Wednesday, February 26, 2014

MtGox - The Bitcoin Disaster


Last UPDATE included on February 27

One of the biggest Bitcoin exchanges, MtGox, has gone offline. Its CEO Mark Karpelès is not available any longer, his whereabouts being unknown.

Holders of Bitcoin accounts on MtGox are gathering in front of the company's Tokyo main office in protest of the MtGox closure of all transactions for the time being.

The exchange has been hit by technical issues and recently halted all customer withdrawals of the digital currency after it spotted what it called "unusual activity". It seems that hackers succeeded in draining 744.408 Bitcoin token worth between 220 and 370 million Euro (depending on the reference value applied).

The move is a setback for backers of Bitcoin, who have been pushing for greater adoption of the currency. Meanwhile, six other major Bitcoin exchanges issued a joint statement distancing themselves from MtGox.

The move by MtGox to halt withdrawals had resulted in a sharp decline in the value of Bitcoin. Having reached its maximum value of 1000 Euro in November 2013, the rate of exchange for one Bitcoin unit remained stable at 600 Euro in January 2014. In February it dropped to 400 Euro as was reported by other trading platforms for Bitcoin tokens like btc-e.com and bitcoin.de. The exchange rate reported by MtGox at that time was even slightly lower. After alleged hacker activity, that rate finally dropped to yesterday's actual value of 100 Euro.



Above: Strategy timeline for MtGox found on the internet, and some
cryptic statement posted on the MtGox website yesterday afternoon.


The closure of the site did not "reflect the resilience or value of Bitcoin", said a statement from representatives of several other Bitcoin exchanges, including Coinbase and BTC China.

"This tragic violation of the trust of users of MtGox was the result of one company's actions.

"As with any new industry, there are certain bad actors that need to be weeded out, and that is what we are seeing today.

[Sources: BBC (Britain), N-TV (Germany), SINA (China) on February 25 / 26, 2014]

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Here is a short description of how the Bitcoin system is working and which has been provided by BBC business and technology news:

How Bitcoin works


Bitcoin is often referred to as a new kind of currency.

But it may be best to think of its units being virtual tokens rather than physical coins or notes.

However, like all currencies its value is determined by how much people are willing to exchange it for.

To process Bitcoin transactions, a procedure called "mining" must take place, which involves a computer solving a difficult mathematical problem with a 64-digit solution.

For each problem solved, one block of Bitcoins is processed. In addition the miner is rewarded with new Bitcoins.

This provides an incentive for people to provide computer processing power to solve the problems.

To compensate for the growing power of computer chips, the difficulty of the puzzles is adjusted to ensure a steady stream of about 3,600 new Bitcoins a day.

There are currently about 11 million Bitcoins in existence.

To receive a Bitcoin, a user must have a Bitcoin address - a string of 27-34 letters and numbers - which acts as a kind of virtual post-box to and from which the Bitcoins are sent.

Since there is no registry of these addresses, people can use them to protect their anonymity when making a transaction.

These addresses are in turn stored in Bitcoin wallets, which are used to manage savings.

They operate like privately run bank accounts - with the proviso that if the data is lost, so are the Bitcoins owned.


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Bitcoin's strength - that it has grown in an organic, slightly anarchic and
devolved way, with no central oversight or control - is also its weakness”


Robert Peston - Business editor for British Broadcasting Corporation BBC




You Better Buy Stamps !


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UPDATE for February 27:

Today, China's People TV channel CCTV 1 comes with the news of a high-ranking meeting of Communist Party leaders dealing with internet security. That meeting should have taken place only some hours ago.



习近平主持召开中央网络安全和信息化领导小组第一次会议强调 总体布局统筹各方创新发展 努力把我国建设成为网络强国 李克强刘云山出席

[While] presiding over the opening of the first conference of a leading group from the [CPC] Central Committee [and which is addressing] Internet Security and informatisation, [CPC chairman] Xi JinPing underlined [that] a general layout of plannings [requires] each side to blaze new trails of development. [It needs] to actively [transform] our country into a powerful internet nation. - [Prime minister] Li KeQiang and Liu Yunshan [a member of the CPC's political bureau] were attending [the meeting].


Editor's Note:

Even though the official bulletin doesn't mention Bitcoins, that item can be expected to establish an important subject in the discussions behind closed doors, even more as a remarkable number of Chinese internet users already adopted that virtual currency. That's why China's government had earlier emphasized the risks of using "Bitbi" when it stated that Bitcoins are not supported by any national currency system. However, the need for some kind of virtual money is not generally rejected by China's authorities.
Taiwan, on the contrary, seems to be much more worried: When the first public automat for money exchange into Bitcoins was installed in Hong Kong some weeks ago, Taiwan's authorities turned down the operating company's request to install a similar device in their country.

Here now comes an isolated personal remark published by some Chinese reader who considered the official Chinese bulletin mentioned above. As to Xi JinPing's demand to strengthen China's position on the internet, that reader argues:

网络反垄断搞不好,中国网络就没太大作为。

"The Web isn't too good in opposing a monopoly, China's Web will therefore accomplish next to nothing."


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