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Author Topic: Interesting comments on BitStamps possible compromise from July 2014  (Read 2802 times)
General_A (OP)
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January 05, 2015, 02:25:37 PM
 #1

Linked from here: http://pastebin.com/ufNLW7xZ .

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    I would specifically like to give an opinion on Bitstamp and the general discontent that has been building with the exchange for the last few months.
    
    These are the reasons why I think it no longer makes any sense, based on risk, to be trading on Bitstamp.
    
    The fact is, trading is about assessing risks and the likelihood of events playing out in a certain direction. The future is not fixed, but one can look at indicators now and make informed decisions about how to act.
    
    Bitstamp has now lost it's no.1 position to Bitfinex. I find this odd because while Bitfinex is the better exchange, they are terrible at marketing. You only every hear of Bitstamp in the news. So how is it possible that all of a sudden (because it happen in the last 30 days), that Bitfinex is suddenly the go to place for big money? Nothing has changed at Bitfinex, they offer the no new services except for the bizarre and frankly stupid decision to add a shitcoin to their exchange (which doesn't appear is doing well by trade volume and is certainly not the reason for knocking Bitstamp out of poll position).
    
    This my friends is the first overt indicator. The whales have moved from Bitstamp to Bitfinex. Make no mistake about it, whales talk to each other and whales get insider information, they moved for a reason unknown to the public.
    
    Bitfinex used to place a large percentage of their orders onto Bitstamp's orderbook, in fact it accounted for up to 25% of Bitstamp's daily volume. Bitfinex used to publish the figures, so it's not speculation. So here comes indicator number two, Bitfinex no longer place much liquidity on their books. Why, because they don't need to. That is indicator number two which confirms and corroborates the first indicator.
    
    Right after MtGox's insolvency, Bitstamp did something curious. They issued a notice in March about their solvency, but they did so using an audit from November. This could suggest an attempt to divert attention from something because it makes no sense to use an audit that was 4 months old to claim solvency today. This is the next indicator. [Game theory: What would you do if you were short of BTC especially at a time when the entire community was asking serious questions of all the exchanges? Better divert attention fast.]
    
    Bitstamp were then caught with their pants down with a deceptive fee structure. They were sure to publish it in their rules, but few actually realised how evil it was. It is akin to how payday lenders hide their 2000% APR in the small print.
    
    There is no reason for an honest company to do this. Fees are subject to rounding per trade. This means if you place 1BTC up to sell and it gets nibbled away in 0.01BTC chunks, your fees would be rounded up to the nearest cent making the fee orders of magnitude higher than you would pay if you paid the fee without rounding. No other exchange does this. It became such a furore that eventually Bitstamp responded by making the minimum trade $5 so it wouldn't be so bad.
    
    Why would a profitable, popular exchange need to scalp people like this. So this be the next indicator and the fee rounding is in itself enough to make any serious trader consider a different exchange.
    
    Recently, Bitfinex have begun to distance themselves from Bitstamp. Could be a matter of trying to separate out the brand, but the timing is strange to me. http://www.cryptocoinsnews.com/news/bitcoin-trading-platform-bitfinex-distancing-bitstamp/2014/06/12
    
    Next comes Bitstamp's AML/KYC procedures. It has been widely noted in the community that Bitstamp has been exerting unreasonable AMY/KYC on customers, including already verified customers. This was a trick used by MtGox. Since obviously there are people trading in stolen bitcoins etc., an exchange can easily confiscate bitcoins and USD from people by asking them extra hard KYC. The criminals are not going to comply and the exchange gets an easy excuse to seize funds. MtGox collected 80,000BTC this way if you remember. Ask yourself now, is stamp doing the same thing [to recoup a loss?].
    
    No other exchange anywhere behaves like this. This is the next indicator.
    
    The recent proof of solvency by Bitcoin Core Developer Mike Hearn is my next complaint. I believe Mike went into the audit with a presupposition that Bitstamp is all above board, so he simply failed to make any reasonable steps to verify anything properly. His process was simply to run a MySQL SUM() on what he was told was the live Bitstamp database to get a balance of BTC across all accounts, and then compare that with the cold storage wallet [the address of which was not published for us to see].
    
