MTGOX Statement *NEW MAR 3RD*

[fryarminer]

I feel so sorry for those phone operators. This could officially make all of Japan hate bitcoin forever haha!

[1714962789]

1714962789

[murraypaul]

At the start of February 2014, illegal access through the abuse of a bug in the bitcoin system resulted in an increase in incomplete bitcoin transfer transactions and we discovered that there was a possibility that bitcoins had been illicitly moved through the abuse of this bug.
As a result of our internal investigation, we found that a large amount of bitcoins had disappeared. Although the complete extent is not yet known, we found that approximately 750,000 bitcoins deposited by users and approximately 100,000 bitcoins belonging to us had disappeared.
We believe that there is a high probability that these bitcoins were stolen as a result of an abuse of this bug and we have asked an expert to look at the possibility of a criminal complaint and undertake proper procedures.

So the hack took place between 1 Feb 2014 and 6 Feb 2014 (6 Feb is I believe when btc withdrawals were halted at Gox). During less than a week 850,000 were stolen.

If you read carefully, that isn't what it says.
It says:
a) At the start of February, there was an increase in incomplete transfers, which caused them to investigate
b) When they investigated, they found that 850,000 coins were missing
They don't say that the 850,000 coins were transferred in February, just that that was when they first noticed that coins were being transferred. The transfers could have been happening for months or years before that without them noticing.

[Money Raccoon]

So, for less than 30 million usd technically a new owner could step in and restore all mtgox balances and continue business as normal?  (i say normal, obviously would have a lot of trust to regain)   

Surely in the long term some smart investors would be all over that???

You're forgetting about the cost of replacing the "lost" 800btc. No one is buying MtGox unless they're recovered.

[alan929]

On the same day (24th), we found out large discrepancies between the amount of cash held in financial institutions and the amount deposited from our users. The amounts are still under investigation and may vary but they approximate JPY 2.8 billion.
We are investigating the causes of these problems. Since there are probably a variety of causes including hacking by third parties, we need to investigate a huge amount of transaction reports in order to establish the truth. As of this date, we cannot confirm the exact amount of missing deposit funds and the total amount of bitcoins which disappeared.
Once we discovered that bitcoins had disappeared and the discrepancies between cash funds and deposit balances, we judged that it would be difficult to continue our activities normally and we therefore closed our site at noon on the 25th (Japan time).



OK. So as a financial guy.....Here is my question.  It's one thing to get hacked and lose 100s of thousands of BTC.
How is the CASH on the 24th missing?  Shouldn't this have been audited on a daily basis, a weekly basis perhaps, but certainly on a monthly basis.  To say OOP...we lost 2.8 JPY is the most troubling thing here for me.

[bitserve]

If you read carefully, that isn't what it says.
It says:
a) At the start of February, there was an increase in incomplete transfers, which caused them to investigate
b) When they investigated, they found that 850,000 coins were missing
They don't say that the 850,000 coins were transferred in February, just that that was when the first noticed that coins were being transferred. The transfers could have been happening for months or years before that without them noticing.

If you choose to believe what MtGox says as truth, you can also consider true their claims that they were "AT ALL TIMES" accounting for BTC and FIAT balances.

 Hmmmm, no, you CAN'T consider them both to be true, its logically IMPOSSIBLE.

Anyway... We are still waiting for them to report at which exact time the balace discrepancy started. That's very easy to prove forensically matching internal accounting data with blockchain ledger.

[toknormal]

I don't believe it's possible not to notice 850,000 missing bitcoins for months or years.

Even if Gox didn't notice it, traders making withdrawals would have. That's who really are the eyes and ears of Gox and thats where the red flags would have started. The fact that they didn't makes me sceptical that 850,000 coins have actually gone "missing".

To withdraw funds there needs to be a blockchain transaction. So if there was a steady flow of withdrawals out of Gox up until the point they suspended withdrawals, they would have been coming from cold wallets with positive balances.

[murraypaul]

If you read carefully, that isn't what it says.
It says:
a) At the start of February, there was an increase in incomplete transfers, which caused them to investigate
b) When they investigated, they found that 850,000 coins were missing
They don't say that the 850,000 coins were transferred in February, just that that was when the first noticed that coins were being transferred. The transfers could have been happening for months or years before that without them noticing.

