When I bought a small amount in Bitcoins a few years ago, I was very careful to read up on how to keep them safe and secure from hackers. I used long (very long) passwords, created my paper wallets on offline Linux machines, set up two-factor authentication for my exchange accounts, and kept all my backups encrypted. I did all this because I thought I knew who the crooks were. The crooks were hackers trying to take my Bitcoins for themselves.
The problem was that I was protecting myself against the wrong threat. The hackers weren't nearly as much of a threat as the people who thought they could get rich running fiscally irresponsible exchange businesses and insecure trading platforms. These people might not have intended to steal, but the end result is that they did.
I do not wish to divulge how much money I lost, but I will say that I have lost 90% of it. The only money I have left in Bitcoins is what I had on Bitstamp from selling XRP.
I began to realize this when the Bitfloor exchange, which had around 50% of my Bitcoins shut down. Roman Stylman promised to return funds to customers, and although the incompetent manner in which refunds were handled was frustrating I was confident I would see my money. Finally, late last year when I had almost given up, I received an email asking me to send my identity details before the end of the month so that my withdrawal could be processed. I did as requested within a few days.
Would you be surprised to hear that I haven't seen a penny? My Bitfloor account still shows the same balance as before (which is supposed to show $0 when the refund is processed). It's been months. I've tried emailing Bitfloor, Twittering Bitfloor, and Twittering Stylman's private account. I haven't heard a peep out of him.
He's clearly not dead; he posts too often about vacations and how much he's enjoying his free time for that. Being dead is the only excuse for ignoring me an people like me.
He has funds that were entrusted to him in his possession and does nothing to see to their return. Roman Stylman should be working tirelessly to return the money that is not his to keep. Roman Stylman thinks he is above answering emails, that Bitfloor is over, and he has no duty to fix what he broke. Roman Styleman has better things to do. Roman Styleman is a crook.
Of course Mt.Gox was an established exchange, they were registered, had proven security, and were experienced in carefully managed accounting practices. Mt.Gox wasn't another Bitfloor, or so I thought.
When Mt.Gox said they were shutting down withdrawals to manage a bug in the Bitcoin software which by all accounts should have been easy to deal with securely, my first reaction after outrage was that something wasn't right.
If I ran an exchange, I wouldn't think of shutting down for a month or two while we rewrite our software and cut customer's off from their money while I do so. No! It's not my money. Just as I argued that Bitfloor should have manually sent out money in BTC form if requested, Mt.Gox should have allowed transfers to a working exchange like Bitstamp. What? That would hurt their business? That's their problem. As a businessman in the industry of handling other people's money, your first priority is to meet obligations to your customers.
As another side note, did MtGox really think anyone would trust them after they shut down withdrawals? They were dead from the moment they did so.
MtGox wasn't just foolish and criminal in keeping coins from customers though. They were covering something up. Either it was as one Redditor suggested, that they closed down hoping to crash the price of Bitcoins and make a quick buck selling them after the price recovered, or they were completely insolvent. It turned out that the latter, or possibly both, were true.
MtGox and it's CEO grossly mismanaged funds in what should have been a very easy business in which to remain solvent. Look at the cash flow these people had! Apparently, however, they either mismanaged their funds or were negligent in security. It's one or the other. An exchange business doesn't lose almost ALL of its Bitcoins unless either its security or it's business practices are beyond horrible.
Mark Kerpeles is also, very likely a crook. I am lucky to have trusted relatively little to him and his company, but he has literally ruined lives with his incompetence. I genuinely think this might be another Enron. Kerpeles should be scared, because he might end up in jail. I hope for his sake that he wasn't as negligent as I think he was.
What this teaches us is, first, trust no one. Second of all, even as Bitcoin upholds the Libertarian ideals of minimal government and regulation, it disproves entirely the anarchist notion that there should be none. MtGox has probably violated numerous regulations, but at it's core this is a violation of contract law, plain and simple.
We, even those of us who lost nothing, should all be shaken, and we should expect to know more about the people and businesses to whom we entrust our money.
