Those 500K Bitcoins That Caused a ‘Flash Crash’ Weren’t Real

It looks like the hacker who breached Mt. Gox made off with about $34,000 worth of Bitcoin and then artificially crashed the market by dropping a sell order for 500,000 BTC, according to the post-mortem about the hack published by Mt. Gox. But while the hacker did withdraw 2,000 in actual BTC, which Mt. Gox is replacing at their own expense, the enormous sell order was vapor:

We would like to note that the Bitcoins sold were not taken from other users’ accounts—they were simply numbers with no wallet backing. For a brief period, the number of Bitcoins in the Mt. Gox exchange vastly outnumbered the Bitcoins in our wallet. Normally, this should be impossible.

The sales could not have been completed because there were no actual Bitcoins to transfer. The hacker had simply assigned himself a huge number of BTC, which was enough to place orders on Mt. Gox and confuse the market.  Read More

Comments

  1. J Cv says:

    um so Kevin Day is not a millionaire after all.

  2. Anonymous says:

    This story is better and more accurate than the Ian Paul PC  World Story. Paul doesn’t appear to understand what he is reporting. Being a PC World editor must not require much of a resume.

  3. This story isn’t any more accurate than Ian Paul’s, but I admit it’s difficult for non-techincal people to understand what happened.  Think of it like this: what Mt Gox. is saying is that for safety purposes, the vast majority of bitcoins, with the exception of those needed for daily trading, were stored in a “wallet” or “main vault”.  Because of this, when somebody put in a sell order for 500000 bitcoins, there weren’t actually enough bitcoins in the actual exchange for the transaction to become “real”.  It was real on paper, but no digital gold, actually went anywhere.

    It’s as if you broke into somebody’s “gold exchange” account and “sold” a bunch of gold for nothing.  It would crash the price, but none of the gold would actually move anywhere.