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Author Topic: Linode and the law.  (Read 3641 times)
MaxSan
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March 03, 2012, 11:06:50 AM
 #1

Im sorry if this has already been covered else where. Will those who lost substantial amounts at Linode fiasco be forwarding legal proceedings against them?

Im going to the shop so wont respond for a while but im very curious as to what peoples stance is on this.

I personally feel that this is certainly court worthy. Looking forward to hearing all your views.
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March 03, 2012, 11:40:38 AM
 #2

From what I heard, 8 customers lost their bitcoins. I assume Bitcoinica lost the most. 43K BTC is a lot of money to lose. If I lost that amount of money, I'd certainly get law enforcement on the case. But it's important to act quickly, while the leads are still hot. Linode's reputation is already suffering and I think it would be in their best interest to be upfront about what really happened. And I still think the insider theory is a good one..
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March 03, 2012, 12:05:41 PM
 #3

Im sorry if this has already been covered else where. Will those who lost substantial amounts at Linode fiasco be forwarding legal proceedings against them?

Im going to the shop so wont respond for a while but im very curious as to what peoples stance is on this.

I personally feel that this is certainly court worthy. Looking forward to hearing all your views.

This is the hottest topic in the forum for 2 days. Please, just look at the most recent threads and post there...

From what I heard, 8 customers lost their bitcoins. I assume Bitcoinica lost the most. 43K BTC is a lot of money to lose. If I lost that amount of money, I'd certainly get law enforcement on the case. But it's important to act quickly, while the leads are still hot. Linode's reputation is already suffering and I think it would be in their best interest to be upfront about what really happened. And I still think the insider theory is a good one..

Actually the only crime here was the unauthorised access and modification of VPS accounts. BTC are not legal tender/currency and Linode already covers up to whatever the hosting costs they are paying... which is very little because Linode is cheap.

The only reference we have is past litigation over online credits in Everquest, Eve Online, World of Warcraft, Facebook, Farmville and the like.

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March 03, 2012, 12:18:41 PM
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Wait, so they lost ~$250k US, and have at least another $250k stashed somewhere else since Z said he was covering it. Ok that means they had at least $500k on hand, and they lost the bitcoins they did because they were on a cheap linux vps?? They couldn't afford their own server??? WTF?

Those coins weren't stolen. They were given away.
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March 03, 2012, 12:20:33 PM
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Actually the only crime here was the unauthorised access and modification of VPS accounts. BTC are not legal tender/currency and Linode already covers up to whatever the hosting costs they are paying... which is very little because Linode is cheap.

I don't have any reference at the moment, but I read somewhere that if anything worth a certain amount of money is stolen, it's considered a serious matter by law enforcement, even though it's not directly classified as anything. But I'm no lawyer, so don't take my words for granted.
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March 03, 2012, 12:30:46 PM
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Actually the only crime here was the unauthorised access and modification of VPS accounts. BTC are not legal tender/currency and Linode already covers up to whatever the hosting costs they are paying... which is very little because Linode is cheap.

I don't have any reference at the moment, but I read somewhere that if anything worth a certain amount of money is stolen, it's considered a serious matter by law enforcement, even though it's not directly classified as anything. But I'm no lawyer, so don't take my words for granted.

I would think this to be the situation also. If i have piece of equipment that is worth x amount of money and its stolen its still theft. no matter hwo you look at it..


reminds of the would you steel a car piirate campaign. if thats illegal, this CERTAINLY must be.
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March 03, 2012, 12:56:27 PM
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Actually the only crime here was the unauthorised access and modification of VPS accounts. BTC are not legal tender/currency and Linode already covers up to whatever the hosting costs they are paying... which is very little because Linode is cheap.

I don't have any reference at the moment, but I read somewhere that if anything worth a certain amount of money is stolen, it's considered a serious matter by law enforcement, even though it's not directly classified as anything. But I'm no lawyer, so don't take my words for granted.

I would think this to be the situation also. If i have piece of equipment that is worth x amount of money and its stolen its still theft. no matter hwo you look at it..


reminds of the would you steel a car piirate campaign. if thats illegal, this CERTAINLY must be.
+1
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March 03, 2012, 01:47:30 PM
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It's funny to observe people who didn't lose any money urge Zhoutong to put a legal blame on somebody other than himself or the perpetrator. While he chooses not to.

