Bitcoin theft causes Bitfloor exchange to go offline

[Renegade]

Very sad.

http://www.bbc.com/news/technology-19486695

One of the biggest Bitcoin currency exchanges has been taken offline after 24,000 units ($250,000; £157,800) of the virtual currency were stolen from its computer servers.

Bitcoins can be used for online money transfers and trades, and the currency uses cryptography to protect it.

But Bitfloor's founder, Roman Shtylman, said he had kept unencrypted "keys", which the thief accessed and used to take the money.

Bitfloor's future is now in doubt.

Mr Shtylman said his New York-based service was the biggest of its kind in the US and the fourth largest in the world.

Really, a silly and typical mistake.

But I'm still hoping for Bitcoin to make it. I would love to use Bitcoins rather than credit cards and the like. I'm on the sidelines at the moment, but still very interested...

This also pisses me off:

Unlike most other types of money, Bitcoins do not have a physical real-world equivalent

That's a flat out lie. The BBC is being disingenuous there and flat out lying. They probably don't understand what money is though, and it's probably an error of ignorance and incompetence rather than maliciousness, though you never really know anymore... (See here for an explanation of mine on money.)

[40hz]

I think what BBC was implying was that there was no governmental backing behind bitcoins.

Forget gold or silver. Most currencies are backed by little other than a promise by a government to tax its people unto the umpteenth generation to make good on the obligation incurred.

Bitcoin, lacking a government, police force, and military cannot make that pledge.

[Renegade]

I think what BBC was implying was that there was no governmental backing behind bitcoins.

Forget gold or silver. Most currencies are backed by little other than a promise by a government to tax its people unto the umpteenth generation to make good on the obligation incurred.

Bitcoin, lacking a government, police force, and military cannot make that pledge.

I'm wondering if you meant to say:

Bitcoin, lacking thieves, thugs, and bruisers cannot make that threat.

Sorry, it was just wide open~!

Regarding:

Most currencies are backed by little other than a promise by a government to tax its people unto the umpteenth generation to make good on the obligation incurred.

+100

When you start to understand the history of money (and legislation), it really is exactly that, and to be honest, much worse. But that's a diversion from the awesomeness that bitcoin could give the world!

[vlastimil]

I used to be a bitcoin fan, but at this point, I very much doubt it it will ever become widespread. It has a fatal flaw - limited amount of coins and hence unavoidable deflation problem. It will never work, because:

Imagine you have a bitcoin. If bitcoins become more popular, their value will rise. You should simply sit on your bitcoin as it will be worth thousands of dollars one day. Everybody thinks like that and hence nobody is actually using bitcoins. Since nobody is using them, they will not become popular...

I placed a message that I accept bitcoins on my web more than year ago - nobody ever took advantage of that. I also added my web to an official list of websites accepting bitcoins - no visitors came from that list.

So, as sad as it is, I do not believe that bitcoin is the solution. The worst thing is the attitude of the bitcoins supporters - as soon as someone mentions the deflation problem on bitcoin forum, they get attacked and beat to virtual death by arguments similar to "white color does not exists, it is just a very bright kind of black". Bitcoins are for investors, not for buyers and sellers of goods...

This hack was not the first and likely will not be the last... Why do bitcoiners even use these services? People should keep their bitcoins on their own computer anyway.

[40hz]

^Very true. Almost everybody I know who is involved with bitcoins is busy mining them. But I don't know anybody who is spending them. And everybody seems intent on figuring out ways to game the system.

Unfortunately, most economic and monetary theory still applies whether it's dollars, francs, pounds, kuggerrands, or bitcoins.

That's where governments have the advantage. They can force legislate the use of their currency. And they can also kick the asses of any people who try to play unsanctioned games with their monetary systems.

[Renegade]

Spoiler (click to show/hide)

Governments? Money? Governments do not control the money supply... That's left up to private banks... The name of the government is on the money, but that is where it ends. Seriously. Look it up. The last remaining government backed currencies include Iran and North Korea.... Don't believe me? Look it up. (I think Cuba and Syria are the other 2 - not 100% certain there, but 90%.)

[Paul Keith]

Since nobody is using them, they will not become popular...

