Mt. Gox

Apparently Mt. Gox is now insolvent.

This should not be a surprise to anyone. Last week in a great article on CoinDesk Ezra Galston from Chicago Ventures drew comparisons to the impending collapse of Mt. Gox and the collapse of FullTilt Poker.

Having been a professional poker player during the time he writes about, I remember the outrage and frustration that players had upon learning that FullTilt Poker had mixed client funds with operating funds and was insolvent.

This is similar to the outrage we now see from bitcoin and Mt Gox customers who are asking where the money went.

Mt. Gox has attempted to blame the ‘transaction malleability error” for their own failings. This isn’t true.

I spent some part of last night talking with the #bitcoin-wizards who I trust in these things. There has been some initial data analysis on the blockchain that shows repeated transactions related to Mt. Gox that may relate to transaction malleability. But this is still early data and in no way relates to the security of bitcoin. Some transactions that appear to be Mt. Gox transactions appear to duplicate with the same amounts being repeated in the blockchain.

This was entirely their own fault. As one bitcoin core developer commented to me,

“failing to understand the protocol while holding billions, bad bitcoind api, going out of your way to hack up a really old version of bitcoind to use as your bitcoin manager, going out of your way to break bitcoind so that its easier for people to steal from you, broadcasting to the world that you have a terrible system……….?”

This particular failure of Mt. Gox is frustrating for cryptographers and bitcoin developers because they have the technology to avoid these problems.

A proposal by gmaxwell and other #bitcoin-wizards to cryptographically prove your reserve balance as an exchange to prove to the world that you are solvent has been in the community for awhile and is only now generating interest.

One of the Bitcoin core developers I respect asked me last night,

“Why aren’t bitcoin exchanges shamed into proving their reserves on a regular basis?”

So while the full investigation of the theft and mismanagement of client funds at Mt. Gox will take months to occur — the underlying issue and question is TRUST.