More Than $140 Million in Bitcoin Moved from Mt Gox ...

Advocate for Mt Gox Creditors Quits, Saying Bitcoin Payouts Could Take Years - CoinDesk

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03-02 20:39 - 'Mark Karpeles Fails to Halt US Court Case Over Mt Gox Losses - CoinDesk' (coindesk.com) by /u/Bitcoin_21 removed from /r/Bitcoin within 1606-1616min

Mark Karpeles Fails to Halt US Court Case Over Mt Gox Losses - CoinDesk
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09-30 05:43 - 'Mt Gox Trustee Has Sold $230 Million in Bitcoin, Bitcoin Cash Since March' (coindesk.com) by /u/Wadilynnezequie removed from /r/Bitcoin within 2-12min

Mt Gox Trustee Has Sold $230 Million in Bitcoin, Bitcoin Cash Since March
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09-26 16:13 - 'Mt Gox Trustee Has Sold $230 Million in Bitcoin, Bitcoin Cash Since March' (coindesk.com) by /u/ZackCaviness removed from /r/Bitcoin within 529-539min

Mt Gox Trustee Has Sold $230 Million in Bitcoin, Bitcoin Cash Since March
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CoinDesk Removes Mt. Gox From Bitcoin Price Index

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Mt Gox Trustee Denies $400 Million Sale Caused Bitcoin Price Slump – CoinDesk

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Mt Gox CEO: I Don’t Want Bankrupt Bitcoin Exchange’s Billions – CoinDesk

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01-27 09:53 - 'Coincheck Confirms Crypto Hack approx. $533 million - Loss Larger than Mt Gox' (coindesk.com) by /u/Bitcoin_21 removed from /r/Bitcoin within 16-26min

Coincheck Confirms Crypto Hack approx. $533 million - Loss Larger than Mt Gox
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01-27 03:13 - 'Coincheck Confirms Crypto Hack Loss Larger than Mt Gox' (coindesk.com) by /u/wizardofthefuture removed from /r/Bitcoin within 24-34min

Coincheck Confirms Crypto Hack Loss Larger than Mt Gox
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Bitcoin Ponzi Schemer Hints at Dealings With Mt Gox CEO - CoinDesk

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01-26 20:23 - 'Coincheck Confirms Crypto Hack Loss Larger than Mt Gox' (coindesk.com) by /u/tentwentyseven removed from /r/Bitcoin within 3-13min

Coincheck Confirms Crypto Hack Loss Larger than Mt Gox
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Mississippi Doctors Sued Mt. Gox for Bitcoin Loss Now Worth $135 Million – Coindesk

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Kraken to Assist in Search for Missing Mt Gox Bitcoins [Coindesk Article]

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Bitcoin Ponzi Schemer Hints at Dealings With Mt Gox CEO - CoinDesk

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CoinDesk Removes Mt. Gox from Bitcoin Price Index

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CoinDesk Removes Mt. Gox from Bitcoin Price Index

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Here comes a drop... CoinDesk Removes Mt. Gox from Bitcoin Price Index

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CoinDesk Removes Mt. Gox from Bitcoin Price Index

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Bob The Magic Custodian



Summary: Everyone knows that when you give your assets to someone else, they always keep them safe. If this is true for individuals, it is certainly true for businesses.
Custodians always tell the truth and manage funds properly. They won't have any interest in taking the assets as an exchange operator would. Auditors tell the truth and can't be misled. That's because organizations that are regulated are incapable of lying and don't make mistakes.

First, some background. Here is a summary of how custodians make us more secure:

Previously, we might give Alice our crypto assets to hold. There were risks:

But "no worries", Alice has a custodian named Bob. Bob is dressed in a nice suit. He knows some politicians. And he drives a Porsche. "So you have nothing to worry about!". And look at all the benefits we get:
See - all problems are solved! All we have to worry about now is:
It's pretty simple. Before we had to trust Alice. Now we only have to trust Alice, Bob, and all the ways in which they communicate. Just think of how much more secure we are!

"On top of that", Bob assures us, "we're using a special wallet structure". Bob shows Alice a diagram. "We've broken the balance up and store it in lots of smaller wallets. That way", he assures her, "a thief can't take it all at once". And he points to a historic case where a large sum was taken "because it was stored in a single wallet... how stupid".
"Very early on, we used to have all the crypto in one wallet", he said, "and then one Christmas a hacker came and took it all. We call him the Grinch. Now we individually wrap each crypto and stick it under a binary search tree. The Grinch has never been back since."

"As well", Bob continues, "even if someone were to get in, we've got insurance. It covers all thefts and even coercion, collusion, and misplaced keys - only subject to the policy terms and conditions." And with that, he pulls out a phone-book sized contract and slams it on the desk with a thud. "Yep", he continues, "we're paying top dollar for one of the best policies in the country!"
"Can I read it?' Alice asks. "Sure," Bob says, "just as soon as our legal team is done with it. They're almost through the first chapter." He pauses, then continues. "And can you believe that sales guy Mike? He has the same year Porsche as me. I mean, what are the odds?"

