Peter R Rizun's theory on the collapse of MtGox and its effect on the price of bitcoin

[damnek]

Mark was in #bitcoin-dev at the time of the heist asking the bitcoin devs to roll back the blockchain, so that lines up with this theory.

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[Peter R]

Mark was in #bitcoin-dev at the time of the heist asking the bitcoin devs to roll back the blockchain, so that lines up with this theory.

Very interesting.  You wouldn't happen to have an IRC log or a link handy to a thread discussing this, would you?

[rebel24]

this has been an awesome thread, thank you

[opet]

Opet, I sent you a PM to clarify and will edit my article to give you priority for "Willy" once we clear up the dates. 

Replied.  Not really a big deal, though, so don't worry too much about changing anything.  Just the fact that the name "Willy" stuck and spread through the community was enough to make my night!

[jl2012]

If this theory is correct, there must be some significant transactions around that 2011 hack. Could you identify it on the blockchain?

[chessnut]

This explanation is simple plausible and practical. really great.

I like to say, never attribute to malice that which can be explained by stupidity. This is one case.

[Peter R]

If this theory is correct, there must be some significant transactions around that 2011 hack. Could you identify it on the blockchain?

There's no smoking gun, but there's enough output volume to conceal ~1,000,000 BTC.  Here's a graph of bitcoin transfers for June 2011 constructed from data I just pulled from blockchain.info.  Note that I'm not sure re time zones, so look at the 18, 19, and 20th when thinking about what happened at the time of the hack.  Also note this is a log scale so that both curves are readable.  



Remember that total output volume is 100% accurate, but blockchain.info's estimated transaction volume depends on an algorithm that attempts to identify change and may thus be unreliable.  

[jl2012]

If this theory is correct, there must be some significant transactions around that 2011 hack. Could you identify it on the blockchain?

There's no smoking gun, but there's enough output volume to conceal ~1,000,000 BTC.  Here's a graph of the data for June 2011 constructed from data I just pulled from blockchain.info.  Note that I'm not sure re time zones, so look at the 18, 19, and 20th when thinking about what happened at the time of the hack.  Also note this is a log scale so that both curves are readable.  



Remember that total output volume is 100% accurate, but blockchain.info's estimated transaction volume depends on an algorithm that attempts to identify change and may thus be unreliable.  

If I were the thief, I would try to transfer the money out very quickly, as I'd like to finish it before Mark discovered. Therefore, there must be a few very big transactions if you were correct.

[TonyZX]

Great article, now it's so clear and I begin to get everything what's happnening . Makes me think more about an effect on the price of btc

[notig]

I am just going to add on to the speculation a bit here. There has been a confirmed leak of audio from January with Mark and a bank of theirs in Japan. This bank was going to shut them down. Without a bank mt gox would have to stop operations and there would be withdrawals in mass. The shit would hit the fan if they were operating under fractional reserve. Is it just a coincidence then that shortly after mark finds out his bank is shutting him down that they lose several hundred thousand bitcoins due to "malleability" ?  I don't think so. Mark is using the malleability as a scapegoat. I think he was operating under fractional reserve and I also think he tucked away many bitcoins for himself since his exchange was going down anyway.

[kik1977]

Chapeau, Peter!

[goemon888]

If Willy buy bitcoin why mtgox only 2,000 BTC on feb?

[oakpacific]

Also if there was such a jumbo tx, I am sure it would be very visible on the blockchain.

The million bitcoins sent to MtGox in early June would have been deposited to several unique addresses and over several days, as these coins came form several unique customers.  The thief would have stolen them with several transactions (over a shorter period of time), rather than merging them into a single 1,000,000 BTC TX.

Several...over a shorter period of time...we may as well say over a year. If you put no limit on Mark's incompetence, then sure, anything is possible.

There is never a need to put the key to a user's deposit address on an online computer, any wallet system which could remotely be considered 'cold', by definition, would not do that.

