an event that occurred.  No different than other toys of exchanges (I was one of those that lost a lot of money when Tyco (the company, not Tycho the man) was busted by the SEC.  Some people received restitution via legal means and similar, but I wasn't one of them.  There was nobody to reverse my trades and if there was, who would the victim be then?

[dr.bitcoin]

MtGox has made obscene amounts of money by running an insecure primitve exchange website. All losses should be covered by MtGox, not other parties.