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Author Topic: How would Bitcoin have prevented the MF Global client money going missing?  (Read 1491 times)
Isosceles
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December 10, 2011, 11:09:21 PM
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Bitcoin has some wonderful features, but could it have prevented a firm like MF Global from hiding/stealing clients' money? It would seem to make it easier to do, not harder.
At present, we can trust big companies because the government can make them accountable if they do something illegal. How can you make a Bitcoin based firm accountable to its clients / shareholders? (GLBSE doesn't count, it's not enforceable)

I'm hoping there's a good answer to this to do with the Bitcoin scripted transactions. Otherwise, we'd have to invent an alternative technology for Bitcoin accounting. But that would be as susceptible to centralized control as a regular currency.
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December 10, 2011, 11:18:38 PM
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Bitcoin is a money and a money transfer system. It is not an anti-fraud service nor is it a substitute for diligence, prudence, and caution.

Of course... I could also say that because MF Global went bankrupt by betting on sovereign debt of Europe, a Bitcoin-world would have prevented the very deficit spending which led those sovereign bonds to the graveyard. So in a roundabout way, Bitcoin may well have prevented MF Global from going under  Wink
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December 10, 2011, 11:48:05 PM
 #3

Bitcoin is a money and a money transfer system. It is not an anti-fraud service nor is it a substitute for diligence, prudence, and caution.

In my hypothetical future where governments use bitcoin, I think that firms/banks/companies and such that want to be government backed would have to have all of their addresses and accounts registered.  Just because bitcoin can be anonymous and decentralized doesn't mean it has to be.  Green Addresses (or something similar) could be all that a registered company would be allowed to use.  We wouldn't necessarily be able to tell who the company transfered money to, but we would all know whenever a green address sends a transaction.  If the transaction seems supsect, it could be investigated.

Isosceles
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December 11, 2011, 01:50:04 AM
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Yes bitcoin is a money & money transfer system. But if you can't get an acceptable level of fraud prevention, no one will use it for more than petty cash. How do you investigate a suspect Bitcoin transaction? Easy to identify, extremely difficult to trace who controls the destination.
Bitcoin gives you some great transparency but it is unsuitable for a corporation, as any company treasurer could run off with the firm's money and claim he was hacked. Worse, in the case of a firm like MF Global they could run off with the clients' money too. If someone has a technological solution for this, I would love to be proved wrong.

 - Green addresses do raise confidence, but can't be an enforcement mechanism (ie. you go to jail if you send to one). You would just create a black Bitcoin market and a white/green Bitcoin market. Co-mingling would be illegal, but unstoppable without changing the bitcoin protocol to make it effectively equivalent to a modern currency. And if a government controls the protocol, they can control the money supply too.

 - @Red Emerald : There's no win for govt/firms to use Bitcoin for their internal accounts. They would lose convenience (BTC is slower than an electronic ledger), fraud control & sovereign control of the monetary base.

 - @evoorhees : MF Global's fallacy was much more simple - Greed. Bitcoin won't solve that. It didn't "own" the european govt. bonds in the traditional sense you're thinking of, it was collateral in a repo trade. If the european govt bond had actually defaulted, MF Global would be fine as they were short 1.3bn of French govt bonds. See http://blogs.reuters.com/felix-salmon/2011/11/01/what-happened-at-mf-global/
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December 11, 2011, 03:34:30 AM
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Bitcoin is a money and a money transfer system. It is not an anti-fraud service nor is it a substitute for diligence, prudence, and caution.

In my hypothetical future where governments use bitcoin, I think that firms/banks/companies and such that want to be government backed would have to have all of their addresses and accounts registered.

Ugh. Let's hope things don't go down that route. Taking that idea to its logical conclusion leads to a fairly frightening image of the future.


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In the future, books that summarize the history of money will have a line that says, “and then came bitcoin.” It is the economic singularity. And we are living in it now. - Ryan Dickherber
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December 11, 2011, 03:48:03 AM
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Yes bitcoin is a money & money transfer system. But if you can't get an acceptable level of fraud prevention, no one will use it for more than petty cash. How do you investigate a suspect Bitcoin transaction? Easy to identify, extremely difficult to trace who controls the destination.
Bitcoin gives you some great transparency but it is unsuitable for a corporation, as any company treasurer could run off with the firm's money and claim he was hacked. Worse, in the case of a firm like MF Global they could run off with the clients' money too.

Isn't that essentially what happened in the current, central bank-issued fiat money paradigm? But people use dollars for more than petty cash. I think once Bitcoin is established, this will just be accepted and dealt with like it is today.