The just-dice.com deposit addresses are "hot."  I think this is common in fact.  Just-dice uses recent deposits to pay out new withdrawal requests, thereby minimizing transfers to and from cold storage.  If you request a just-dice withdrawal, your coins will almost always come from someone else's deposit address.  [People have reported on the troll box that they've spontaneously received free coins.  This happens when someone erroneously sends just-dice.com coins to the address that sent them a withdrawal.]  Just-dice.com automatically transfers coins to cold-storage when the amount of hot coins crosses a certain threshold.  These coins are transferred manually back to the hot wallet when needed.  

My theory would have MtGox in its early years using a similar system, except automated transfers to the cold wallet were not yet implemented.  Yeah they should have been, but I believe it's plausible that they weren't given how quickly the price (and thus the risk of not doing so) increased.  

Again, if you deposit addresses are hot, there is no way it can be called cold wallet. Also, an exchange is different from a betting site, which does BTC withdrawals much more often(you don't trade and want to collect what you win ASAP, and you certainly don't deposit to gamble in tens of thousands of BTCs!), it would be beyond ridiculous if Gox's deposit addresses are hot.

[coins101]

Very interesting.

Still, I'm waiting to hear it from the big horses mouth. Now that administrators and lawyers are all over the company, it will be hard to hide all the internal communications, account movements and trades over such a long period.

Unfortunately, I've seen the remaining assets of a company in this state squandered by all the fees vultures that get involved during bankruptcy. They will be picking away at the Gox assets for a while. I'm owed quite a lot of money from a company that went into administration three years ago, the administrators say that they are still sorting it all out - which is double talk code for, there is still money in the bank and assets to rape so they can extract out more fees.

[damnek]

Mark was in #bitcoin-dev at the time of the heist asking the bitcoin devs to roll back the blockchain, so that lines up with this theory.

Very interesting.  You wouldn't happen to have an IRC log or a link handy to a thread discussing this, would you?

I just went over some chatlogs at http://bitcoinstats.com/irc/bitcoin-dev/logs/2011/06/19 and it turns out I must've remembered wrong. Still an interesting conversation to go over if you read what MagicalTux (Mark Karpeles) says or rather what he does not say..

[jl2012]

Mark was in #bitcoin-dev at the time of the heist asking the bitcoin devs to roll back the blockchain, so that lines up with this theory.

Very interesting.  You wouldn't happen to have an IRC log or a link handy to a thread discussing this, would you?

I just went over some chatlogs at http://bitcoinstats.com/irc/bitcoin-dev/logs/2011/06/19 and it turns out I must've remembered wrong. Still an interesting conversation to go over if you read what MagicalTux (Mark Karpeles) says or rather what he does not say..

In the chat log I find this: https://blockchain.info/tx/84f96975ea88d317676771a482c71f39ff53beda790c89c07ae82e427b4d090f

But if that was a theft, there was no reason to leave a 32.11BTC change

[malevolent]

But theft was hardly a concern.  In October of 2010, bitcoins were trading for $0.10 and the half a million bitcoins held by MtGox was worth only $50,000.   But still Mark took precautions, diligently moving bitcoins to offline storage and leaving only what was necessary for customer withdrawals online.   He truly wanted both his business and bitcoin to succeed. 

This may look like Mark bought Mt.Gox from Jed McCaleb in 2010, but the ownership did not change until March 6th, 2011:
https://bitcointalk.org/index.php?topic=4187.0

[elebit]

These complicated explanations do not make sense.

If you own the exchange (or indeed if you 0wn it) you can publish whatever you want in the orderbook if you want. No need to execute the actual trades.

If you want to steal btc or fiat you just transfer it out. Why trade with yourself first?

[thezerg]

These complicated explanations do not make sense.

If you own the exchange (or indeed if you 0wn it) you can publish whatever you want in the orderbook if you want. No need to execute the actual trades.

If you want to steal btc or fiat you just transfer it out. Why trade with yourself first?

you trade with other accounts in your exchange to change the amount of btc or fiat you owe account holders... in the case of driving btc to 1/5 of price in other exchanges you can then buy the btc already lost stolen at discount

[jojo69]

http://pastebin.com/W8B3CGiN