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Comment by thanasop | Hacker News Reader

The amount sold was over 500000 BTC - more that all estimated deposits on MtGox. The likely explanation is that these were just virtual BTCs added through SQL injection. The alternatives are that a single person was keeping that much on an exchange rumored to be insecure and used insecure password (easily cracked from leaked md5 hashes), or the person decided to sell half his BTC for $0.01 - an extra $2500 in addition to hundred thousands.

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That raises an interesting point.

The nature of Bitcoin is supposed to prevent things like fractional reserve banking, since the nature of the system means you can't give people BTC you don't have. It's impossible to create bitcoins in any other way except mining.

However, if people are making BTC transactions through a centralized exchange such as Mt. Gox, they are in effect moving numbers around in MtGox's database rather than actually transferring bitcoin. This means banks are able to effectively create BTC as they can with fiat currencies, leading to problems like the current case - problems that Bitcoin was designed to solve.

How would MtGox effectively "create BTC"? There is a difference between moving coins around in a database and creating new coins. All coins are deposited from users. The only way BTC would be "created" in MtGox is if MtGox was mining on their own. Coins need to be "mined" to be created - so MtGox couldn't even loan coins they didn't have.

MtGox could effectively "create" BTC by simply selling more than they actually had. This would of course only work as long as people were actually withdrawing less than MtGox had available to them. Until you attempt to withdraw the BTC from the exchange, you wouldn't necessarily actually know that they in fact exist.

The flaw here is there is typically more BTC sellers than buyers due to mining/dark pool. That combined with BlockExplorer tracking makes it pretty much impossible. Unless you are seeing something I am not.

I guess your theory will be tested when a large majority pulls their money from Mt.Gox...that is if that happens...we will all know in the next few days.

BlockExplorer won't help you in this hypothetical case because as I understand it MtGox doesn't even pretend to preform actual BTC transactions until you withdraw. Before you withdraw your "BTC" are only numbers in MtGox's internal system. They could be selling you additional of these numbers without having the actual BTC behind them available.

Anyway, I'm not saying they have sold more than they actually have, just that it is a technical possibility.

MtGox is a bank. When you put money in a real bank, it doesn't go into a box labeled "alttab's money", it goes in a box labeled "everybody's money" and there's a piece of paper called "alttab's account" with a number on it. When the bank robbers come, they take the box with money in it, but they don't take the piece of paper. Then when you try to withdraw your money, the bank manager opens the box of money and says "oops."

Indeed, if people would keep the money inside the exchange all the time, they would be able to artificially create more bitcoins in their system without being noticed.

In case all people would try to take all their money out, the exchange would be left with a deficit of money, practically not being able to return it to their users.

In anyway, it would be risky for an exchange to create more money than they actually have. For users, it would be best to keep as little money for as little time possible in exchanges, thats the whole point of bitcoin.

This is impossible...every bitcoin has to be verified every time it is transferred...there is tracking no matter what anyone says.

http://blockexplorer.com/

You can see any and all transactions.

Any bitcoin in/out of Mt.Gox has to be verified by the network...a "fake" bitcoin would never get out and it would not benefit Mt.Gox to transfer fake BTC around internally.

A bitcoin cannot be counterfeited easily...hence the beauty of the system.

People can claim that there was never 500k bitcoin in Mt.Gox but the fact still remains there was a transfer of 500k just days before this incident that was discussed as possibly being Mt.Gox moving their internal wallet around.

Now if someone controlled over 50% of the network hashing capability that would be a different story...possibly they could inject false info or something like that (I admit I know very little about this part, just briefly reviewed it enough to know its bad) but that's why you see postings in the forums telling people to switch "guilds" to spread things out. Deepbit approached 50% last month and there was a mass exodus. Most of the people involved in this know the risks and work very hard to self regulate.

My point exactly. I guess my explanation is lacking, but what I meant when I said that the exchange would be left with a deficit in bitcoins, is that they would not be able to create more "real" bitcoins, than there were initially deposited by its users. It's a zero sum game(if you ignore the fees).

But, that does not mean that MtGox could not create "fake" bitcoins inside their system, and extract their value by selling real bitcoins from the bitcoin pool that the users contributed to. For such a thing to pass under the radar, MtGox would need to keep enough real bitcoins in the system to satisfy the bitcoin liquidity the exchange needs. That would not qualify that much as an exchange anymore, but it would be more similar to a ponzi scheme.

No, you're missing the point. Mt. Gox is not publishing the transactions that occur inside their exchange to the blockchain; they are tracking them themselves. All the bitcoins deposited at Mt. Gox are in one big wallet. Only when a user deposits or withdraws coins does a transaction get posted to the blockchain. (I'm not 100% sure of this, admittedly, but I've seen no evidence to the contrary and lots of indirect evidence that supports it.)

So what could happen, as the result of bugs in their code, or of an attack, or (hypothetically) of deliberate fraud on their part, is that the total BTC balance of all account holders could become greater than the total BTC they have in their wallet. As the above posters noted, this would have the effect of creating BTC; no one outside the exchange would be able to tell that it had occurred until someone tried to withdraw their BTC and found it wasn't there.

Now what they could do is make a separate wallet for each user and post all trades to the blockchain. This would perhaps be more in the spirit of Bitcoin as it would prevent the totals from getting out of whack. But as I say, I'm pretty sure they're not doing that -- for one thing, if they were, rolling back trades, as they have recently done, would be impossible. (And although I was not involved in this 500k selloff, on either side, I think they have to roll it back to preserve any hope of Bitcoin being taken seriously.)

I assure you I get that point...I just doubt it...and I believe it could be easily figured out. Just a lot of speculation that this is actually happening...its funny how they can be criticized for not having their site secure enough and for not "rushing" to get it back up at the exact same time.

So far there has been no evidence that Mt.Gox did anything except get hacked...even Tradehill was using the same encryption that Mt.Gox was until the hack...everyone upgraded after the incident.

>The amount sold was over 500000 BTC

Source? I hope you're not quoting the guy from the "I'm the one who bought them" forum thread who accidentally add all numbers including dates to determine how many BTC were traded. He was almost instantly debunked.

And he came up with 51 million.

500KBTC is a pretty solid number, or at least, it's as solid as anything else that the public's been told.

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