    Mike Hearn should know better than this, and I am shocked he could be so cavalier. Anyone in a similar position should think very carefully about the influence their reputation can exert. It is entirely possible he is an unwitting party to another deception. In any case, his 'audit' is not worth the paper it is written on because he made no effort to determine if the database he was looking at was the real one (e.g. place an order on Bitstamp for an odd amount and run a SQL query to find it for example). There was no attempt to audit the integrity of the database – records could have been removed or altered for the purposes of the audit.
    
    There was no simultaneous audit of the USD balance, so if there was a shortfall there, it could be seen: if there was a shortfall in BTC, USD could be used to temporarily buy back coins for the purpose of the audit, or even borrowed. In short, the audit was a complete farce and proves nothing. This is the next indicator. If I were running an exchange and I really wanted to prove the exchange was solvent, I would do it properly – it doesn't cost much for a couple of real accountants for a day... It just seems like a knee-jerk reaction to a lot of heat they were taking on r/bitcoin.
    
    Over the last week we have seen an unreasonable discount appear at Bitstamp. A discount is when the price is cheaper at one exchange than another. A discount or premium (the opposite) can only appear when there is arbitrage friction. That means the inability to move funds between exchanges in order to trade the spread and make a profit (eventually evening out the differences). Arbitrage is the reason most exchanges remain at relatively the same price.
    
    We saw a spread indicator with MtGox too, twice. Once when it was a premium (caused by their 'banking troubles') and again when it became a discount, cause by their BTC insolvency.
    
    BTC-e for example always trades at a discount because there is a certain amount of friction moving fiat, and it is more expensive to do so there. Historically this is how it's always been. When an exchange deviates from the norm, then you have look at why (these are ninja trading indicators).
    
    The norm was, Bitstamp and Bitfinex traded more or less at the same rates, with Bitfinex being a little higher at times. Recently, Bitstamp has been trading at up to $20 less than Bitfinex and even lower than BTC-e at times. There has to be a reason for this. Since Bitstamp is a white exchange with good banking connections, there is simply no reason for this to occur, so it means clearly, something has changed. There could be a perfectly reasonable explanation, but it is likely pointing to some form of distress.
    
    Lastly, redditors have begun to complain of delays in BTC withdrawals. This is exactly how it started at MtGox (signs began in September/October 2013 on and off). Small amounts were going through instantly, large amounts were getting stuck. Obviously delays can happen when hot wallets are depleted, but again, there has to be a reason for a deviation from the norm. Deviation plays a big part in risk analysis.
    
    So, I leave this report with a lot of questions. I cannot say what is wrong, if anything, at Bitstamp because I just don't know. But the signs are not good. On the balance of probabilities, it looks highly risky.
    
    When the signs are not good like this, you would be a fool to keep on risking your funds at Bitstamp. Like many people, I had a lot of loyalty to MtGox, but the final straw came for me in October 2013 when I also experienced major BTC withdrawal issues. That was a major red flag to me, since barring time to refill a hot wallet, there is no reason for long delays. Bitcoin is supposed to be frictionless. I warned everyone about it and was shouted down repeatedly. I left MtGox, and 4 months later MtGox took $450 million USD down in flames.
    
    I implore you all, don't get 'stamped' like you got 'goxxed'. The fact is, Bitstamp is not running a tight ship, and they are not offering the level of service they should be. On that basis alone, you should be using a different exchange.
    
    I've not talked about Bitfinex since this isn't a sales pitch for them. I've not talked about how they offer leveraged margin trade as well as normal exchange. Nor have I talked about the p2p lending platform where people who don't want to trade can earn swap interest on USD or BTC balance. I've also not mentioned the 5 order types they have: limit, market, stop, trailing stop, fill or kill; nor about the OCO orders or hidden orders. Bitfinex is truly way ahead of the curve.
    
    So please, for the love of all that is good, do not take unnecessary risks with your money. For me, Bitstamp is rotten until they prove themselves otherwise. It would be easy for them to prove themselves, and if I was running the exchange I would have pulled my finger out and got it done a long time ago as a priority with full transparency, all the way.
    
    If it turns out Bitstamp is rotten, don't come crying to me if you failed to heed my advice. If I am wrong, then I am wrong. But frankly I am not taking any risks being so bold because I have raised a set of reasonable questions that remain unanswered and I cannot remain quiet about what looks like yet another scandal in the making.
    
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General_A (OP)
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January 05, 2015, 02:30:02 PM
 #2

P.s. I don't want to spread FUD or anything. Just found it interesting.

