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Author Topic: MtGox won't "indulge" us with an answer to conflict of interest.  (Read 1736 times)
qarl
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June 23, 2011, 04:00:35 PM
 #1

call me crazy - but i think the question of whether they have a conflict of interest in the rollback is a valid one.

that makes me a conspiracy nut, i guess.

http://www.reddit.com/r/Bitcoin/comments/i4m2f/so_who_is_this_mysterious_mtgox_user_who_had/c21bvj7
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JoelKatz
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June 23, 2011, 04:05:09 PM
 #2

Since they made the decision that the overwhelming majority of disinterested observers agree is correct, I'm not sure why it matters whether they have a conflict of interest in making it. But in any event, I think it's quite clear that they don't. Even if you assume the rollback saves them a lot of money personally, this is a perfect alignment between their interests and their customers interests. The only interests on the other side are those few innocent customers who benefited from the hack and the hackers themselves.

Assume it was a Mt. Gox house account that was hacked. In that case, there's even less chance of a conflict of interest because there is no interest on the other side. On one side is Mt. Gox (whose account was raided) and Mt. Gox (whose password security was weak). On the other side is whoever hacked the account and perhaps a few innocent beneficiaries of the hack. Where's the conflict?

I may be completely wrong about this and would appreciate being corrected by someone who believes there is a conflict of interest. I don't understand what the conspiracy theory is exactly. I get the allegation that the only (or most significant) account that was compromise was a house account. But so what?

I am an employee of Ripple.
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dennis_sweden
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June 23, 2011, 04:33:08 PM
 #3

Having argued a lot about a lack of disclosure of information, and considering the new evidence regarding the transfer of 420k + bitcoins, that many people with computing knowledge appear to agree proves that Mtgox are in possesion of the Bitcoins, and also in consideration to the almost certainty that the hacked account did belong to Mtgox, I too think that in the interest of the market and the overwhelming majority of the traders a rollback call is the lesser evil option. As JoelKatz says, there is even less conflict of interest, although some people have suggested that Mtgox could have been hoarding Bitcoins which would entail a conflict of interest; some Bitcoins might be for traders and some might be Mtgox's own Bitcoins. However, under no circumstances at all would this be known by anybody apart from Mtgox, so it should not be considered a factor.

That said, the lack of information during the whole process, and false claims, has displayed a lack of consideration to the interest of the market and traders.

How can you tell when a politician is lying? His lips are moving. A little girl asked her father, 'do all fairy tales begin with "Once upon a time"? The father replied, 'No, some begin with - If I am elected.' How come political leaders don't have all the answers until they write their memoirs?
TraderTimm
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June 23, 2011, 04:43:04 PM
 #4

The market will decide.

If enough traders pull their funds and don't use them, they die. If they stay, they live. It's pretty simple.

fortitudinem multis - catenum regit omnia
finack
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June 23, 2011, 04:44:32 PM
 #5

If the compromised account and sold bitcoins belonged to Mt. Gox or an individual in a management role at Mt. Gox it seems that would be directly relevant to whether people would support the cancelled trades. After all, if my own mt. gox account was compromised solely due to my own negligence (keylogger, etc.) it is very difficult to believe that Mt. Gox would cancel the trade and set any withdrawn balances to negative when I informed them.

The lack of disclosure and evasion on the issue makes it seem more and more likely that there is no 3rd party involved in the loss. It's seeming increasingly possible that the loss could have come from something even more shady, like a mt. gox or mark's proprietary trading account, perhaps an account that didn't even have real BTC or USD backing for its balance.

It's true the market will decide - many of us are now assuming the worst. The idea of speaking up here would be to prove it's not actually as bad a situation as it seems.
Horkabork
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June 23, 2011, 04:59:30 PM
 #6

I'm all for them respecting a user's right to privacy (albeit ironically after the database leak), but I do think that they need to acknowledge and reply to even the conspiracy theory questions. I very much applaud Mt_Gox Adam for replying at reddit, but the answer is not satisfactory. Hell, it's not even an answer, but ducking the question.

They can surely answer this question partially without revealing the person/group/robot/gorilla's identity. For example:

1. Was the account or were the bitcoins in the account belonging to Mt. Gox?

2. If not, was Mt. Gox responsible for unique administration or duties involving the account? By that, I mean: was it a customer account, only with any benefits beyond those that I, qarl here, or any other average Mt. Gox customer is given?

I ask this because there's the question of it indeed not being a Mt. Gox-owned account, but that they were somehow "more liable" for the account hijacking than they would be if mine was hijacked.

3. If it was a customer with no special privileges, then did the account belong to someone known personally to Mt. Gox employees?

4. Did the account have real, corresponding bitcoins or was the trade done with "mt. gox virtual bitcoins" that had no real bitcoin counterparts? In other words, during the hack, was Mt. Gox temporarily a fractional reserve?

I ask this, even though earlier today MagicalTux proved that they still have 424,242 bitcoins, because that sum is still less than all of our, known, bitcoins held at Mt. Gox plus the 500,000 bitcoins minus what the thief got away with. I hope that makes sense. Mt. Gox should be in control, right now, of something like 800k bitcoins (Is that right? Can someone do a better estimation?)