Bitcoin is the ultimate freedom test. It tells you who is giving lip service and who genuinely believes in it.
...
...
In the future, books that summarize the history of money will have a line that says, “and then came bitcoin.” It is the economic singularity. And we are living in it now. - Ryan Dickherber
...
...
ATTENTION BFL MINING NEWBS: Just got your Jalapenos in? Wondering how to get the most value for the least hassle? Give BitMinter a try! It's a smaller pool with a fair & low-fee payment method, lots of statistical feedback, and it's easier than EasyMiner! (Yes, we want your hashing power, but seriously, it IS the easiest pool to use! Sign up in seconds to try it!)
...
...
The idea that deflation causes hoarding (to any problematic degree) is a lie used to justify theft of value from your savings.
ctoon6
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December 11, 2011, 06:01:31 AM
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people are used to things like cash, and its an extremely bad idea to let anyone else have any access to your coins, so what the solution is, is a small device about the shape of a standard credit card and no thicker than 1cm, preferably around or less than 5mm.

that solves the problem of people loosing their money from hacks and exploits.

a fix to the problem of corporations would be to never store capital jointly. for example walmart. when you buy something, the bitcoins are sent to a temporary "bin". at the end of the day the bin is split up and everyone is paid, so at most, the most that can be lost is 1 day of operation. and i don't think anyone will want to loose their job over that small of an amount of money.

i have no idea how credit and debt would work.  it could be attached to taxes somehow i guess. but then you could get sent to jail for being poor, although you should not finance debt you cant pay for (you know who you are *cough* us gov *cough*)

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December 11, 2011, 09:50:05 AM
 #8

Bitcoin has some wonderful features, but could it have prevented a firm like MF Global from hiding/stealing clients' money? It would seem to make it easier to do, not harder.
It wouldn't. Remember the MyBitcoin incident? I don't think they ever followed through with their promises to release more information about what happened either.

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pusle
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December 11, 2011, 10:39:21 AM
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Well they could not have leveraged bitcoin into the stratosphere.
I'm not sure how MF global operated either and for an investment bank you have to trust the people using your money.

However it would be possible to prevent fraud when it comes to a "storage only" bank account.
Each person would have their own addy with the bank so you would be able to monitor if the money have been moved.
This could be done by an app on your own computer or a service provided by a 3rd party.

It's also good advice to not have "all your eggs in one basket" Wink

Isosceles
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December 11, 2011, 03:12:00 PM
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MF Global was a broker. The idea is very similar to Bitcoinica - you fund your account with Bitcoins and Bitcoinica use that as collateral to lend you money, and you use that to trade. The broker needs to have control over the collateral, but they promise to abide by certain rules. Given that you can't encode a broker's entire operation in to a bitcoin transaction, perhaps you can use a 3rd party oracle https://en.bitcoin.it/wiki/Contracts#Example_4:_Using_external_state which bails out your Bitcoin collateral if the broker is bankrupt or disagrees with a fair valuation of your account.

@pusle : You can have leverage with Bitcoin, see Bitcoinica's 10:1. Bitcoins don't prevent someone setting up a fractional reserve bank.
@ctoon6 : You have to have a company account with a positive balance. A firm needs money on-hand to buy & hire, it can't just pay all its workers everything it has at the end of the day.
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December 11, 2011, 03:28:49 PM
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I can't see why Bitcoin would have changed the MF Global outcome at all. Within itself Bitcoin does provide tracking of cash flows, but this is nothing that MF Global shouldn't have, barring destruction of evidence of course.

I would tend to expect the funds can be traced, but at some point clawback ( pulling the funds back to the owners ) is just not feasible economically. It will be a wonderful thing for many expensive lawyers to pursue for easily a decade to come, and that is after all what living is really all about, never forget that the rest of us are here only to serve them  Wink

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Stephen Gornick
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March 24, 2012, 01:16:43 AM
 #12

Triple-entry accounting is a related topic here:
 - http://iang.org/papers/triple_entry.html

But as far as this story -- the latest is that it was Corzine himself who directed at least a $200M transfer of customer's funds.
 - http://www.bloomberg.com/news/2012-03-23/mf-global-s-corzine-ordered-funds-moved-to-jpmorgan-memo-says.html

We still don't know the exact details but perhaps in a Bitcoin world with multisignature capabilities available then even if a direct order from the CEO were given the transfer wouldn't have been possible without the corresponding signature from a second party, like the firm's risk officer, for example.

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