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January 05, 2015, 02:50:13 PM
 #3

P.s. I don't want to spread FUD or anything. Just found it interesting.

The implied "but" did it  Grin

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January 05, 2015, 02:52:13 PM
 #4

P.s. I don't want to spread FUD or anything. Just found it interesting.

The implied "but" did it  Grin
Just wanted to know other peoples thoughts.

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January 05, 2015, 02:55:14 PM
 #5

Bitstamp lost 18K BTC. Ouch. https://blockchain.info/address/1L2JsXHPMYuAa9ugvHGLwkdstCPUDemNCf

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January 05, 2015, 03:01:22 PM
 #6

so we know why the btc price is crashing.. 18k btc dumped are quite a lot
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January 05, 2015, 03:08:54 PM
 #7

so we know why the btc price is crashing.. 18k btc dumped are quite a lot

Except they are still in the wallet: https://blockchain.info/address/1L2JsXHPMYuAa9ugvHGLwkdstCPUDemNCf

http://en.wikipedia.org/wiki/Fallacy_of_the_single_cause

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January 05, 2015, 03:12:47 PM
 #8

18K BTC is around of 4.8 MIL USD at this time.
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January 05, 2015, 03:22:12 PM
 #9

Oh, and you work with Bitstamp and know for sure this is Bitstamp's address? Please don't spread disinformation.

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January 05, 2015, 03:23:11 PM
 #10


Yeah! That's true Damelon, but last night BTC fall seems very sync with Bitstamp Hack timings, We should not have all the puzzles out there yet! Very strange!

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January 05, 2015, 03:24:13 PM
 #11

This is looking more and more gox 2.0
this is not good
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January 05, 2015, 03:25:45 PM
 #12

Yup
This is looking more and more gox 2.0
this is not good
Yes, and the term should be stOmped, rather than stAmped.

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January 05, 2015, 03:43:46 PM
 #13

Oh, and you work with Bitstamp and know for sure this is Bitstamp's address? Please don't spread disinformation.

Did I say that it's Bitstamp's address?

I said it's still in that wallet and hasn't been dumped.

Take your own medicine and don't read what isn't there.

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January 05, 2015, 04:15:40 PM
 #14

So some people got inside information about the hack and started selling before it got public?
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January 05, 2015, 04:16:09 PM
 #15

Oh, and you work with Bitstamp and know for sure this is Bitstamp's address? Please don't spread disinformation.

That wallet looks really fishy. Just check the transactions fees, they are crazy high, there's no reason for them to be so high unless someone is freaking out and wants his transactions to confirm as fast as possible (even if they would get on the next block also with fees order of magnitude lower than these)

First transaction (0.55BTC fee!): https://blockchain.info/tx/a32697f1796b7b87d953637ac827e11b84c6b0f9237cff793f329f877af50aea

Second transaction (1BTC fee!!!): https://blockchain.info/tx/07a78d55fc17a2809e031116e71ac63faa6c2ea9e29480b4fa59031683b506b8

And the list goes on.

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January 05, 2015, 04:17:46 PM
 #16

So some people got inside information about the hack and started selling before it got public?

dont think the hack has caused any difference in price, if anything it held the market up.
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January 05, 2015, 04:21:04 PM
 #17

so we know why the btc price is crashing.. 18k btc dumped are quite a lot

The hacker is not that stupid to sell immediately because his real identity would be revealed.

He need time to mix/launder this amount of coin. The actual crash might still happen in the future.
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January 05, 2015, 04:23:51 PM
 #18

Quote
That wallet looks really fishy. Just check the transactions fees, they are crazy high, there's no reason for them to be so high unless someone is freaking out and wants his transactions to confirm as fast as possible (even if they would get on the next block also with fees order of magnitude lower than these)

Certainly looks like a "panic mode"

Question is whether this is bitstamp trying to salvage bitcoins ASAP, or a thief tryong to steal ASAP.

Most of the incoming TX can be tied to bitstamp by taint analysis, even smaller ones.

edit: looks like a thorough cleaning of Bitstamp hot wallet

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January 05, 2015, 04:26:40 PM
 #19

Linked from here: http://pastebin.com/ufNLW7xZ .

Quote
   

    I would specifically like to give an opinion on Bitstamp and the general discontent that has been building with the exchange for the last few months.
    