I don't understand money but isn't this less of a deflationary problem than a general adoption problem? That is to say, they are not popular so barely anyone uses them and since nobody uses them/knows about them globally then it creates an identity problem not founded in most currencies that ride on state authorization?

If that is the case, then wouldn't the deflation problem be more of a feature than a flaw?

That is to say, if no one uses them, no one can get rich off them so most of the early adopters are actually neutralized from adopting the same hoarding approach they might adopt in other forms of currency.

Yes, that also means there's a high chance bitcoin is never adopted by buyers and sellers but as long as the deflation factor exists, there's also a strong chance of preventing early adopters from being hoarders and so long as that mentality does not foster, the only problem of Bitcoin is adoption instead of market manipulation pre-mass adoption.

Not that I use Bitfloor but I think this is a blessing in disguise. Bitfloor is part of a market manipulated concept to create a crevice for the Bitcoin flow and so long as people use such services and then be burned by such services, it helps bridge the trauma process for understanding why the lack of such an appearance are an improved feature for Bitcoin as a currency compared to the traditional idea of needing a form of exchange/storage service.

Also I think as with any currency, the problem is not government backing but people backing. I don't mean people adoption either. I mean the idea by which a certain concept becomes a "Duh!" principle to a large group of people that the existence of such a concept becomes accepted "as is" no different than say a God or a plant.

Government backing would just lead to bitcoin banking where not just government but online services try to paint Bitcoin as something it is not. On the plus side, government backing means dumb citizens like me must reconfigure our idea of transactional currencies especially where most poor people's concept of money coming from the ATM as a salary provider.

Also I think in this case of simplicity, government and private banks being lumped together is a much simpler version than trying to separate government from private banks especially in a time when there are many people who still believe in the idea that there is a heroic individual that government cannot bribe away. In other topics like the Federal Reserve, yes, separate gov from private banks but Bitcoin? I'd rather have my decentralized vs. oligarchy confusion cleaned up first and I think most of the world especially those living in the backwards part of the world would love to have that cleared up first too when it comes to Bitcoin.

[tomos]

It has a fatal flaw - limited amount of coins and hence unavoidable deflation problem.

Vlastimil, what do you mean by deflation here - do you mean a decrease in the purchasing value of the money?

I would have thought "limited amount" would have lead to inflation of it's value (?)
But of course if it's not being used the value could deflate...

[vlastimil]

I meant deflation of prices. If year ago you could buy 1 unit of something for 1 bitcoin, now you can buy 3 units of the same thing for the same bitcoin. Nobody invests bitcoins, cause they themselves seem the best investment and always will seem that way due to the fixed amount of coins. The larger the number of people who are using bitcoins the more valuable they are (more people - same amount of coins). So, if you have a bitcoin, you should tell all your friends about it to increase its value. Bitcoins currently run on pure PR, they are not backed by and accepted by a large enough number of merchants as real currencies are.

It is unimaginable that bitcoins are mainstream, because that would mean that the currently rich people would have to give away half of their wealth to a few bitcoin early adopters. Not going to happen, rich people (usually) are not that stupid.

Still, I hope for bitcoin 2.0 that would fix the issue and would be the right thing for online purchasing, not for investing.

[Stoic Joker]

I've often wondered about the whole selling time in the CPU distributed computing thing. How (if at all) profitable is/could Bitcoin Mining be?

[Paul Keith]

Not necessarily. We have to also accommodate the fact that bitcoin to non-economic people sound like digital storage of currency so while it may have some value, it is not a true competing currency and will never be.

With the right concept, that definitely opens up the possibility for bitcoin to turn small shops into banks much as prepaid cards are used in some poorer countries when it comes to cellphone text currency. An idea that won't impede the grander idea of Bitcoin as a hoarding material but would promote some movement in the actual currency.

As a concept, it actually has more long term business value to a mom and pop shop than say being promoted and advertised on a bunch of GroupOn clones to garner customer loyalty. Another way to look at it is that it's a Frequent Flyer-program without requiring the recipients to be frequent or discount/sales seekers. Such a concept will always have the potential of targeting a group of credit card addicts who are used to paying through handing a card.

[Renegade]

I see no reason why Bitcoin could not become widely accepted. If solving math problems is worth money, then it's actually got more real value than most currencies out there.