IMO at 17 (or so) years he seems to be more farsighted than most, and more
vigilant at playing the game according to new rules, probably knowing that the future value of his business heavily outweighs an initial loss of $250,000.

If lawyers didn't exist they wouldn't be necessary.



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March 03, 2012, 01:47:46 PM
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Within the bitcoin economy it's obviously equivalent to stealing money, however this "worth x" is only assuming the judge will recognise whatever MtGox or any other exchange valuation provides as official value.

If I give you 10 BTC just for laughs then the cost for you was 0. To consider them "worth X" is giving exchanges valuation legal status, regardless the fact that they pretty much can be sold for the price quoted in the their "bid" column at a particular time (not so much 50K BTC though, if you put them all for sale at once you'd be betting significantly less).

I have no doubts that this is criminal behaviour but AFAIK we have no precedent of stolen BTC being given the same status as stolen government backed fiat currency, and being valued whatever the exchanges were quoting at the moment of the stealing. That would be massive news for bitcoin IMO. The point was that one has to go to the police and be careful with the terms used because if I go and say "robbery of items valued X US$" then that can be challenged. Every single word can and is challenged by lawyers.

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March 03, 2012, 02:15:55 PM
 #10

Suppose someone persuades the courts to force Linode to pay the $200,000 that was lost. What happens next? Hosting for BTC becomes unaffordable, because service providers need to charge enough to cover the possibility of big losses. Oh, and lawyers pocket much of the $200,000.

Suppose no-one takes this through the courts. Cheap hosting remains available for BTC businesses, and those BTC businesses beef up their security.

Which is the better outcome?
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March 03, 2012, 02:18:42 PM
 #11

It's funny to observe people who didn't lose any money urge Zhoutong to put a legal blame on somebody other than himself or the perpetrator. While he chooses not to.

From an ethical standpoint I think he accepts the responsibility for managing the security of his wallet.  In that light, I view his response not just as farsighted, but mature.

Also, from a purely pragmatic perspective, he has nothing to gain from a lawsuit.  He's running a very successful business and taking time off of that to fly to the US and spend a couple weeks blowing money on hotels and lawyers would be foolish.  I could easily see such a case taking weeks since he'd have to spend a lot of time explaining first to his lawyers, then to the courts, why this data was so valuable and why just getting it restored from backups isn't a remedy.

That would not be a fun vacation, and honestly, I think he'll make more money just focusing on what he does best: running an innovative and successful trading platform.  Looking at a longer term, he's also a student, and taking time off of his education won't help him with whatever his long term goals are.  I expect we'll see more interesting things out of him in the future, and I don't expect them to be in the legal system.

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March 03, 2012, 02:19:03 PM
 #12

Within the bitcoin economy it's obviously equivalent to stealing money, however this "worth x" is only assuming the judge will recognise whatever MtGox or any other exchange valuation provides as official value.

If I give you 10 BTC just for laughs then the cost for you was 0. To consider them "worth X" is giving exchanges valuation legal status, regardless the fact that they pretty much can be sold for the price quoted in the their "bid" column at a particular time (not so much 50K BTC though, if you put them all for sale at once you'd be betting significantly less).

I have no doubts that this is criminal behaviour but AFAIK we have no precedent of stolen BTC being given the same status as stolen government backed fiat currency, and being valued whatever the exchanges were quoting at the moment of the stealing. That would be massive news for bitcoin IMO. The point was that one has to go to the police and be careful with the terms used because if I go and say "robbery of items valued X US$" then that can be challenged. Every single word can and is challenged by lawyers.

What about art? The only real value it has is the highest bid. Same goes for bitcoin. Highest bid=value.

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March 03, 2012, 02:23:27 PM
 #13

If the hack can be proven to have come from the inside, it is possible that Linode could be sued and loose massive damages even though their TOS says otherwise.  If the hack was from the outside with no inside help there is very little chance that Linode would loose.


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March 03, 2012, 02:25:33 PM
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What about art? The only real value it has is the highest bid. Same goes for bitcoin. Highest bid=value.