If you choose to believe what MtGox says as truth, you can also consider true their claims that they were "AT ALL TIMES" accounting for BTC and FIAT balances.

 Hmmmm, no, you CAN'T consider them both to be true, its logically IMPOSSIBLE.

Anyway... We are still waiting for them to report at which exact time the balace discrepancy started. That's very easy to prove forensically matching internal accounting data with blockchain ledger.

I said nothing at all about whether I believed their statement, I just explained what their statement actually said.

[murraypaul]

I don't believe it's possible not to notice 850,000 missing bitcoins for months or years.

Even if Gox didn't notice it, traders making withdrawals would have. That's who really are the eyes and ears of Gox and thats where the red flags would have started. The fact that they didn't makes me sceptical that 850,000 coins have actually gone "missing".

To withdraw funds there needs to be a blockchain transaction. So if there was a steady flow of withdrawals out of Gox up until the point they suspended withdrawals, they would have been coming from cold wallets with positive balances.

It would only have been a problem if there had been a net flow of BTC out of MtGox which exceeded the number of BTC they actually had left.
It seems perfectly plausible that most of their users fell into one of two camps:
a) Transferring BTC in, selling and withdrawing USD
b) Buying and selling BTC entirely on the exchange itself, which is just internal bookkeeping by MtGox, and never touches the blockchain.

As long as more BTC was being sent to MtGox to be sold than was being withdrawn to external wallets, they would never notice that they didn't actually have the huge pile of BTC that they thought they had.
(Alternatively, As long as more BTC was being sent to MtGox to be sold than was being withdrawn to external wallets, noone would ever find out that they didn't actually have the huge pile of BTC that they claimed they had.)

[freebit13]

At first I was thinking "how could all that cash go missing, how could they hack the bank accounts?" and then I realized they might not only have had a "bug" in their withdrawal code, but maybe also with their fiat deposit code. It occurred to me that it's possible someone was somehow making fake fiat deposits at gox, changing them into btc and withdrawing them. That possibility alone could account for "money missing from the bank" and "missing bitcoins". Perhaps the withdrawals were legit, but the deposits weren't... just a thought.

[Pangia]

So let me get this right, they lost $30 million that's MILLION, USD in their actual bank accounts, BESIDES the loss of BTCs. I don't even...

Or does this mean they were running fractional reserve and are now trying to cover it up as "discovered discrepancies on the 24th Feb". That'd be my guess.

I wrote this back in July 2013 in regards to a poster (OP) claiming that MTGOX must be solvent since they are permitting BTC transfers out. I received some nasty PM's as a result.

OP stated: If MTGOX supposedly is having liquidity probs --- Why the fuk are they still allowing bitcoin withdrawals? It doesn't matter whether u withdraw bitcoin or USD, if u do either the money is gone from their account. So I call BS on all this speculation they don't have any money left to run their shit.
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If you do either, the money ISN'T gone from their account. If you transfer a BTC out, then yes, the BTC is no longer on the MTGOX exchange. But, if you sell a BTC and then have funds in your account (or so it says on your MTGOX page) those "funds" aren't leaving MTGOX's account. Prove to yourself that those funds actually exist.

The notion that a lack of liquidity would prevent MTGOX from permitting BTC withdrawals is flawed.  The purchase of BTC's on MTGOX right now is being performed based on funds that are simply listed on your account. It's almost like a demo account with fake money, but the BTC's are real. If you can't get your funds out, how do you know that it actually exists?

Say MTGOX only has 2 customers (A and B). Customer A has 100 BTC's and B has enough USD in their MTGOX account to purchase all of those BTC's. Customer B with USD in GOX can't withdraw, so B buys all of Customer A 's BTC and transfers them to another exchange where B can sell those BTC's and make a withdrawal without an issue.

