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 $2.6 Million Bitcoin heist
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Advanced Member
6960 Posts

Meridian, ID


XR650L, 790 Adv R

Posted - 02/24/2014 :  11:59 AM                       Like
Stories like this don't give me a good feeling about investing in bitcoins. How do you know which sites are a safe place to store your bitcoins?


And I'm wondering why my fingers keep mistyping the word as either bigcoin or bitcon...

James R. Davis
Male Administrator
17396 Posts

Houston, TX


GoldWing 1500

Posted - 02/24/2014 :  12:41 PM Follow poster on Twitter  Join poster on Facebook as Friend  
Silk Road is a site that has become infamous due to its involvement in a money laundering scheme. Hackers have been after it for awhile as a result.

The bitcoin protocol is sound. There has been an attempt to exploit it known as the 'transaction malleability' problem which simply takes a transaction and changes the ID within that transaction and rebroadcasts it into the bitcoin network.

That exploit would not work if the processors of those transactions (like exchanges) properly handled the transaction confirmation messages. Let's say that a bank issued a bearer bond in the amount of $1,000 and identified it with a unique serial number, If you took that bond to a bank and asked it to cash it, that bank would verify that such a bond was valid by comparing its amount and serial number with the originating bank. BOTH the amount and serial number must match for the originating bank to approve it. But what happens if a bond was presented with the same amount but a different serial number? It would be rejected. Or how about if the serial number was the same but the amount was shown to be $100,000 instead of $1,000? It would be rejected. Is the system flawed if a bank only checked the serial number OR the amount? Of course not! The bank that did that would lose money - and should be claimed to have been negligent and partially to blame for the loss.

Several exchanges had verifying software that was improperly designed. One, Mt. Gox, may soon become history (they have more wrong than just that software). The other exchanges quickly improved their software to properly handle the bogus confirmations and have had no issues whatever as a result other than losing the TIME (and some customer goodwill as a result) to improve their software.

Even Silk Road acknowledged that no customers lost money (or bitcoins) but that their own escrow account did.

How do you select sites that are safe? By reputation of the company and its principals (such as major investors).

I think the 'full service' exchanges, like Mt. Gox and Bitstamp are relatively dangerous for casual users who do not need or even understand all the things that you can do with an exchange. On the other hand, a limited function exchange, like Coinbase, provides all the functions that you NEED for its users (like buying, selling, and transferring bitcoins), and it DOES NOT KEEP YOUR MONEY IN ITS OWN ACCOUNT - that is, if you sell bitcoins, the money is placed into YOUR BANK ACCOUNT, not theirs.

I took my time to investigate Coinbase before opening an account (wallet) with them. I could be wrong, but I'm comfortable with them as a result. You might be comfortable with some other organization. More power to you.

You might not be comfortable with any bitcoin exchange. Don't open an account with any of them.

By the way, there HAVE been some bitcoin thefts by hackers from wallets on PCs. For some reason most known thefts have occurred in Germany.

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James R. Davis
Male Administrator
17396 Posts

Houston, TX


GoldWing 1500

Posted - 02/24/2014 :  11:32 PM Follow poster on Twitter  Join poster on Facebook as Friend  
At about 8:00 p.m. central time today Mt. Gox suspended trading. That's just seven hours after my message above in which I suggested that that exchange was in serious trouble.

Coinbase, the firm that is becoming the recognized leader of all of the bitcoin exchanges in the world - a firm located in the San Fransisco area - released a statement today that is worth reading so I've copied it below:

Joint Statement Regarding MtGox
Feb 24th, 2014

The purpose of this document is to summarize a joint statement to the Bitcoin community regarding Mt.Gox.

This tragic violation of the trust of users of Mt.Gox was the result of one company's actions and does not reflect the resilience or value of bitcoin and the digital currency industry. There are hundreds of trustworthy and responsible companies involved in bitcoin. These companies will continue to build the future of money by making bitcoin more secure and easy to use for consumers and merchants. As with any new industry, there are certain bad actors that need to be weeded out, and that is what we are seeing today. Mtgox has confirmed its issues in private discussions with other members of the bitcoin community

We are confident, however, that strong Bitcoin companies, led by highly competent teams and backed by credible investors, will continue to thrive, and to fulfill the promise that bitcoin offers as the future of payment in the Internet age.

In order to re-establish the trust squandered by the failings of Mt. Gox, responsible bitcoin exchanges are working together and are committed to the future of bitcoin and the security of all customer funds. As part of the effort to re-assure customers, the following services will be coordinating efforts over the coming days to publicly reassure customers and the general public that all funds continue to be held in a safe and secure manner: Coinbase, Kraken, BitStamp, Circle, and BTC China.

We strongly believe in transparent, thoughtful, and comprehensive consumer protection measures. We pledge to lead the way.

Bitcoin operators, whether they be exchanges, wallet services or payment providers, play a critical custodial role over the bitcoin they hold as assets for their customers. Acting as a custodian should require a high-bar, including appropriate security safeguards that are independently audited and tested on a regular basis, adequate balance sheets and reserves as commercial entities, transparent and accountable customer disclosures, and clear policies to not use customer assets for proprietary trading or for margin loans in leveraged trading.

The following industry leaders stand by this statement:

Fred Ehrsam - Co-founder of Coinbase

Jesse Powell - CEO of Kraken

Nejc Kodri#269; - CEO of Bitstamp.net

Bobby Lee - CEO of BTC China

Nicolas Cary - CEO of Blockchain.info

Jeremy Allaire - CEO of Circle

Not shown in the above quote was an earlier comment made by Coinbase that stated (about the CEO's mentioned above):

It does not appear to any of us that MtGox followed any of these essential requirements as a financial services provider.

The price of bitcoins took a terrific fall today on all exchanges in reaction to the news about Mt.Gox. Good riddance.
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