Australia, Canada, New Zealand and Sweden all have a zero (0) percent reserve requirement, which effectively enables their private banks to issue unlimited amounts of currency at any time. They simply create an entry in a database and *poof* -- the money magically appears. (The US reserve requirement is about 10%.)

However, in the case of Bitcoin, real work is done in order to create the currency. It actually has some kind of a backing other than "faith". It does not require black magic to create - it requires real work. A "bit" of difference there.

Deflation is a good thing. It increases the value of savings without resorting to usury - keep in mind that usury has been punishable by death in many places and at many times. (Usually by people who understood what it actually does.) Inflation destroys people's savings. The value of the US dollar is about 4% of what it was 100 years ago, thanks to inflation.

The only thing Bitcoin needs is wider adoption my more merchants. If everywhere you went, you could use Bitcoins... would you use them? I sure as heck would.

Just think about it for a moment... Now when you buy your pron subscription, nobody ever sees "XXX Juicy Fleshfest" on a credit card bill. Eh? See just how useful Bitcoin really is?

It's anonymous like cash, but convenient as it is digital.

If money becomes digital and linked to your ID, then someone can simply turn you "off" and remove you from the economy. Say goodbye to buying things like, oh, maybe, bread? Milk? Food? Gas? Pron?

Bitcoin solves that problem.

Incidentally, the problem was outlined quite some time ago, and well before modern computers:

16 It also forced all people, great and small, rich and poor, free and slave, to receive a mark on their right hands or on their foreheads,

17 so that they could not buy or sell unless they had the mark, which is the name of the beast or the number of its name.

18 This calls for wisdom. Let the person who has insight calculate the number of the beast, for it is the number of a man. That number is 666.

Cue some Iron Maiden at this point!

664!
The neighbour of the Beast!
665!
The one across the street!

[f0dder]

Hm, I wonder if one can procure some scopolamine on The Silk Road? If so, perhaps BitCoins would be worth something :-)

[vlastimil]

Deflation is a horrible thing. It sounds great when you first hear about it, but think about it: Deflation means that by simply sitting on a bitcoin doing NOTHING, the value of your savings increases. What if everybody did this? Believing that a deflationary economy could work is similar as believing in perpetual motion. Though, I admit that it is very intriguing to dream about outwitting nature or math.

A functional economy must favor those that take action more than those, who don't. That is why a mild, predictable inflation is necessary. Deflationary economy favors hoarders instead of producers of goods and services. In time, deflation drives active entities out of market and therefore the bitcoins in their current form cannot become widespread. They would kill every industry segment that would depend on them.

It may not sound that way, but I am a big fan of decentralized digital currencies for all the reasons mentioned by Renegade. I just don't believe in the current Bitcoin system.

[Paul Keith]

Deflation is a good thing. It increases the value of savings without resorting to usury - keep in mind that usury has been punishable by death in many places and at many times. (Usually by people who understood what it actually does.) Inflation destroys people's savings. The value of the US dollar is about 4% of what it was 100 years ago, thanks to inflation.

The problem here I think is that there's a difference between deflation and devalued currency that no one is willing to use and of those who plan to use them would find more value in immediately hoarding them as unlike gold mining, the real work being stated for Bitcoin is only as real as digital is real which it isn't really that real at all and only exists as real so long as everyone is digitally informed. (Like pc viruses aren't real to many people so many don't update their AV despite real objects being shut down.)

Which in turn busts the myth of:

The only thing Bitcoin needs is wider adoption my more merchants. If everywhere you went, you could use Bitcoins... would you use them? I sure as heck would.

Humans IMO really really need a huge major crisis to adapt. In fact this is history repeating itself. If everywhere you went you could barter, why would you use currency that has been hijacked by the concept of private banks? Right now why haven't people jumped on the idea of timebanking even?

Buying porn collection is one thing. Being removed from the economy is one thing.

...but how many are actually staking their priorities based on buying porn and how many are being blacklisted from the economy? There are probably more cancelled and banned private torrent accounts than e-commerce accounts and many people would still strive to return to those private torrent sites if that means exclusive access to a commodity at a lower price.