It's a good argument for court but I'd like to see how that goes. Digital vs physical, I've seen many different outcomes. Similar to piracy too, but it wasn't a crime until it was regulated as such specifically.

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March 03, 2012, 02:28:17 PM
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No one is asking linode to refund the coins in $ however its linodes duty to replace the stolen goods ie. bitcoins and the only way for linode to do this is to purchase bitcoins for $.

The loss incurred is bitcoins and that is what linode must replace if they want to remain untarnished I assume.

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March 03, 2012, 03:31:32 PM
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Idiot court would probably rule that they have to give the file back.

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March 03, 2012, 05:31:24 PM
 #17

Wait, so they lost ~$250k US, and have at least another $250k stashed somewhere else since Z said he was covering it. Ok that means they had at least $500k on hand, and they lost the bitcoins they did because they were on a cheap linux vps?? They couldn't afford their own server??? WTF?

Those coins weren't stolen. They were given away.

+1

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March 04, 2012, 12:09:17 AM
 #18

Take them to court for what?

Linode is a web host and not a bank vault.

The question is not whether Linode's servers are perfectly secure (no such thing anyhow), but whether their level of security is reasonable for the service they provide, and it certainly seems to be.  Linode is not a suitable place for storing confidential information worth $200,000, be it bitcoins, trade secrets, or credit card databases.  Most judges will have little sympathy for this kind of carelessness.

What happened here is the equivalent of someone storing a suitcase full of cash in a rented garage and then wanting to sue the garage owner because he didn't install armored doors.

Also, technically speaking, bitcoins are not property but information. In court this probably wouldn't be treated as a theft but a privacy breach.  You stop "owning" bitcoins the minute the wallet.dat files leave your physical computer.

I would hate to see Linode being taken to court because it would have the nasty side effect of web hosting companies refusing to host any service that is related to bitcoin in future, even if it doesn't use live wallets.




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March 04, 2012, 01:16:51 AM
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What happened here is the equivalent of someone storing a suitcase full of cash in a rented garage and then wanting to sue the garage owner because he didn't install armored doors.

I'd say it's more like storing a suitcase full of cash in a rented garage and then wanting to sue the garage owner because the locks he puts on the garages don't actually work ("if you yank on it hard it just comes off!"), and so someone came and and stole your cash.
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March 04, 2012, 01:33:00 AM
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I believe determining Linode's liability would come down to determining if Linode was negligent in their actions leading to the theft.  For example, if bitcoins were stolen from a VPS because of an exploit in the user's software or server configuration, it would be a clear-cut case of Linode having no responsibility.  In this case however, the break-in was a result of an error entirely on Linode's end.  To prove negligence, it would have to be shown that poor security practices were in place or unauthorized employees had access to the sensitive data.

Additionally, bitcoins are not the only valuable files that could be stored on VPSs.  Customer information and trade secrets (algorithms for example) can also result in $100k+ damages if stolen.

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March 04, 2012, 01:40:27 AM
 #21

Additionally, bitcoins are not the only valuable files that could be stored on VPSs.  Customer information and trade secrets (algorithms for example) can also result in $100k+ damages if stolen.

Have you read Linode's ToS?? they only guarantee up to the price of the hosting during downtime. Whoever places highly valuable trade secrets in Linode deserves to have them stolen. Not that I justify or approve Linode's part in this whole fiasco, but WTF! surely you can afford at least colocation for something like this.

As lons as wallets cannot be hosted in untrusted parties (multisig or whatever other means to ensure only approved operations are carried out) one has to love thrill to have 10000+ BTC where other people can see your privates.

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March 04, 2012, 03:58:07 PM
 #22

From what I heard, 8 customers lost their bitcoins. I assume Bitcoinica lost the most. 43K BTC is a lot of money to lose. If I lost that amount of money, I'd certainly get law enforcement on the case. But it's important to act quickly, while the leads are still hot. Linode's reputation is already suffering and I think it would be in their best interest to be upfront about what really happened. And I still think the insider theory is a good one..