Customer A now has USD in their GOX account, however it's USD that they can't withdraw and there are no other customers to purchase BTC's from, so A is stuck with his/her USD in GOX and no way to get it out --- No one to buy BTC's from and no way to get the USD out because MTGOX isn't processing the withdrawal.  Now the million dollar question is this: DO THE FUNDS NOW IN CUSTOMER A's ACCOUNT ACTUALLY EXIST? It say's that they have it on their MTGOX account, but does it really exist?

It's not like MTGOX has an independent 3rd party that can audit them to say that they indeed have everyone's funds and are solvent. All we are left with is an account page that says that you have $xxxxxx.00 

You can purchase BTC's with those funds listed there, because for the moment, everyone believes that those funds are real. But can you all withdraw your funds right now?

What's working in the MTGOX's favor right now is the fact that they obviously don't have just 2 customers. Additionally, customers are depositing funds.  What's saving them from a collapse is that the simplified scenario above is being prevented by the thousands of MTGOX customers who aren't heading for the door at once. BUT, if something were to trigger a panic, we'd see the price of BTC's on MTGOX shoot up and those willing to take a lose by purchasing BTC's at panic prices will be able to get their funds out through the transfer of BTC's and those left holding USD will be out of luck. Those left holding USD will have their USD delineated on their MTGOX page, but are those funds really there? Since there wouldn't be anyone to "buy" BTC's from (because they left with the BTC's that you sold them), you could put in a request to withdraw those funds, but when that request doesn't get fulfilled (like the stories that we keep reading on this forum), is your money really in your account?

You can "buy" BTC's with the funds listed on your MTGOX account because everyone believes that those funds really exist and accept them (electronically), even if they can't withdraw those funds.  You can then transfer those BTC's out and it has nothing to do with the liquidity of MTGOX. The acquisition of BTC's and the transfer of BTC's is solely based on the belief that the funds listed on your MTGOX account are real.

If you can prove that those funds in your account actually exist, then your belief that MTGOX is solvent is founded.

However, the fact that BTC's can be transferred out of MTGOX does not prove that MTGOX is solvent.

[QuestionAuthority]

Why is everyone focusing on the amount of money Gox lost? That's inconsequential compared to the irreparable damage done to Bitcoins reputation. Every one I know is telling me how sorry they are for me and reminding me that they warned me that whole Bitcoin thing was a scam. I tell them that I didn't lose any money and they respond, "Well, you got lucky this time. Better stay away from nonsense like that from now on".

[grifferz]

I'm looking at bitcoin at $610 and a bunch of new bitcoin-related services announced since mtgox suspended withdrawals, and finding it hard to see there has been any irreparable damage.

[BitChick]

Why is everyone focusing on the amount of money Gox lost? That's inconsequential compared to the irreparable damage done to Bitcoins reputation. Every one I know is telling me how sorry they are for me and reminding me that they warned me that whole Bitcoin thing was a scam. I tell them that I didn't lose any money and they respond, "Well, you got lucky this time. Better stay away from nonsense like that from now on".

Some damage has been done but "irreparable" is probably an overstatement.  My parents thought we lost everything too.  BitchicksHusband tried to explain to my dad how he would never leave his coins in someone's wallet for any length of time and how we only used Mt.Gox for some trades and have not used them lately.  It was confusing to my dad.  The whole thing is confusing to many people that do not really understand how Bitcoin works.

But I am just waiting for BTC to reach a new ATH in which the news will then say, "Bitcoin's BACK!" or something like that and that will renew confidence and even spark some interest from those that thought Bitcoin had suffered from a fatal blow.  

[Gabi]

I wonder if they lost the 750.000 bitcoins instantly or over years.

That's inconsequential compared to the irreparable damage done to Bitcoins reputation

C'mon don't be silly, things like this happened tons of times since 2011, this is not the first time.

[HorseCoin]

so a gathering of Magicians happened, and the Magicians performed tricks to obtain teh BTC

[seriouscoin]

so a gathering of Magicians happened, and the Magicians performed tricks to obtain teh BTC

Stop buying clearance at Jokes R Us you cheap fck.