    These are the reasons why I think it no longer makes any sense, based on risk, to be trading on Bitstamp.
    
    The fact is, trading is about assessing risks and the likelihood of events playing out in a certain direction. The future is not fixed, but one can look at indicators now and make informed decisions about how to act.
    
    Bitstamp has now lost it's no.1 position to Bitfinex. I find this odd because while Bitfinex is the better exchange, they are terrible at marketing. You only every hear of Bitstamp in the news. So how is it possible that all of a sudden (because it happen in the last 30 days), that Bitfinex is suddenly the go to place for big money? Nothing has changed at Bitfinex, they offer the no new services except for the bizarre and frankly stupid decision to add a shitcoin to their exchange (which doesn't appear is doing well by trade volume and is certainly not the reason for knocking Bitstamp out of poll position).
    
    This my friends is the first overt indicator. The whales have moved from Bitstamp to Bitfinex. Make no mistake about it, whales talk to each other and whales get insider information, they moved for a reason unknown to the public.
    
    Bitfinex used to place a large percentage of their orders onto Bitstamp's orderbook, in fact it accounted for up to 25% of Bitstamp's daily volume. Bitfinex used to publish the figures, so it's not speculation. So here comes indicator number two, Bitfinex no longer place much liquidity on their books. Why, because they don't need to. That is indicator number two which confirms and corroborates the first indicator.
    
    Right after MtGox's insolvency, Bitstamp did something curious. They issued a notice in March about their solvency, but they did so using an audit from November. This could suggest an attempt to divert attention from something because it makes no sense to use an audit that was 4 months old to claim solvency today. This is the next indicator. [Game theory: What would you do if you were short of BTC especially at a time when the entire community was asking serious questions of all the exchanges? Better divert attention fast.]
    
    Bitstamp were then caught with their pants down with a deceptive fee structure. They were sure to publish it in their rules, but few actually realised how evil it was. It is akin to how payday lenders hide their 2000% APR in the small print.
    
    There is no reason for an honest company to do this. Fees are subject to rounding per trade. This means if you place 1BTC up to sell and it gets nibbled away in 0.01BTC chunks, your fees would be rounded up to the nearest cent making the fee orders of magnitude higher than you would pay if you paid the fee without rounding. No other exchange does this. It became such a furore that eventually Bitstamp responded by making the minimum trade $5 so it wouldn't be so bad.
    
    Why would a profitable, popular exchange need to scalp people like this. So this be the next indicator and the fee rounding is in itself enough to make any serious trader consider a different exchange.
    
    Recently, Bitfinex have begun to distance themselves from Bitstamp. Could be a matter of trying to separate out the brand, but the timing is strange to me. http://www.cryptocoinsnews.com/news/bitcoin-trading-platform-bitfinex-distancing-bitstamp/2014/06/12
    
    Next comes Bitstamp's AML/KYC procedures. It has been widely noted in the community that Bitstamp has been exerting unreasonable AMY/KYC on customers, including already verified customers. This was a trick used by MtGox. Since obviously there are people trading in stolen bitcoins etc., an exchange can easily confiscate bitcoins and USD from people by asking them extra hard KYC. The criminals are not going to comply and the exchange gets an easy excuse to seize funds. MtGox collected 80,000BTC this way if you remember. Ask yourself now, is stamp doing the same thing [to recoup a loss?].
    
    No other exchange anywhere behaves like this. This is the next indicator.
    
    The recent proof of solvency by Bitcoin Core Developer Mike Hearn is my next complaint. I believe Mike went into the audit with a presupposition that Bitstamp is all above board, so he simply failed to make any reasonable steps to verify anything properly. His process was simply to run a MySQL SUM() on what he was told was the live Bitstamp database to get a balance of BTC across all accounts, and then compare that with the cold storage wallet [the address of which was not published for us to see].
    
    Mike Hearn should know better than this, and I am shocked he could be so cavalier. Anyone in a similar position should think very carefully about the influence their reputation can exert. It is entirely possible he is an unwitting party to another deception. In any case, his 'audit' is not worth the paper it is written on because he made no effort to determine if the database he was looking at was the real one (e.g. place an order on Bitstamp for an odd amount and run a SQL query to find it for example). There was no attempt to audit the integrity of the database – records could have been removed or altered for the purposes of the audit.
    