Bitcoinica was quick to mention that they would cover the lost without even mentioning law enforcement. Plus, if I understand this fiasco correctly, there wasn't a lost to cover, for it was their money. You gave me $5 USD and I put it in my wallet next to a $100 USB bill. The wind came along and ripped the $100 USD from my wallet. I lost it. Your $5 USD bill is still safe in my wallet. I will cover the $100 USD lost. When do you want your $5 back. And why is it important for me to even tell you that I'm covering the lost?
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March 04, 2012, 04:05:26 PM
 #23

From what I heard, 8 customers lost their bitcoins. I assume Bitcoinica lost the most. 43K BTC is a lot of money to lose. If I lost that amount of money, I'd certainly get law enforcement on the case. But it's important to act quickly, while the leads are still hot. Linode's reputation is already suffering and I think it would be in their best interest to be upfront about what really happened. And I still think the insider theory is a good one..

Bitcoinica was quick to mention that they would cover the lost without even mentioning law enforcement. Plus, if I understand this fiasco correctly, there wasn't a lost to cover, for it was their money. You gave me $5 USD and I put it in my wallet next to a $100 USB bill. The wind came along and ripped the $100 USD from my wallet. I lost it. Your $5 USD bill is still safe in my wallet. I will cover the $100 USD lost. When do you want your $5 back. And why is it important for me to even tell you that I'm covering the lost?


Bitcoinica does hold users' BTC. If what they lost amounts to less than what he can cover out of past benefit, that's something you have to take on face value as they have never disclosed their finances.

If there was a "bank run" with all users withdrawing all their BTC and US$, could bitcoinica cover it all? I don't know. They say they can, you either believe it or not.

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March 04, 2012, 05:35:33 PM
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Idiot court would probably rule that they have to give the file back.

Proving theft is tricky. From a legal perspective, I am not sure if there was a theft. A bunch of numbers were copied, and Linode still has the original numbers on their hard drives.
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March 04, 2012, 06:58:09 PM
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Also, technically speaking, bitcoins are not property but information. In court this probably wouldn't be treated as a theft but a privacy breach.  You stop "owning" bitcoins the minute the wallet.dat files leave your physical computer.

i can't agree with this.  the vast majority of fiat currency exists only on accounting ledgers, as nothing more than information, yet its theft is treated the same as physical currency.

further, bitcoin hasn't technically been classified from a legal standpoint, and if i were a betting man i'd put a sizable wager down that when and if it reaches the point government agencies do make an official classification, it will be classified as a monetary instrument or derivative of one kind or another, not as the equivalent of a scanned image.  they can try to impose regulation on monetary instruments, but can less effectively try to regulate simple information.

i have no idea what logic your using to conclude that ownership of digital information is transferred when you store that information outside of your physical computer.  the entire cloud boom is based on the exact opposite tenant.  are you of the opinion that dropbox owns all my photos that i transferred from my computer to their storage service?  do you believe that mtgox owns the BTC users have deposited there?  i don't imagine any cloud storage service would last long that tried telling its users it owned their stored information.
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March 04, 2012, 08:05:14 PM
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Internet lawyering aside, a real court won't really care what bitcoin is, and will probably go very far out of their way to avoid setting any sort of precedent if they can possibly avoid it.

Instead, they'll rely on centuries and centuries of precedents from other cases involving intangible "stuff".  Regardless of what bitcoin may be, we still have a property interest in our balances.  The courts have a long, long, long history of protecting property interests in intangible stuff without much regard for what the stuff is.

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March 04, 2012, 10:35:16 PM
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Idiot court would probably rule that they have to give the file back.

Proving theft is tricky. From a legal perspective, I am not sure if there was a theft. A bunch of numbers were copied, and Linode still has the original numbers on their hard drives.
They arrest lots of people for this things, they call it "piracy"
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March 04, 2012, 11:31:57 PM
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Proving theft is tricky. From a legal perspective, I am not sure if there was a theft. A bunch of numbers were copied, and Linode still has the original numbers on their hard drives.

ROFL! Very nice

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March 08, 2012, 05:41:11 AM
 #29

Wait, so they lost ~$250k US, and have at least another $250k stashed somewhere else since Z said he was covering it. Ok that means they had at least $500k on hand, and they lost the bitcoins they did because they were on a cheap linux vps?? They couldn't afford their own server??? WTF?

Those coins weren't stolen. They were given away.

+1

+2
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