MtGox Collapsing (and taking bitcoin down with them?)

[MarketNeutral]

Why people continue to use Gox is a mystery to me.  There are plenty of better exchanges.

I agree, but I'm curious which ones do you prefer?

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[cryptoanarchist]

Why people continue to use Gox is a mystery to me.  There are plenty of better exchanges.

I agree, but I'm curious which ones do you prefer?

BTC-e is probably my fave right now, but I use CryptoXchange, bitStamp, BTCex, and all the rest too. Whoever has the right prices.

[Tuxavant]

I want to use CryptoXchange because of their local bank deposits and low fees, but waiting for the pages to load kills me with every click. That, and the interface is too busy and unintuitive.

[cryptoanarchist]

I want to use CryptoXchange because of their local bank deposits and low fees, but waiting for the pages to load kills me with every click. That, and the interface is too busy and unintuitive.

If you think Crypto's interface is a bitch, check out vircurex.com. They definitely have the most confusing site of them all, but I use them too!

[paraipan]

...

Pro-Tips: Don't be shady, submit your identification information, and comply with all the banking requirements on your last trip out of the system (just hold your middle finger high to the banking system as you transfer your Bitcoins to your personal wallet).

great tip dude, i already did the first part without protesting but missed middle finger one 

[JusticeForYou]

...

Pro-Tips: Don't be shady, submit your identification information, and comply with all the banking requirements on your last trip out of the system (just hold your middle finger high to the banking system as you transfer your Bitcoins to your personal wallet).

great tip dude, i already did the first part without protesting but missed middle finger one 

Well, of lately, it seems the only reason to provide identifying documents is to have them spread around the world from 'hacks'.

[Tuxavant]

Well, of lately, it seems the only reason to provide identifying documents is to have them spread around the world from 'hacks'.

To me, it doesn't matter. Any information about me listed in my passport or utility bill is almost public information anyway and distributed in any number of online systems that could be hacked anyway. The traditional banking system will protect/refund/replace any of my dollars that are fraudulently taken from any of my accounts - there is insurance for that kind of thing.

Its a small risk in order to get out from under that shitty, outdated, corrupt, and immoral system.

[JusticeForYou]

Well, of lately, it seems the only reason to provide identifying documents is to have them spread around the world from 'hacks'.

To me, it doesn't matter. Any information about me listed in my passport or utility bill is almost public information anyway and distributed in any number of online systems that could be hacked anyway. The traditional banking system will protect/refund/replace any of my dollars that are fraudulently taken from any of my accounts - there is insurance for that kind of thing.

Its a small risk in order to get out from under that shitty, outdated, corrupt, and immoral system.

Really?

I can see your point to some extent but you do expect a level of privacy.

Lets test it. If it doesn't really matter since everyone can get it anyway, post a picture of your Passport.

Once the information breaks your bubble space, people realize that it actually does matter but they have been ignoring it.

[the joint]

There are several reasons why I do not use Gox:

1)  Absolutely god-fucking-awful customer service.  They (I assume) deleted my old account, which still had a few cents in it, without ever informing me or warning me in any way.

Actually, #1 is all I need.  No reason to list any more. 

[dooglus]

MTGOX MUST ANSWER THESE QUESTIONS STRAIGHT.

DO YOU EVER ISSUE MORE MTGOX BTC REDEEMABLE CODE THAN YOU HAVE ACTUAL BITCOINS?

AND

DO YOU EVER ISSUE MORE MTGOX USD REDEEMABLE CODE THAN YOU HAVE ACTUAL USD?

I used to debate Libertarian nut cases who think that all fractional reserve banking is fraud. My usual response is to ask them if they really think there actually exists anyone who thinks that when you deposit money in a bank, they put your money in the safe so that you can withdraw it when you want to. I guess I'll have to find a new argument, because it now appears there is at least one such person.

Do MtGox issue loans?  If not, why would they ever issue more in redeemable codes than they have in reserve?  As far as I know, I can only withdraw codes up to my current balance.

I was under the impression that MtGox were holding everyone's balance somewhere safely.  Is that not the case?

[JoelKatz]

Do MtGox issue loans?

Not to my knowledge.

If not, why would they ever issue more in redeemable codes than they have in reserve?  As far as I know, I can only withdraw codes up to my current balance.

There are a variety of reasons, but those most common is to protect themselves from devaluating currencies.

I was under the impression that MtGox were holding everyone's balance somewhere safely.  Is that not the case?

No, you don't stuff money in a mattress unless you're an idiot. If, for example, dollars are losing value, MtGox should hold as little of their reserves in dollars as possible. There's no reason they have to hold your value in the same demomination as you are going to claim it, and that's usually a very foolish thing to do. If Mt. Gox did that, they'd have to charge you a storage fee or eat losses from inactive accounts.

Mt. Gox should hold sufficient value, in some form ,t cover client deposits. Butthey shouldn't hold reserves in any particular currency of store of value unless that particular currency or store of value makes sense for them.

[MarketNeutral]

Do MtGox issue loans?

Not to my knowledge.

If not, why would they ever issue more in redeemable codes than they have in reserve?  As far as I know, I can only withdraw codes up to my current balance.