IMO at a beginning of a currency's life, inflation is more important than deflation because the idea is you want people to quickly adopt/quickly desire/quickly trade their own selfishness at the thought that the supply is of such value that it would be less desirable to save up for it. A bubble or gold rush if you may.

It also belies the fact that cash may be anonymous but salaries are not which all major currency needs to have: poor people who are much more willing to view them as money than as currency.

Cash anonymity is of low value to people who have to worry about gaining income in an economic crisis or a person worrying about actual privacy intrusion not just being blacklisted in a club or people who really need true anonymous transactions being done in anonymous settings and anonymous cash is the least of their worries.

Plus what about the other unknown factors anonymous cash brings? Some have even gone so far as calling Bitcoin illiquid. What does that really mean for people who want to utilize cash? Emphasis on the utilize. Not the hoarding, stocks world playing, off-shore money bank transferring sport that rich people play in?

[Paul Keith]

Deflation is a horrible thing. It sounds great when you first hear about it, but think about it: Deflation means that by simply sitting on a bitcoin doing NOTHING, the value of your savings increases. What if everybody did this? Believing that a deflationary economy could work is similar as believing in perpetual motion. Though, I admit that it is very intriguing to dream about outwitting nature or math.

A functional economy must favor those that take action more than those, who don't. That is why a mild, predictable inflation is necessary. Deflationary economy favors hoarders instead of producers of goods and services. In time, deflation drives active entities out of market and therefore the bitcoins in their current form cannot become widespread. They would kill every industry segment that would depend on them.

It may not sound that way, but I am a big fan of decentralized digital currencies for all the reasons mentioned by Renegade. I just don't believe in the current Bitcoin system.

Sorry was posting a message when this post was written.

I think this warrants a separate topic. Digital currency has a longer life span than actual currency. Almost everything digital is. So long as the process is rolling, the currency exists. There's no deadline for the mine.

Yes, deflation is still horrible but every digital concept does nothing. It's just parked there.

The only time it moves is when it cannot be maintained anymore and shuts down like a website or it goes the opposite way and someone finds a way to make it work...only then is it an actual economy with industry segment depending on them, yes?

[40hz]

Regardless of my political feelings, or love of new ways to do old things, the number of times  BitCoin exchanges get targeted and hacked doesn't give me the warm fuzzies. Especially considering these aren't insured accounts.

I think it's only going to be a matter of time before regulators are forced to shut BitCoin down. There's too much at stake to allow it to continue with its current track record for insufficient security..

[f0dder]

I think it's only going to be a matter of time before regulators are forced to shut BitCoin down. There's too much at stake to allow it to continue with its current track record for insufficient security..

I doubt it's going to be shut down before it poses a serious threat to the current money model - but you can bet it'd be shut down with extreme prejudice as soon as it does.

[vlastimil]

About shutting it down - I will not say that it is impossible, but with Bitcoin being a distributed service, it would require extreme technical and political measures. Simply shutting down a single server or seizing a domain name would not do it. I will go as far as saying that the easiest way to shut Bitcoin down is via social engineering - convincing all the people using it that it is irrelevant.

The web site that was hacked is just an easily replaceable service running on top of the Bitcoin protocol.

[TaoPhoenix]

A functional economy must favor those that take action more than those, who don't. That is why a mild, predictable inflation is necessary. Deflationary economy favors hoarders instead of producers of goods and services. In time, deflation drives active entities out of market and therefore the bitcoins in their current form cannot become widespread. They would kill every industry segment that would depend on them.

I'm not so sure that inflation is a good thing either. It might just be the lesser of two evils. (* See Humor Thread for a cheapo joke!)
The way I see inflation, the "middle class" gets jammed because at the personal side "revenue" (aka your wages) is someone's judgement with a game theory low-level tendency to go DOWN. Expenses are Other People's Revenue with a "market gamble" to push UP. So in MicroEconomics, there are a series of ideas around "counter-intuitive demand curves". "As the price of a core Product And/Or Service go up, the proportion of the consumer's money spent on them goes UP." (You'd think it should go down, like most discretionary offerings.) The key word is proportion. The famous examples are car gas and rent. When trying to stay alive gets more expensive, you have no room left to do anything fun. And when any consumer ever asks in frustration why this is, the business managers all whine "prices are always rising." Consumer responds "But you're paying me less." "Yeah, well, gotta keep costs down, blah blah".

