[2014-04-30] London’s New Bitcoin Exchange Hopes to Avoid Mt. Gox Fate

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[Suspicious link removed]j.com/digits/2014/04/30/londons-new-bitcoin-exchange-hopes-to-avoid-mt-gox-fate/

(website is blogs dot wsj dot com/)

A new London-based bitcoin exchange wants to prove it won’t be the next Mt. Gox – the now-bankrupt exchange of the online currency – by challenging customers to find any whiff of a problem in its books.

The U.K. exchange, called Coinfloor, is one of the first to try to prove it is solvent by publishing a list of accounts and balances…all encoded of course so only users with account keys can read it.

“We are letting the entire world audit our books, essentially,” said Mark Lamb, Coinfloor’s chief executive. “After the bankruptcy of Mt. Gox, we’re trying to make a stand for accountability.”

It is the latest example of a bitcoin business trying to calm nerves over the safety and reliability of the virtual currency. The five-year-old currency suffered a major blow in February when Japan-based exchange Mt. Gox shut down and appeared to have lost track of a half billion dollars’ worth of bitcoin.

Bitcoin enthusiasts say that if there were a way for customers to check in on their accounts, the problems at Mt. Gox could have been caught sooner. Coinfloor is one of a few exchanges trying out this new method, known as “proof of solvency.” A few days after Coinfloor published its balances, Ontario-based Vault of Satoshi did something similar.

Coinfloor is essentially relying on users to check and make sure the company has the bitcoin it says it does. When Mt. Gox ran into trouble, customers rushed to try to withdraw funds but were frozen out. The exchange said 850,000 bitcoins “disappeared.”

The stand for accountability might seem out of place for a product known for the anonymity it provides users. But more bitcoin businesses are trying to step toward the mainstream. Last week, U.S.-based exchange Atlas ATS said it would work with a small U.S. stock exchange to try to get regulatory approval. San Francisco-based Kraken boasts that it has a third party audit its books. Some companies are building actual bank vaults deep underground that would store bitcoin code on computer drives.

Lamb said Coinfloor is trying to become regulated by the U.K.’s Financial Conduct Authority, and the company requires three employees to sign off on transactions.

An FCA spokesman declined to comment specifically on Coinfloor. The authority says it doesn’t regulate bitcoins.

“However, businesses providing services related to bitcoins, or other digital currencies, should consider whether they are carrying on regulated activities,” an FCA spokesman said.

Lamb, originally from outside L.A., runs a team of six full-time employees out of an office on Chancery Lane in London.

The proof of solvency tests, in theory, work by using some of bitcoin’s fundamental properties.

A bitcoin isn’t made up of nickel, copper or zinc, like physical coins, but long strings of numbers and letters. Each slice of a bitcoin contains a record of all of its previous transactions. It is the equivalent of checking out a library book before everything was digitized: You would sign your name on a card below the list of everyone else who previously borrowed it.

Coinfloor will take advantage of this by sending the entire batch of bitcoin it holds between two of its accounts. That transaction has to be recorded and verified on a public ledger known as the block chain.

But bitcoin transactions are valued for their anonymity, and the exchanges don’t want to make any type of list of account holders public. Coinfloor encrypts the account and publishes a code that the individual account holders can identify, alongside their balance on that day.

The theory is that if one person’s account balance is wrong, they will speak up.

“It’s not complete accountability, but it’s essentially the best that can be done,” Lamb said. ”It is theoretically enough for … a situation like Mt Gox to be prevented.”

Some bitcoin entrepreneurs and security specialists say that it is potentially a step in the right direction, but doesn’t get all the way home.

“It’s a marketing ploy to make them feel trustworthy, and it’s saying it on laymen’s terms,” said Shawn Sloves, chief executive of the Atlas exchange. “That doesn’t make anybody trustworthy. There’s no reason why they can’t disappear with the money a week later, we never hear from them.”

Lamb said that could be prevented by another feature: Anyone who wants to withdraw the bitcoins will have to be signed off by several parties within the company, to prevent a single person from running off with the stash.

Raj Samani, a European executive of security-software company McAfee, said the move was an “important measure to add trust.,” but added that it wasn’t enough.

“There still exists multiple considerations that customers need addressed in order to reach greater levels of confidence and to encourage wider adoption of Bitcoin,” he said. “Some considerations are related to broader Bitcoin concerns, such as fluctuating prices, whilst others are directly related to exchanges, such as greater forms of security to validate users.”

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[Carlton Banks]

Lamb said that could be prevented by another feature: Anyone who wants to withdraw the bitcoins will have to be signed off by several parties within the company, to prevent a single person from running off with the stash.

So, the exchange has more hurdles to clear before the customer can withdraw? Don't see the point of this. The exchange can still prevent customers from withdrawing.

