Bitcoin fanciers should count themselves lucky that the entire world press has   
   become obsessed with the cabaret over whether a 64-year-old Temple City   
   software engineer is the Satoshi Nakamoto, the fabled mysterious/pseudonymous   
   inventor/inventors of    
   bitcoins.    
      
      
   That's because the pursuit of the corporeal Mr. Nakamoto has distracted   
   everyone's attention from the real problems with bitcoins, which erupted last   
   month with the collapse of the Mt. Gox bitcoin exchange--at one time the   
   largest bitcoin exchange in the    
   world--and have only continued to look worse.    
      
   For our updates on the currently bankrupt Mt. Gox and its discontents, see   
   here, here and here.    
      
   A couple of new analyses shed more light on the Mt. Gox failure, and point up   
   how it illustrates the fundamental problems with the bitcoin system. That   
   system is based on distributed verification, rather than central management,   
   and that's exactly its    
   problem.    
      
   In a piece in Bitcoin magazine, Ken Griffith provides some shocking context   
   for the Mt. Gox affair. "MtGox is not alone," he writes. "Forty-five percent   
   of Bitcoin exchanges to date have failed, in most cases with their customers'   
   money. The digital    
   currency industry's track record on fiduciary responsibility is abysmal."    
      
   Griffith's source for the figure, a paper by two computer scientists at SMU   
   and Carnegie Mellon, observes that because of bitcoin's growing popularity the   
   system has been "repeatedly targeted by fraudsters." What makes bitcoin   
   accounts especially    
   inviting to wrongdoers, they say, is that bitcoin transactions are   
   irrevocable--even fraudulent ones. That makes them different from credit cards   
   and electronic transfers, which can be unwound if they're found to be   
   improper. "Fraudsters prefer    
   irrevocable payments, since victims usually only identify fraud after   
   transactions have taken place."   
      
   The biggest risk for bitcoin owners, the authors say, is in their dealings   
   with intermediaries--like Mt. Gox.    
      
   Or in the words of the indispensable Izabella Kaminska of the Financial Times:   
   "Who'd have thought that there might be an incentive for operators in a   
   totally unregulated market to take people's assets and run?"   
      
   Over at the website Hacking, Distributed, Cornell computer scientist Emin Gun   
   Sirer takes a closer look at what might or might not have happened to bring   
   Mt. Gox down. Sirer's thesis is that the entire bitcoin system is build on a   
   foundation of sand --    
   bad technologies rife with technical problems and vulnerable to attacks "from   
   insiders and out."   
      
   "What Nigerian scams are to your grandfather, Bitcoin exchanges are to the   
   20-30 semi-tech-savvy libertarian demographic," he warns.   
      
   Sirer walks us through every excuse and explanation Mt. Gox or its defenders   
   have issued over the last few weeks to explain its apparent loss of some $400   
   million in bitcoins, mostly entrusted to the firm by customers. He doubts the   
   loss is due to "   
   transaction malleability," a known bug that might have allowed attackers to   
   fool Mt. Gox into double-paying them. He's no more impressed by the notion   
   that Mt. Gox might have lost the digital keys that give it access to its own   
   accounts, or that hackers    
   or the U.S. government are behind the losses.    
      
   "Chances are that this is a simple case of theft, involving at least one   
   insider," he concludes. That points again to the crummy technical   
   underpinnings of the entire bitcoin system, which have been disregarded by   
   bitcoin fans who don't understand it or    
   don't think it's important.    
      
   "The exchanges are based on layers upon layers of bad software, run by shady   
   characters," he writes. "The Bitcoin masses, judging by their behavior on   
   forums, have no actual interest in science, technology or even objective   
   reality when it interferes    
   with their market position. They believe that holding a Bitcoin somehow makes   
   them an active participant in a bold new future, even as they passively get   
   fleeced in the bolder current present."   
      
   He believes that there is a place for crypocurrencies like bitcoin--in fact,   
   Ben Bernanke and many other current or former central bankers agree--but a   
   sustainable model won't look like bitcoin. The one good thing about the   
   collapse of Mt. Gox, he    
   concludes, is that if you can prove your loss to the IRS, it's tax-deductible.   
      
   http://www.latimes.com/business/hiltzik/la-fi-mh-the-satoshi-cha   
   e-20140307,0,7591905.story#axzz2vJbGWa5U   
      
   --- SoupGate-Win32 v1.05   
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