    There was no simultaneous audit of the USD balance, so if there was a shortfall there, it could be seen: if there was a shortfall in BTC, USD could be used to temporarily buy back coins for the purpose of the audit, or even borrowed. In short, the audit was a complete farce and proves nothing. This is the next indicator. If I were running an exchange and I really wanted to prove the exchange was solvent, I would do it properly – it doesn't cost much for a couple of real accountants for a day... It just seems like a knee-jerk reaction to a lot of heat they were taking on r/bitcoin.
    
    Over the last week we have seen an unreasonable discount appear at Bitstamp. A discount is when the price is cheaper at one exchange than another. A discount or premium (the opposite) can only appear when there is arbitrage friction. That means the inability to move funds between exchanges in order to trade the spread and make a profit (eventually evening out the differences). Arbitrage is the reason most exchanges remain at relatively the same price.
    
    We saw a spread indicator with MtGox too, twice. Once when it was a premium (caused by their 'banking troubles') and again when it became a discount, cause by their BTC insolvency.
    
    BTC-e for example always trades at a discount because there is a certain amount of friction moving fiat, and it is more expensive to do so there. Historically this is how it's always been. When an exchange deviates from the norm, then you have look at why (these are ninja trading indicators).
    
    The norm was, Bitstamp and Bitfinex traded more or less at the same rates, with Bitfinex being a little higher at times. Recently, Bitstamp has been trading at up to $20 less than Bitfinex and even lower than BTC-e at times. There has to be a reason for this. Since Bitstamp is a white exchange with good banking connections, there is simply no reason for this to occur, so it means clearly, something has changed. There could be a perfectly reasonable explanation, but it is likely pointing to some form of distress.
    
    Lastly, redditors have begun to complain of delays in BTC withdrawals. This is exactly how it started at MtGox (signs began in September/October 2013 on and off). Small amounts were going through instantly, large amounts were getting stuck. Obviously delays can happen when hot wallets are depleted, but again, there has to be a reason for a deviation from the norm. Deviation plays a big part in risk analysis.
    
    So, I leave this report with a lot of questions. I cannot say what is wrong, if anything, at Bitstamp because I just don't know. But the signs are not good. On the balance of probabilities, it looks highly risky.
    
    When the signs are not good like this, you would be a fool to keep on risking your funds at Bitstamp. Like many people, I had a lot of loyalty to MtGox, but the final straw came for me in October 2013 when I also experienced major BTC withdrawal issues. That was a major red flag to me, since barring time to refill a hot wallet, there is no reason for long delays. Bitcoin is supposed to be frictionless. I warned everyone about it and was shouted down repeatedly. I left MtGox, and 4 months later MtGox took $450 million USD down in flames.
    
    I implore you all, don't get 'stamped' like you got 'goxxed'. The fact is, Bitstamp is not running a tight ship, and they are not offering the level of service they should be. On that basis alone, you should be using a different exchange.
    
    I've not talked about Bitfinex since this isn't a sales pitch for them. I've not talked about how they offer leveraged margin trade as well as normal exchange. Nor have I talked about the p2p lending platform where people who don't want to trade can earn swap interest on USD or BTC balance. I've also not mentioned the 5 order types they have: limit, market, stop, trailing stop, fill or kill; nor about the OCO orders or hidden orders. Bitfinex is truly way ahead of the curve.
    
    So please, for the love of all that is good, do not take unnecessary risks with your money. For me, Bitstamp is rotten until they prove themselves otherwise. It would be easy for them to prove themselves, and if I was running the exchange I would have pulled my finger out and got it done a long time ago as a priority with full transparency, all the way.
    
    If it turns out Bitstamp is rotten, don't come crying to me if you failed to heed my advice. If I am wrong, then I am wrong. But frankly I am not taking any risks being so bold because I have raised a set of reasonable questions that remain unanswered and I cannot remain quiet about what looks like yet another scandal in the making.
    
    BtcDrak
    
    twitter.com/btcdrak
    btcdrak@gmail.com
    irc.altcoinweb.com in #CoinMarkets


I have no affiliation with BtcDrak

these comments seem pretty old would be interesting to have a follow up
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January 05, 2015, 04:27:35 PM
 #20

What's up with people?
Stop panicking and chill out. You don't know anything, speculating isn't doing anyone good.
Wait for BitStamp and let's see what happens.

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