It would instill more trust if the exchange gave the customer a 2 of 3 address, and gave 2 keys to the customer (one of which is a key to be kept only for emergency situations). Then, no-one at the company can withhold the money, or run off with it. A new wallet service does this, I forget the name right now.

[yatsey87]

I'd say this was a good thing but I've heard this exchange is run by some previously shady characters in the bitcoin world.

[bryant.coleman]

So, the exchange has more hurdles to clear before the customer can withdraw? Don't see the point of this. The exchange can still prevent customers from withdrawing.

Actually I welcome this. Too many robberies and hacks going on in Bitcoin sector. This might be the last resort to keep Bitcoins safe, for people who are not that tech savvy. 

[PatMan]

I was looking forward to this exchange finally opening as I live in the UK, so it would have been totally handy. However, after so many delays & hiccups due to archaic UK laws, website problems, banking issues etc they finally got off the ground - so I went to update my membership but was completely disappointed. All of a sudden they want passport copies, license copies, residential bills etc etc.

Fuck that.

I don't ask for their details. Maybe I should. But I won't. I'll stick with localbitcoins I think, these big exchanges want too much, for too little.

[Lethn]

I'd say this was a good thing but I've heard this exchange is run by some previously shady characters in the bitcoin world.

Yes, I'm getting worried about it now too, I was told that the same guy who ran GBLSE is now working on coinfloor and he doesn't have a great reputation, I've also looked at the way things are set up and things just seem quite off to me, the security you have to put up with seems quite typical of what the UK government would do but I can't help but go with my gut on this one, I thought about testing it out but decided to go with localbitcoins instead and just buy some coins off somebody there and it worked great, plus, all I needed was a scanned I.D and none of the bullshit they made me go through with the verification process.

[hilariousandco]

I was looking forward to this exchange finally opening as I live in the UK, so it would have been totally handy. However, after so many delays & hiccups due to archaic UK laws, website problems, banking issues etc they finally got off the ground - so I went to update my membership but was completely disappointed. All of a sudden they want passport copies, license copies, residential bills etc etc.

Fuck that.

I don't ask for their details. Maybe I should. But I won't. I'll stick with localbitcoins I think, these big exchanges want too much, for too little.

I suspect this will be off-putting for many. Why bother with all this rigmarole when you can just use a different exchange hassle free. They're not really making getting bitcoins any easier but just complicating the entire process.

[jbrnt]

so I went to update my membership but was completely disappointed. All of a sudden they want passport copies, license copies, residential bills etc etc.

I hate it when exchanges do that. I do not have a problem showing my driver's licence and prove of address to them in person at their office, but they demand scanned copies emailed to them! Who knows what will happen to those documents after that?

[hmeds]

I wish to London’s New Bitcoin Exchange is not the next Mt. Gox.

[bryant.coleman]

I wish to London’s New Bitcoin Exchange is not the next Mt. Gox.

Even if the owner of this new exchange runs away with all the coins, the cops will catch him, unlike the situation in Japan where Mark Karpeles is still freely roaming around enjoying his life.

[hilariousandco]

I wish to London’s New Bitcoin Exchange is not the next Mt. Gox.

Even if the owner of this new exchange runs away with all the coins, the cops will catch him, unlike the situation in Japan where Mark Karpeles is still freely roaming around enjoying his life.

He might not be for long though. Doesn't the US want him to answer some questions? It wouldn't surprise me if he's found guilty of fraud or criminal negligence or something.

[PatMan]

I wish to London’s New Bitcoin Exchange is not the next Mt. Gox.

Even if the owner of this new exchange runs away with all the coins, the cops will catch him, unlike the situation in Japan where Mark Karpeles is still freely roaming around enjoying his life.

Unfortunately, the UK Police are far too busy taking bribes from Hollywood & arresting 14 year old kids for sharing the latest boy band tune with their classmate to bother with corporate fraud - it's the Rothschilds playground & Uncle Sams little lap doggie I'm afraid. The UKofA 

[zeetubes]

Anyone tried Safello yet?

[bryant.coleman]

He might not be for long though. Doesn't the US want him to answer some questions? It wouldn't surprise me if he's found guilty of fraud or criminal negligence or something.

Even after 2 months, not even 1% progress on the extradition request. So, it is clear which way the wind is blowing. 

Unfortunately, the UK Police are far too busy taking bribes from Hollywood & arresting 14 year old kids for sharing the latest boy band tune with their classmate to bother with corporate fraud - it's the Rothschilds playground & Uncle Sams little lap doggie I'm afraid. The UKofA 

May be. But if a large number of UK customers are affected by robberies or similar incidents, the police will be forced to take action.

[Bit_Happy]

I'd say this was a good thing but I've heard this exchange is run by some previously shady characters in the bitcoin world.

Previously shady characters need some way to make a living. 
This doesn't sound like an exchange which I will join any time soon.