[QuestionAuthority]

Why is everyone focusing on the amount of money Gox lost? That's inconsequential compared to the irreparable damage done to Bitcoins reputation. Every one I know is telling me how sorry they are for me and reminding me that they warned me that whole Bitcoin thing was a scam. I tell them that I didn't lose any money and they respond, "Well, you got lucky this time. Better stay away from nonsense like that from now on".

Some damage has been done but "irreparable" is probably an overstatement.  My parents thought we lost everything too. BitchicksHusband tried to explain to my dad how he would never leave his coins in someone's wallet for any length of time and how we only used Mt.Gox for some trades and have not used them lately.  It was confusing to my dad.  The whole thing is confusing to many people that do not really understand how Bitcoin works.

But I am just waiting for BTC to reach a new ATH in which the news will then say, "Bitcoin's BACK!" or something like that and that will renew confidence and even spark some interest from those that thought Bitcoin had suffered from a fatal blow.  

Therein lies the problem. Bitcoin is, at best, confusing to most people and now they have a good reason to avoid it like the plague. The rumors I hear the most from people is that they knew the hype over the Bitcoin price was fake. Nothing is worth that much that fast. It would never be worth that much if someone like that Gox exchange on the news wasn't fixing the price.

Everyone is going to have a serious uphill battle that didn't exist before Karpeles started the "Bitcoin Bug" lie to cover his ass. People that I had on the verge of convinced to use Bitcoin are now avidly against it. One business operator that I convinced to try it is now against it claiming that the news of Bitinstant and Gox is, "too much for me".  

[freebit13]

Therein lies the problem. Bitcoin is, at best, confusing to most people and now they have a good reason to avoid it like the plague. The rumors I hear from most from people is that they knew the hype over the Bitcoin price was fake. Nothing is worth that much that fast. It would never be worth that much if someone like that Gox exchange on the news wasn't fixing the price.

Everyone is going to have a serious uphill battle that didn't exist before Karpeles started the "Bitcoin Bug" lie to cover his ass. People that I had on the verge of convinced to use Bitcoin are now avidly against it. One business operator that I convinced to try it is now against it claiming that the news of Bitinstant and Gox is, "too much for me".  

^^^ Totally agree, and contradictory statements like this are not going to help things at all:

At the start of February 2014, illegal access through the abuse of a bug in the bitcoin system resulted in an increase in incomplete bitcoin transfer transactions and we discovered that there was a possibility that bitcoins had been illicitly moved through the abuse of this bug.

In order to increase repayments to our creditors, it is necessary to explore the possibility of having MtGox Co., Ltd. continue its business. This is why the civil rehabilitation procedure has been chosen, Rebuilding MtGox Co., Ltd under the supervision of the court in a legally organized procedure while giving proper explanations will not be for the sole benefit of the company but for that of the whole bitcoin community.
All efforts will now be made to restore the business and recover damages to repay debts to creditors. We hope for the understanding and cooperation of all.

How can continually blaming things on a bug in the bitcoin software help the whole community?

[Artlover]

Given he apparently left France in a hurry, moving to Japan practically over night after his employers accused him of computer fraud, I think there is valid reason to suspect that it's more than incompetence, and that illegal activity on his part here is likely.

That's interesting. Do you have any reference for this, even if it's just a reference to a rumour?

http://www.reddit.com/r/Bitcoin/comments/1z91p8/interview_with_anne_karpeles_french/

http://www.lejsl.com/saone-et-loire/2014/03/01/un-qi-superieur-a-la-moyenne

http://www.reddit.com/r/Bitcoin/comments/1z92dk/karpeles_accused_of_computer_fraud_before_moving/

http://blog.magicaltux.net/2006/01/16/histoire-d-une-garde-a-vue-pas-comme-les-autres/

[Artlover]

I stubbed my big toe the other day -- I looked down to see what it was and low and behold, transaction malleability. It's everywhere!

Everyone is ragging on the poor guy but won't give him a chance to prove himself.  He's been handling MTGOX for years now with no problems and now because he has a small issue everybody wants to crucify him.  He looked really heartbroken at the press conference and I belive him when he says he is trying to sort it all out.  I believe the bug in the system is true cause for this and that the powers that be behind the Bitcoin program are not helping any.  Give Mark a break!

Are you trying to be funny?