(I said "Low Level" game theory up there, because at the more advanced stages, you get things like a town boycott can shut down a store, or the mayor can influence wages, or in a really hard business you get the "quality of worker you pay for", etc. (Outsourcing Customer service, etc.))

So while difficult, maybe an exactly level economy might be best on paper. A true deflationary economy is bad news, because a ton of the economy runs on "momentum" and when you lose the "critical mass" you get a mess like Detroit. However an interesting thing, while a bit tricky at first, is a currency adjustment which is simply math on the currency, but the actual GDP etc of the country is the same.

[40hz]

I think it's only going to be a matter of time before regulators are forced to shut BitCoin down. There's too much at stake to allow it to continue with its current track record for insufficient security..

I doubt it's going to be shut down before it poses a serious threat to the current money model - but you can bet it'd be shut down with extreme prejudice as soon as it does.

As soon as money gets lost via wire the Feds get involved where we are. And BitCoin is already functioning in a gray area under US Law. Arguments could be made it's operating illegally as an unlicensed money transfer agent. Nobody's done much since it hasn't rocked the boat for anybody but Apple so far. But now that a lawsuit has been filed against them, the US courts are going to have to make a determination, and the regulators will be forced to take action.

And besides....it's an election year!!!!

[barney]

And besides....it's an election year!!!!

Hee, hee, hee.  Ya thimk?

[Paul Keith]

A functional economy must favor those that take action more than those, who don't. That is why a mild, predictable inflation is necessary. Deflationary economy favors hoarders instead of producers of goods and services. In time, deflation drives active entities out of market and therefore the bitcoins in their current form cannot become widespread. They would kill every industry segment that would depend on them.

I'm not so sure that inflation is a good thing either. It might just be the lesser of two evils. (* See Humor Thread for a cheapo joke!)
The way I see inflation, the "middle class" gets jammed because at the personal side "revenue" (aka your wages) is someone's judgement with a game theory low-level tendency to go DOWN. Expenses are Other People's Revenue with a "market gamble" to push UP. So in MicroEconomics, there are a series of ideas around "counter-intuitive demand curves". "As the price of a core Product And/Or Service go up, the proportion of the consumer's money spent on them goes UP." (You'd think it should go down, like most discretionary offerings.) The key word is proportion. The famous examples are car gas and rent. When trying to stay alive gets more expensive, you have no room left to do anything fun. And when any consumer ever asks in frustration why this is, the business managers all whine "prices are always rising." Consumer responds "But you're paying me less." "Yeah, well, gotta keep costs down, blah blah".

(I said "Low Level" game theory up there, because at the more advanced stages, you get things like a town boycott can shut down a store, or the mayor can influence wages, or in a really hard business you get the "quality of worker you pay for", etc. (Outsourcing Customer service, etc.))

So while difficult, maybe an exactly level economy might be best on paper. A true deflationary economy is bad news, because a ton of the economy runs on "momentum" and when you lose the "critical mass" you get a mess like Detroit. However an interesting thing, while a bit tricky at first, is a currency adjustment which is simply math on the currency, but the actual GDP etc of the country is the same.

The poster did say predictable inflation. Plus mild. Maybe extremely mild would be a better fit.

I think exactly level economy is bad. However, it could be that my paper is different.

A level economy means no innovation is taking place ever to push direction towards a particular business or a particular career.

This only sounds good on paper if, on paper, you are not factoring government and private entities capability to over-spend and under-adjust and cause run away deflation/inflation. A level economy would never be prepared for this and would hit depression/recession stages much faster and recover less faster. Textbook keynesianism sounds like it's urging spending during a crisis for this factor: Progress is much faster at making up for costs than savings. Progress is also much better at motivating people to deal with the economy than stable periods of the business cycle.

Also: Compared to many of the world's worst country, Detroit sounds like Canada. It could be that I've never been to Detroit but from the bits I've read, that place's problem is more corruption and mis-allocated production than it is currency.

I could also be mistaken but I got the sense that Gold Standard economies run less on momentum which is what helps them recover fastest during the downturn of a business cycle. Am I wrong in assuming this?