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last heard, estimates are Mtgox lost about ~$½B ... apparently the current bitcoin market cap is around ~$8B ie Mtgox failure roughly somewhere around 1/16th the entire market cap of bitcoin, a massive amt (although the market value of bitcoin has been affected up to ¼ of total value during the crash, showing an outsize impact many times beyond total value stored by Mtgox, ie impacting overall currency user confidence). (was Mtgox possibly the largest single bitcoin bank?)

there is some talk in news articles about doing "forensic analysis" on the public bitcoin blockchain. not sure what this will turn up but it raises another question... if any kind of "forensic analysis" can be done a posteriori, why not also a priori? in other words

does the Mtgox failure have any implication or lessons for bitcoin/ecurrency protocol design/architecture? is there a way to run algorithms by 3rd parties that can identify "banks" like Mtgox that seem to have accountability/stability issues, and esp identify them before they reach massive stability-threatening scale? (aka "too big to fail"?) ie can the architecture itself be built/adjusted with some kind of "fault tolerance" which mitigates such large (near-systemic) failures?

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Yes, finances can be analyzed, but there will be wide ranges for accuracy and precision if an institution remains anonymous which would be strange.

Most likely, standards will be built in the financial community around disclosures of BTC for confidence. Institutions that prefer anonymity or suddenly start showing disparities will probably be shunned with the latter most likely experiencing solvency troubles, exacerbating a run if bailouts cannot be orchestrated.

Welcome to the NFL, cryptocurrencies.

  • think about it another way. there were presumably thousands (at least) of mt gox users, is there no way for them to discover that their bitcoins were being "stolen" before the collapse? wouldnt those bitcoins show up in the blockchain somewhere as they are being spent after stolen? isnt the only way to "steal" bitcoins to spend them into the public blockchain? etc... and if mtgox customers can detect fraud or embezzlement, could there be an algorithm/mechanism/design that also allows arbitrary outsiders to do so also? or a public testing site? etc.... – vzn Mar 6 '14 at 18:15
  • some of what karpeles has said publicly supports what you say, he said something like technically it wasnt "stolen" only "unavailable"... "Too cold storage is now probably a big red flag for an exchange"... what is "cold storage"? is there some way to detect that publicly? maybe what you say suggests that there might be a mechanism to reclaim unclaimed bitcoins (eg apparently what happens if the private key is lost even by the legitimate owner).... it seems BTC market cap is already high enough that there are large institutions with deposits ie mtgox, why are you excluding them as such? – vzn Mar 6 '14 at 18:23
  • re hot/cold storage oops realized after writing theres even a coldstorage tag on it here. mtgox is definitely an institution based on its massive capitalization but not based on the ceo or their overall security/safeguards/accounting/professionalism/culture etc. ... re your point, maybe there is some kind of system/mechanism/best practice that ensures all/most bitcoins are circulating through entities that hold them, and there are not large piles of "old/uncirculated" ones lying around etc... this could also protect against bitcoin ponzi schemes etc... – vzn Mar 6 '14 at 19:01
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This issue shows that centralizing anything Bitcoin related is the wrong approach. The community will benefit the most from decentralized exchanges which are being designed and built as we speak. Also educating customers that exchanges are not banks is a critical aspect of protecting the ecosystem. Monitoring such systems should not be the responsibility of end users, but of the people running them. If Mt. Gox had been proactive and performing regular daily audits on account balances etc it would have been easy for them to identify the issue when it began rather than after it was too late.

  • aka too big to fail TBTF which originates in nonbitcoin banking theory... – vzn Mar 6 '14 at 19:57
  • Bitcoin does not need banks thus Mt Gox is not TBTF – Mark S. Mar 7 '14 at 23:40
  • huh. ok. sounds like mere semantics to me. $½B seems "too big" to me & didnt even have money in it. am in favor of decentralization but some degree of centralization seems unavoidable incl to the contd growth of the currency. – vzn Mar 7 '14 at 23:49
  • Based upon Mt Gox's reputation they had already began to loose market share, (because of previous issues i.e. Tibanne and the illegal MSB in the US) volume on other exchanges had Mt. Gox. This will drive the decentralization of exchange on a much larger scale, people will begin exchanging on local markets such as localbitcoin.com and other alternatives that we have yet to see built. Using other p2p technologies such as bitmessage and open transactions it is possible to have an open marketplace that is not controlled by a single entity thus removing the trust from any one centralized point. – Mark S. Mar 8 '14 at 3:25

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