Jesse Powell is founder and CEO of cryptocurrency trading platform Kraken. Here, he shares his reaction to the recent Mt. Gox revelations, and offers advice to fellow ‘goxed’ customers who have lost both funds and faith in bitcoin. This article was originally posted on Jesse’s blog.
I am deeply saddened to hear of the tremendous loss suffered by the bitcoin community today.
Undoubtedly, thousands of lives have been destroyed and innocent people have been left in financial ruin. I’m not often short on imagination but how the damage got to be so severe without anyone noticing is unfathomable.
I can’t help but be angry, and frustrated and depressed. All the hard work we’ve done to bring bitcoin in to the mainstream and now this, and the people. Fuck.
I actually had lunch with Mark and Gonzague in Tokyo just a month ago and despite their banking woes, they were upbeat and excited about their Bitcoin Café. We talked about how we were in it for bitcoin, and the greater good, and how we should work together.
[post-quote]
They certainly gave no indication that they were worried about insolvency. Perhaps it was something they’d come to live with, or perhaps they really were oblivious.
In time we’ll have the true story. After all, second to Bernie Madoff this is the biggest heist/giveaway/debacle of the century. The replacement value of those 744,408 lost coins must be north of $1bn – surely international law enforcement bodies will be tripping over themselves to take such a high profile case.
I was just thinking how grateful I am for not having any funds in Gox, and then I realized that I actually do have funds in Gox. You see, the last time I tried to make a withdrawal from Gox, back in 2012, they’d taken 3+ weeks and still hadn’t processed my wire.
I determined that they were insolvent, canceled my wire and immediately withdrew my funds via coupon to Bitcoinica.
As luck would have it, Bitcoinica got hacked shortly thereafter, never to recover, and what funds remained have been tied up in liquidation proceedings since. And guess who was holding those funds for the liquidator. Can you guess? Mt. Gox, that’s who!
I just ate a whole box of Thin Mints.
You know, when Gox got hacked in June of 2011, Roger Ver, one of my oldest friends from the high school Magic: the Gathering days called me up:
“I’m at the Mt. Gox office. How soon can you be in Tokyo?”
I was on the next plane, on my own dime. I spent the next two weeks volunteering at Gox, leveraging my own personal and company resources to help them get the situation under control.
I even wrote the press release about the event. I did that for the greater good of bitcoin, and when I left, I thought—for the greater good—somebody oughta make another exchange pronto because this ship is going down in flames. We founded Payward in July of 2011.
The internal Mt. Gox ‘Crisis Strategy Draft’ that was released yesterday, if authentic, seems to indicate both a disconnect with reality and a determination that operating on a fractional reserve was a necessity, for the greater good of bitcoin.
A similar approach was discovered to have been taken by Bitcoinica, unbeknownst to its users. In both cases, if the exchange had simply exposed the truth, the damage would have been lessened.
Clearly, we need to be more demanding as a community of our wallets and exchanges. Regulators have been kind enough to not enforce against unlicensed bitcoin businesses, allowing the industry to flourish, but that means the onus is on us to keep our custodians honest.
I’ve been wracking my brain trying to make sense of everything. What gets me is that Mark isn’t an idiot. If I assume that the Crisis Strategy Draft is truthy, a scenario like this is more plausible than what we’ve been fed:
- Gox was robbed of a massive amount of coins (800k+) at some prior point in time, possibly June 2011, and has been operating a fractional reserve since.
- Gox determined that it was better to continue operating the exchange, probably both for the sake of Bitcoin, and for their customers who would eventually be made whole from fees earned.
- Gox knew of transaction malleability and had been keeping that scapegoat in their back pocket to use in the event of a bank run. Or, they didn’t know but the losses from TM were actually recent and minor. Or, they didn’t know but the losses from TM occurred over a long period of time and they never noticed because they never reconciled the books, because they knew they wouldn’t match anyway because they were already fractional.
- Fiat withdrawal problems led to an increased uptick of BTC withdrawals, outpacing BTC deposits and draining reserves to 0. This may have been compounded by an actual problem with transaction malleability that accelerated the process.
- Gox spent its fiat reserves and customers’ fiat reserves to buy up BTC in order to keep the ship afloat until they could launch their rebranded Gox.com and Bitpocket wallet, which they’d hoped would provide more runway in the form of additional BTC deposits.
- Gox doesn’t make it happen in time and is forced to shut down, negative on fiat by millions and having lost all BTC.
Look, I was supposed to write some lawyer-approved PR statement about how Kraken kicks ass and is super secure and compliant, and Payward is leading the charge at DATA, and all the great things we’re doing right.
Obviously, all of that is irrelevant to the guy who just lost his life savings, wondering where he can find a good bridge.
If you got goxed too, I want to appeal to you to hang in there, and stick with it and not do anything stupid. I’ve been broke, and I’ve been robbed for every dime, and did I mention I sold ALL my bitcoin very early to get Kraken to launch?
You’ve got your life, and you’ve got your freedom, and you’ve got tremendous value to this community and cause. Bitcoin just lost a major battle and needs all the reinforcements it can get. The core dev team is underfunded and understaffed, girlscouts can’t get a wallet on iOS, banks are frozen solid, services are lacking in competent technical and business acumen.
I was standing outside of 20Mission tonight talking with Jered Kenna when we were informed by a random woman passing by that “Bitcoin is hacked and dead”.
It’s a goddamn war and it’s not going to be won without you. How many opportunities in history have we had as a people to change the world in such a positive way? If you want to join the effort, call me. If you want to jump off a bridge, call me.