There are a variety of reasons, but those most common is to protect themselves from devaluating currencies.

I was under the impression that MtGox were holding everyone's balance somewhere safely.  Is that not the case?

No, you don't stuff money in a mattress unless you're an idiot. If, for example, dollars are losing value, MtGox should hold as little of their reserves in dollars as possible. There's no reason they have to hold your value in the same demomination as you are going to claim it, and that's usually a very foolish thing to do. If Mt. Gox did that, they'd have to charge you a storage fee or eat losses from inactive accounts.

Mt. Gox should hold sufficient value, in some form ,t cover client deposits. Butthey shouldn't hold reserves in any particular currency of store of value unless that particular currency or store of value makes sense for them.

This is correct. And I hope this dispels the myth that MtGox simply holds clients' funds in a wallet.dat file.

I have no idea how MtGox hedges against currency risk, but it could be as simple as holding a portion of clients' funds in an interest-bearing money-market or deposit account denominated in yen or hong kong dollars.

Who knows, but it's not a simple A to B transaction.

[dooglus]

If, for example, dollars are losing value, MtGox should hold as little of their reserves in dollars as possible. There's no reason they have to hold your value in the same demomination as you are going to claim it, and that's usually a very foolish thing to do.

So you're saying they should gamble my deposit on the currency markets in the hope of making a profit?  That seems a little risky.  Is there not a chance that by converting my deposited dollars into yen that they could end up unable to pay me back when I try to withdraw?

There's no reason they have to hold your value in the same demomination as you are going to claim it, and that's usually a very foolish thing to do. If Mt. Gox did that, they'd have to charge you a storage fee or eat losses from inactive accounts.

I don't understand why they would have to charge a storage fee.  Where's the expense in holding dollars in a bank account?

[JusticeForYou]

More interestingly. Let see if it was Bitcoinica that was providing stability or was it something else? hmm... time should tell in relatively short order.

Actully on MT, waiting for MT to offer interest on Traditional Currency holdings. If even a small percentage of their earned interest, it would do wonders for deposits.

[JoelKatz]

So you're saying they should gamble my deposit on the currency markets in the hope of making a profit?

Yes, exactly. A hope of a profit is way better than a sure loss.

That seems a little risky.  Is there not a chance that by converting my deposited dollars into yen that they could end up unable to pay me back when I try to withdraw?

Sure, but risk minimization has risk too. There's no perfect solution, but some that are obviously very bad. "Minimize risk at all costs" is one of the worst.

There's no reason they have to hold your value in the same demomination as you are going to claim it, and that's usually a very foolish thing to do. If Mt. Gox did that, they'd have to charge you a storage fee or eat losses from inactive accounts.

I don't understand why they would have to charge a storage fee.  Where's the expense in holding dollars in a bank account?

Safes cost money. Guards cost money. If you mean loan it out to make interest, then there's risk associated with that.

[DeathAndTaxes]

I don't understand why they would have to charge a storage fee.  Where's the expense in holding dollars in a bank account?

In the US it is usually >0% if it is a commercial account which is insured (FDIC only covers $250K which is a token amount for a major business).  Someone with millions in dollar deposits will pay a holding fee on the balance in the demand account (or risk losing a lot in a bank failure).  Small but non-zero.  Generally banks will offer $50M insurance via CDARS on CDs at "not cost" (well taken from the rate of return) but not for demand accounts.

There are services which provide insured "demand like" accounts by handling cash management behind the scenes but they really only make sense for very large accounts.  Also they tend to use money market funds which are not guaranteed to hold par value.




No idea on the banking/insurance costs in Japan.

[nybble41]

I used to debate [Libertarians] who think that all fractional reserve banking is fraud. My usual response is to ask them if they really think there actually exists anyone who thinks that when you deposit money in a bank, they put your money in the safe so that you can withdraw it when you want to. I guess I'll have to find a new argument, because it now appears there is at least one such person.

There probably are a small but measurable fraction of account holders who really think the bank holds all their money in a vault. That's the way banks are normally portrayed in popular fiction, after all. However, even those who understand how banks really work tend to assume, deep down, that "their" money will always be available for withdrawal when they need it. Just look at how betrayed people act when there is a run on the bank and they can't get at "their" money.

Being a firm believer in caveat emptor, I'm not going to claim that fractional reserve banking is an outright fraud. Somewhere in the fine print the banks do state that your money may not be available immediately on request. However, it's not hard to see why people call it that, or why a strict separation was required between interest-bearing time accounts, like CDs, and fee-based demand accounts.

[JoelKatz]

Being a firm believer in caveat emptor, I'm not going to claim that fractional reserve banking is an outright fraud. Somewhere in the fine print the banks do state that your money may not be available immediately on request. However, it's not hard to see why people call it that, or why a strict separation was required between interest-bearing time accounts, like CDs, and fee-based demand accounts.

Runs on banks really isn't a problem. Banks can just resume doing what they used to do -- have a clause in the savings agreement that allows them to declare an emergency and defer withdrawals in exchange for paying their customers an increased interest rate. So long as the bank is fundamentally solid and the problem is just liquidity, you can even find other banks who will buy your deposits at the bank suffering from a run. They know they'll get paid the amount, plus more than normal interest, when the bank recovers its liquidity.

