[ANN] Bitcoinica Consultancy abandons customers. Bitcoinica to enter Liquidation

[ninjarobot]

I think that what Zhou was saying is that the 20K BTC + 140K USD that he is able to recover from Chen would cover the 40K BTC + 40K USD stolen from MtGox if you apply the ~$5 conversion rate that Bitcoinica used to close open positions.

I would argue that property should be returned in the same form it was originally stolen.

[repentance]

I think that what Zhou was saying is that the 20K BTC + 140K USD that he is able to recover from Chen would cover the 40K BTC + 40K USD stolen from MtGox if you apply the ~$5 conversion rate that Bitcoinica used to close open positions.

I would argue that property should be returned in the same form it was originally stolen.

BTC weren't worth $5 when the MtGox theft occurred though.  Had those 40k BTC never left MtGox, they'd be worth around $400,000 now.  Because only 20k Bitcoin were returned, the value of the returned BTC is around $200,000.  Even though the total recovered is about the same as the total amount stolen in July (~$280,000 in Bitcoins plus USD 40,000), about $100,000 in value has been lost as the current value of 40,000 BTC is about $400,000. 

Zhou is effectively saying that because the value of Bitcoins has increased, the amount recovered from Chen already covers the value of the theft at the time it occurred.  Frankly, I'm not sure why Bitcoinica users should give a shit about this, though and why Chen shouldn't pay a premium for the additional losses caused by the theft - Chen should not be the one to profit from the increase in the value of BTC since the theft.

[MemoryDealers]

I had Bitcoins on deposit and I expect Bitcoins to be returned.
I don't care if Bitcoins are worth $1 or $1,000

I suspect the other creditors feel the same way.

[Bitcoin Oz]

I had Bitcoins on deposit and I expect Bitcoins to be returned.
I don't care if Bitcoins are worth $1 or $1,000

I suspect the other creditors feel the same way.

Im sorry to say it probably wont work that way and they will simply liquidate all the coins and pay out proportionally the value at the time the hack happened. Thats the way administration works and unfortunately only fiat is accepted "as payment for debts". It doesnt matter what the underlying asset is as everything will be converted to government fiat. Thats the problem with going to the existing legal system not private arbitration.

Edit: What I mean is that I doubt the administrator will buy bitcoins but sell them for fiat and then divide the fiat between creditors.

[repentance]

I had Bitcoins on deposit and I expect Bitcoins to be returned.
I don't care if Bitcoins are worth $1 or $1,000

I suspect the other creditors feel the same way.

Perhaps you could petition the court for your Bitcoinica deposits to be returned as Bitcoins in your lawsuit.  The court certainly has more flexibility in respect of remedies than a liquidator, who is required by law to liquidate assets for the benefit of all creditors.

Even if a liquidator could return deposits as Bitcoins, they still couldn't return them in a greater proportion than what was being returned to those owed USD - someone who was owed Bitcoins to the value of $50 immediately after the Rackspace hack (~10 BTC then) would still only be able to claim BTC to that value now (~5 BTC now) and not an absolute number of BTC.

[markm]

Even if a liquidator could return deposits as Bitcoins, they still couldn't return them in a greater proportion than what was being returned to those owed USD - someone who was owed Bitcoins to the value of $50 immediately after the Rackspace hack (~10 BTC then) would still only be able to claim BTC to that value now (~5 BTC now) and not an absolute number of BTC.

Whoa, you cannot sell off items held in trust on behalf of one client in order to settle a debt you owe to another client, surely???

If 100 collectors each had a painting on deposit at a gallery, and the paintings were stolen, and some of them were burned, destroyed, by the time the stolen property was captured back from the thieves by lawful authorities, and the gallery is bankrupt, does the liquidator have to sell the paintings belonging to other collectors in order to obtain funds with which to recompense the collectors whose paintings were lost??? And maybe also to recompense buyers who had fiat money stored at the gallery ready to buy paintings, which fiat also had been stolen along with the paintings but not recovered or only partially recovered?

-MarkM-

[Bitcoin Oz]

Even if a liquidator could return deposits as Bitcoins, they still couldn't return them in a greater proportion than what was being returned to those owed USD - someone who was owed Bitcoins to the value of $50 immediately after the Rackspace hack (~10 BTC then) would still only be able to claim BTC to that value now (~5 BTC now) and not an absolute number of BTC.

Whoa, you cannot sell off items held in trust on behalf of one client in order to settle a debt you owe to another client, surely???

If 100 collectors each had a painting on deposit at a gallery, and the paintings were stolen, and some of them were burned, destroyed, by the time the stolen property was captured back from the thieves by lawful authorities, and the gallery is bankrupt, does the liquidator have to sell the paintings belonging to other collectors in order to obtain funds with which to recompense the collectors whose paintings were lost??? And maybe also to recompense buyers who had fiat money stored at the gallery ready to buy paintings, which fiat also had been stolen along with the paintings but not recovered or only partially recovered?

-MarkM-

You cant tell the difference from one bitcoin to the other but you can with art.