5. Is an employee or associate suspected of the account hijacking?

Yes, flash crashes and rollbacks happen on non-bitcoin exchanges pretty much daily, often without much incident, and often with exchanges exercising much more power in the rollback administration. For example, only rolling back large trades, or small trades, or margined trades, or trades below a specific price that was not determined by market forces, or only involving people who traded with one specific dude who merely claimed to fat-finger the order.

For the love of Pete, I wish that some people would realize that non-bitcoin rollbacks and other trade-reversals are not unique to Mt. Gox or even very rare. One probably happened in the time it took my to type this.

However, third parties are involved. Well, we have no SEC involvement in bitcoin land, but surely at least some impartial, non-governmental involvement is necessary. That might come in the form of opening information to everyone, or to one community-appointed liaison, or to someone else who has no relationship with Mt. Gox but could sign an NDA, be given information to examine, and then tell the community if the rollback motive was likely out of self-interest.

The thing is, I think they have probably answered questions like these to some people's satisfaction, but because there's no central FAQ for Mt. Gox, I feel like their answers are buried all over this forum, in IRC, on Reddit, in Youtube videos, and in personal emails and PMs.

Phew.

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zby
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June 23, 2011, 05:26:32 PM
 #7

It can also be a private account of one of the MtGox owners.
Nagle
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June 23, 2011, 05:56:50 PM
 #8

There are major conflict of interest issues with an exchange that itself is a trader.

A real exchange doesn't care what the price is. They just make money on transactions. There's no way they can lose big. The same is true of brokerages.  (Mt. Gox is both, because it holds customer funds.)

It's so tempting for brokerages to trade for their own account. Historically, this is a bad thing; many brokerages have collapsed doing that. It's also possible for brokerages to cheat their customers in many ways.

One is "front-running". A player who passes along orders can insert their own orders into the stream. All they have to do to make money consistently is to occasionally put in their own matching "buy" order when someone sends in a "sell" above the last price, and fill their own order first.  Conversely, they can put in a "sell" on a downtick. The edge from that information advantage is enough to insure profits in a volatile market.

Another is failing to segregate customer funds from the brokerage's own funds. Legitimate brokers are required to do this. (Banks are not, which is why banks are so heavily regulated.) If funds are segregated, and the brokerage goes bust, the customer's funds are still there. Failure to segregate funds usually means the broker is speculating with the customer's money.  Mt. Gox is opaque enough that we don't know if they're co-mingling funds.

This is why I strongly suggest not keeping funds with Bitcoin "exchanges". Move out all balances daily. Trade if you like, but don't use an exchange as a bank. They're acting as banks, or at least non-bank depository institutions, but they don't have the regulation or auditing required to hold the funds of others.


tavi
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June 23, 2011, 07:43:10 PM
 #9

There are major conflict of interest issues with an exchange that itself is a trader.

A real exchange doesn't care what the price is. They just make money on transactions. There's no way they can lose big. The same is true of brokerages.  (Mt. Gox is both, because it holds customer funds.)

It's so tempting for brokerages to trade for their own account. Historically, this is a bad thing; many brokerages have collapsed doing that. It's also possible for brokerages to cheat their customers in many ways.

One is "front-running". A player who passes along orders can insert their own orders into the stream. All they have to do to make money consistently is to occasionally put in their own matching "buy" order when someone sends in a "sell" above the last price, and fill their own order first.  Conversely, they can put in a "sell" on a downtick. The edge from that information advantage is enough to insure profits in a volatile market.

Another is failing to segregate customer funds from the brokerage's own funds. Legitimate brokers are required to do this. (Banks are not, which is why banks are so heavily regulated.) If funds are segregated, and the brokerage goes bust, the customer's funds are still there. Failure to segregate funds usually means the broker is speculating with the customer's money.  Mt. Gox is opaque enough that we don't know if they're co-mingling funds.

This is why I strongly suggest not keeping funds with Bitcoin "exchanges". Move out all balances daily. Trade if you like, but don't use an exchange as a bank. They're acting as banks, or at least non-bank depository institutions, but they don't have the regulation or auditing required to hold the funds of others.
Wow, some heavy shit here!
Great insight into exchange operations, thanks dude.

But what can we do -- we want this anonymous decentralized non-govt-controlled currency to succeed, and I don't see a choice, other than having to deal with crooks along the way? Sad

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flaxceed
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June 23, 2011, 08:26:27 PM
 #10

Exchange=Conflict of interest

Money=Conflict of interest

Finance=Conflict of interest

Bear Stearns, Barney Frank, Goldman Sachs, Hank "The Skank" Paulson, AIG, Freddie MAC, SEC, (insert administrative law body here), NASD, Pension Funds both public and private, Bernie Madoff, The Fed, etc.

We can be idealistic and serve the bitcoin community.  But being naive helps nobody.  This is a P2P currency.  It was never touted as a utopian financial solution to all business, political, and governmental problems arising from interactions with and between consumers. 

Patience.  Bitcoin will prove its worth.  Nobody can hide from the blockchain.

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lemonginger
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June 23, 2011, 08:52:23 PM
 #11

If Mt Gox was trading on their own exchange they also have knowledge of the dark pools that no one else has.
bitcoinminer
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June 24, 2011, 01:56:56 AM
 #12

The market will decide.

If enough traders pull their funds and don't use them, they die. If they stay, they live. It's pretty simple.


sense++;

Be fearful when others are greedy, and greedy when others are fearful.

-Warren Buffett
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