The problem is if a bank makes bad investments such as loans that will never be repaid. Insufficient equity is much more devastating than insufficient liquidity.

In the mid 80's, some Libertarians who believed that fractional-reserve banking was a fraud opened an "honest" bank. They stored your money in their vault and had 100% reserves. Of course, they couldn't pay any interest and even had to charge a small storage fee. Not surprisingly, their service wasn't very popular at all. (Though, in fairness, part of this is because the government insures bank deposits. Heck, in today's economic climate, they might actually do some business for people with amounts over the FDIC limit.)

[nybble41]

Being a firm believer in caveat emptor, I'm not going to claim that fractional reserve banking is an outright fraud. Somewhere in the fine print the banks do state that your money may not be available immediately on request. However, it's not hard to see why people call it that, or why a strict separation was required between interest-bearing time accounts, like CDs, and fee-based demand accounts.

Runs on banks really isn't a problem. Banks can just resume doing what they used to do -- have a clause in the savings agreement that allows them to declare an emergency and defer withdrawals in exchange for paying their customers an increased interest rate.

Yes, that's what I was referring to by "the fine print". It doesn't change the expectation people have that their deposits are theirs, whatever the bank may really be doing with them.

So long as the bank is fundamentally solid and the problem is just liquidity, you can even find other banks who will buy your deposits at the bank suffering from a run. They know they'll get paid the amount, plus more than normal interest, when the bank recovers its liquidity.

The problem is if a bank makes bad investments such as loans that will never be repaid. Insufficient equity is much more devastating than insufficient liquidity.

Agreed. You don't normally have serious bank runs due to mere liquidity issues. In a pinch, a bank in need of liquidity, but having sufficient equity, can always take out loans from other banks to cover short-term demand. The disconnect between depositors' expectations and reality is only revealed in the event of a large-scale economic downturn, such as at the start of the Great Depression, when the banks' investments are revealed to be systematically bad.

Moreover, in a situation like that--precisely the one the FDIC was supposedly instituted to protect against--the FDIC would be useless. They don't have anywhere near enough reserves to make up for a wide-spread run on the banks without printing up so much new money that the dollar would become worthless. The FDIC's only positive influence, if you can call it that, is to generate enough false confidence to keep people from demanding immediate withdrawals once the crisis is revealed.

In the mid 80's, some Libertarians who believed that fractional-reserve banking was a fraud opened an "honest" bank. They stored your money in their vault and had 100% reserves. Of course, they couldn't pay any interest and even had to charge a small storage fee. Not surprisingly, their service wasn't very popular at all. (Though, in fairness, part of this is because the government insures bank deposits. Heck, in today's economic climate, they might actually do some business for people with amounts over the FDIC limit.)

Not a surprising result. The honest bank is in a similar position to someone trying to operate a self-sufficient toll road in competition with the public (tax-funded) roads. When people are already forced to pay for the public option, even a reasonable price for a private alternative is too much. The FDIC isn't exactly tax-funded (unless you count inflation), but it does come with the "reassuring" backing of the federal government and access to the Treasury. It's hard for a completely private insurer to compete.

Rather than a vault-only bank, I think I would offer two types of accounts (time and demand), and clearly explain the risks involved with the time accounts. The demand accounts would charge a fee, but have 100% reserves. The time accounts would pay interest, but withdrawal requests would be subject to delays and/or interest penalties, as with CDs, plus a prominent disclaimer that they are subject to investment risk and may lose value. By mixing the two you can get the same effect as a modern-style savings account, except with full disclosure and control over the level of risk. The only real problem in the first place was blending the terms of time and demand accounts while obscuring the details.

[JusticeForYou]

Being a firm believer in caveat emptor, I'm not going to claim that fractional reserve banking is an outright fraud. Somewhere in the fine print the banks do state that your money may not be available immediately on request. However, it's not hard to see why people call it that, or why a strict separation was required between interest-bearing time accounts, like CDs, and fee-based demand accounts.

Runs on banks really isn't a problem. Banks can just resume doing what they used to do -- have a clause in the savings agreement that allows them to declare an emergency and defer withdrawals in exchange for paying their customers an increased interest rate. So long as the bank is fundamentally solid and the problem is just liquidity, you can even find other banks who will buy your deposits at the bank suffering from a run. They know they'll get paid the amount, plus more than normal interest, when the bank recovers its liquidity.

The problem is if a bank makes bad investments such as loans that will never be repaid. Insufficient equity is much more devastating than insufficient liquidity.

In the mid 80's, some Libertarians who believed that fractional-reserve banking was a fraud opened an "honest" bank. They stored your money in their vault and had 100% reserves. Of course, they couldn't pay any interest and even had to charge a small storage fee. Not surprisingly, their service wasn't very popular at all. (Though, in fairness, part of this is because the government insures bank deposits. Heck, in today's economic climate, they might actually do some business for people with amounts over the FDIC limit.)

Ironically, the equity in this market IS the liquidity.