[markm]

You cant tell the difference from one bitcoin to the other but you can with art.

Sure, but you can also tell the difference between fiat and bitcoin.

Also, for art you can assume non-numbered limited edition prints instead of non-identical paintings if you like it still should apply, though as it could not be determined whose prints were burned versus whose prints survived, I could see doing some kind of auction among print owners to determine who gets to keep a print and who instead gets compensated in currency by the other print owners for accepting fiat instead of a print.

(e.g. if 70% of the prints survived, each print owner is owed 70% of a print, aka has a 70% chance of getting his or an indistinguishable print back, somehow among themselves they need to resolve which of them will settle for some kind of compensation versus which will actually get a print.)

-MarkM-

[Bitcoin Oz]

You cant tell the difference from one bitcoin to the other but you can with art.

Sure, but you can also tell the difference between fiat and bitcoin.

Also, for art you can assume non-numbered limited edition prints instead of non-identical paintings if you like it still should apply, though as it could not be determined whose prints were burned versus whose prints survived, I could see doing some kind of auction among print owners to determine who gets to keep a print and who instead gets compensated in currency by the other print owners for accepting fiat instead of a print.

(e.g. if 70% of the prints survived, each print owner is owed 70% of a print, aka has a 70% chance of getting his or an indistinguishable print back, somehow among themselves they need to resolve which of them will settle for some kind of compensation versus which will actually get a print.)

-MarkM-

Sure. But the difference is fiat is legal tender accepted for all debts whereas bitcoin is not. An administrator can only distribute fiat because he cant tell who the owner of a particular coin is.

[markm]

Sure. But the difference is fiat is legal tender accepted for all debts whereas bitcoin is not. Therefore  an administrator can only distribute fiat.

Not true. I am not a lawyer but I seriously doubt that just because you CAN pay a debt in fiat you MUST convert items held in trust into fiat in preference to returning the actual items to their rightful owners. An item held in trust is not a debt. The items stolen might be debts, but the items not stolen remain property of their owners, presumably?

Also, even though you cannot tell the difference between one "print" and another, you CAN tell the difference between the values / prices of some of the prints, since some owners had put different price tickets on their prints than other owners had. I admit though that at this point you have turned my argument around from looking like people might get actual bitcoins or current fiat value of bitcoins into them getting the price they had labelled their particular bitcoins to be sold for when the theft occurred... So well done.

-MarkM-

[Bitcoin Oz]

Sure. But the difference is fiat is legal tender accepted for all debts whereas bitcoin is not. Therefore  an administrator can only distribute fiat.

Not true. I am not a lawyer but I seriously doubt that just because you CAN pay a debt in fiat you MUST convert items held in trust into fiat in preference to returning the actual items to their rightful owners. An item held in trust is not a debt. The items stolen might be debts, but the items not stolen remain property of their owners, presumably?

Also, even though you cannot tell the difference between one "print" and another, you CAN tell the difference between the values / prices of some of the prints, since some owners had put different price tickets on their prints than other owners had. I admit though that at this point you have turned my argument around from looking like people might get actual bitcoins or currenct fiat value of bitcoins into them getting the price they had labelled their particular bitcoins to be sold for when the theft occurred... So well done.

-MarkM-

When a company is wound down all of its assets are consolidated and creditors get paid out evenly on a percentage basis.

[markm]

When a company is wound down all of its assets are consolidated and creditors get paid out evenly on a percentage basis.

[ Items/assets held in trust] / [ trust accounts ] are not assets. If anything, they are liabilities. The company does not own them.

Isn't that in fact the entire point of labelling certain accounts as trust accounts? To distinguish them as NOT belonging to the entity holding them in trust and thus for them NOT to be used to pay that entity's bills/liabilities?

Stuff stolen from trust accounts is surely totally separate and distinct from a company's own assets, and none of the company's creditors should be able to touch it, only the people who actually have assets in a particular trust account should get anything from that particular trust account, surely? Isn't that also why lawyers often hold many separate trust accounts, with different people's assets in each, so those people's assets cannot be confused with each other or used to pay off each other's debts etc?

-MarkM-

EDIT: Maybe this could even be an argument in favour of the satoshi client style wallet accounts, since if bitcoins are stolen it is possible to determine precisely which accounts were stolen, so the theft of one such trust account need not have any effect on any other such trust account?

[Bitcoin Oz]

When a company is wound down all of its assets are consolidated and creditors get paid out evenly on a percentage basis.

[ Items/assets held in trust] / [ trust accounts ] are not assets. If anything, they are liabilities. The company does not own them.

Isn't that in fact the entire point of labelling certain accounts as trust accounts? To distinguish them as NOT belonging to the entity holding them in trust and thus for them NOT to be used to pay that entity's bills/liabilities?

Stuff stolen from trust accounts is surely totally separate and distinct from a company's own assets, and none of the company's creditors should be able to touch it, only the people who actually have assets in a particular trust account should get anything from that particular trust account, surely? Isn't that also why lawyers often hold many separate trust accounts, with different people's assets in each, so those people's assets cannot be confused with each other or used to pay off each other's debts etc?

-MarkM-

Everything went into a single wallet. For that not to be the case they would need to give each customer their own separate wallet.

[markm]

Everything went into a single wallet. For that not to be the case they would need to give each customer their own separate wallet.

Wallets vs accounts are like banks into accounts.

If everything went into a single bank, into distinct trust accounts within that bank, and thieves stole certain trust accounts, the whole point, again, of trust accounts is that they are distinct. You know which ones the robbers took.

Even if they took the entire bank.

-MarkM-

EDIT: Nearly tricked me there! Fiat was in a separate wallet, presumably?

[Bitcoin Oz]

When a company is wound down all of its assets are consolidated and creditors get paid out evenly on a percentage basis.

[ Items/assets held in trust] / [ trust accounts ] are not assets. If anything, they are liabilities. The company does not own them.

Isn't that in fact the entire point of labelling certain accounts as trust accounts? To distinguish them as NOT belonging to the entity holding them in trust and thus for them NOT to be used to pay that entity's bills/liabilities?

Stuff stolen from trust accounts is surely totally separate and distinct from a company's own assets, and none of the company's creditors should be able to touch it, only the people who actually have assets in a particular trust account should get anything from that particular trust account, surely? Isn't that also why lawyers often hold many separate trust accounts, with different people's assets in each, so those people's assets cannot be confused with each other or used to pay off each other's debts etc?

-MarkM-

EDIT: Maybe this could even be an argument in favour of the satoshi client style wallet accounts, since if bitcoins are stolen it is possible to determine precisely which accounts were stolen, so the theft of one such trust account need not have any effect on any other such trust account?

 You would have to have segregated wallets so if one customer gets theirs stolen it doesnt compromise someone elses balance. I dont know any site that does this.

[markm]

Oops I was a moment late with my

EDIT: Nearly tricked me there! Fiat was in a separate wallet, presumably?

-MarkM-

[Bitcoin Oz]

Oops I was a moment late with my

EDIT: Nearly tricked me there! Fiat was in a separate wallet, presumably?

-MarkM-

Of course you would need to label each wallet.dat differently and im not sure if thats supported by bitcoin  ?

Then you could tell the difference between ROGERWALLET.DAT and ZHOUWALLET.DAT

[markm]

Of course you would need to label each wallet.dat differently and im not sure if thats supported by bitcoin  ?

Then you could tell the difference between ROGERWALLET.DAT and ZHOUWALLET.DAT

You don't understand what I mean by satoshi client style accounts within wallets, it seems.

Read up on the accounts commands provided by the satoshi bitcoind.

The GUI might even also mention them.

In brief, accounts are distinct collections of addresses within a wallet, their balances being thus the sum of the balances of the addresses associated with that specific account.

So you could label each account with a username for example... within a single wallet.

BUT, AGAIN: fiat is totally separate. Even if all customer-owned fiat is in one fiat trust account and all customer-owned bitcoins in one bitcoin trust account, those are two totally distinct trust accounts.

-MarkM-

[repentance]

Whoa, you cannot sell off items held in trust on behalf of one client in order to settle a debt you owe to another client, surely???

Nothing was held "in trust" in any meaningful sense of the word.  A ledger of balances was maintained and when the available funds are not enough to cover those balances you can't say that 100% of one person's balance is still available but only 50% of another's if both people are unsecured creditors and neither has a preferential claim.  It wouldn't matter whether the item was gold ingots, diamonds or BTC, if it's not secured then it's likely going to be sold and consolidated for the benefit of all creditors.  In fact, as the majority of Bitcoinica losses have been in BTC, it may be the people whose deposits were in USD who are ultimately worse off as the available USD won't be quarantined (and even more USD are available now because Chen paid back primarily in USD).

People really, really need to understand that they're not dealing with regulated deposit-taking institutions or actual trust accounts.   Your Bitcoinica account isn't like a safe deposit box which was robbed individually.  The thefts are more like money being taken from the vault - it didn't belong to anyone in particular but creates a universal short-fall.

The art gallery example isn't comparable because the paintings would be on loan to the gallery and not regarded as an asset or a liability of the gallery.

This would not be an issue if Bitcoinica wasn't insolvent and if the majority of creditors agreed to alternative payments arrangements - they could agree to repayment in kiwifruit if they wanted.  The problem arises because of the legal requirement to treat all creditors of the same class - in this case, all unsecured creditors - equally.  Everyone could be paid back in Bitcoins as long as the proportion of their total claim which each person received was the same (it's not going to happen because it's not practical), but the value of the claim would still need to be determined in dollars even if the refunds were made in Bitcoins.

[markm]

Thank you, repentence.

Part of my interest in this is forward-looking.

It already occurred to me that if I would like accounts to be considered as being held in trust I should make sure my heirs and assigns, or whoever steps in to run things if I get run over by a bus, knows exactly which accounts are considered held in trust and which are considered to be part of the operation's own operating capital/assets...

-MarkM-