"Do you use multi-sig?", Alice asks. "Absolutely!" Bob replies. "All our engineers are fully trained in multi-sig. Whenever we want to set up a new wallet, we generate 2 separate keys in an air-gapped process and store them in this proprietary system here. Look, it even requires the biometric signature from one of our team members to initiate any withdrawal." He demonstrates by pressing his thumb into the display. "We use a third-party cloud validation API to match the thumbprint and authorize each withdrawal. The keys are also backed up daily to an off-site third-party."
"Wow that's really impressive," Alice says, "but what if we need access for a withdrawal outside of office hours?" "Well that's no issue", Bob says, "just send us an email, call, or text message and we always have someone on staff to help out. Just another part of our strong commitment to all our customers!"

"What about Proof of Reserve?", Alice asks. "Of course", Bob replies, "though rather than publish any blockchain addresses or signed transaction, for privacy we just do a SHA256 refactoring of the inverse hash modulus for each UTXO nonce and combine the smart contract coefficient consensus in our hyperledger lightning node. But it's really simple to use." He pushes a button and a large green checkmark appears on a screen. "See - the algorithm ran through and reserves are proven."
"Wow", Alice says, "you really know your stuff! And that is easy to use! What about fiat balances?" "Yeah, we have an auditor too", Bob replies, "Been using him for a long time so we have quite a strong relationship going! We have special books we give him every year and he's very efficient! Checks the fiat, crypto, and everything all at once!"

"We used to have a nice offline multi-sig setup we've been using without issue for the past 5 years, but I think we'll move all our funds over to your facility," Alice says. "Awesome", Bob replies, "Thanks so much! This is perfect timing too - my Porsche got a dent on it this morning. We have the paperwork right over here." "Great!", Alice replies.
And with that, Alice gets out her pen and Bob gets the contract. "Don't worry", he says, "you can take your crypto-assets back anytime you like - just subject to our cancellation policy. Our annual management fees are also super low and we don't adjust them often".

How many holes have to exist for your funds to get stolen?
Just one.

Why are we taking a powerful offline multi-sig setup, widely used globally in hundreds of different/lacking regulatory environments with 0 breaches to date, and circumventing it by a demonstrably weak third party layer? And paying a great expense to do so?
If you go through the list of breaches in the past 2 years to highly credible organizations, you go through the list of major corporate frauds (only the ones we know about), you go through the list of all the times platforms have lost funds, you go through the list of times and ways that people have lost their crypto from identity theft, hot wallet exploits, extortion, etc... and then you go through this custodian with a fine-tooth comb and truly believe they have value to add far beyond what you could, sticking your funds in a wallet (or set of wallets) they control exclusively is the absolute worst possible way to take advantage of that security.

The best way to add security for crypto-assets is to make a stronger multi-sig. With one custodian, what you are doing is giving them your cryptocurrency and hoping they're honest, competent, and flawlessly secure. It's no different than storing it on a really secure exchange. Maybe the insurance will cover you. Didn't work for Bitpay in 2015. Didn't work for Yapizon in 2017. Insurance has never paid a claim in the entire history of cryptocurrency. But maybe you'll get lucky. Maybe your exact scenario will buck the trend and be what they're willing to cover. After the large deductible and hopefully without a long and expensive court battle.

And you want to advertise this increase in risk, the lapse of judgement, an accident waiting to happen, as though it's some kind of benefit to customers ("Free institutional-grade storage for your digital assets.")? And then some people are writing to the OSC that custodians should be mandatory for all funds on every exchange platform? That this somehow will make Canadians as a whole more secure or better protected compared with standard air-gapped multi-sig? On what planet?

Most of the problems in Canada stemmed from one thing - a lack of transparency. If Canadians had known what a joke Quadriga was - it wouldn't have grown to lose $400m from hard-working Canadians from coast to coast to coast. And Gerald Cotten would be in jail, not wherever he is now (at best, rotting peacefully). EZ-BTC and mister Dave Smilie would have been a tiny little scam to his friends, not a multi-million dollar fraud. Einstein would have got their act together or been shut down BEFORE losing millions and millions more in people's funds generously donated to criminals. MapleChange wouldn't have even been a thing. And maybe we'd know a little more about CoinTradeNewNote - like how much was lost in there. Almost all of the major losses with cryptocurrency exchanges involve deception with unbacked funds.
So it's great to see transparency reports from BitBuy and ShakePay where someone independently verified the backing. The only thing we don't have is:
It's not complicated to validate cryptocurrency assets. They need to exist, they need to be spendable, and they need to cover the total balances. There are plenty of credible people and firms across the country that have the capacity to reasonably perform this validation. Having more frequent checks by different, independent, parties who publish transparent reports is far more valuable than an annual check by a single "more credible/official" party who does the exact same basic checks and may or may not publish anything. Here's an example set of requirements that could be mandated:
There are ways to structure audits such that neither crypto assets nor customer information are ever put at risk, and both can still be properly validated and publicly verifiable. There are also ways to structure audits such that they are completely reasonable for small platforms and don't inhibit innovation in any way. By making the process as reasonable as possible, we can completely eliminate any reason/excuse that an honest platform would have for not being audited. That is arguable far more important than any incremental improvement we might get from mandating "the best of the best" accountants. Right now we have nothing mandated and tons of Canadians using offshore exchanges with no oversight whatsoever.

Transparency does not prove crypto assets are safe. CoinTradeNewNote, Flexcoin ($600k), and Canadian Bitcoins ($100k) are examples where crypto-assets were breached from platforms in Canada. All of them were online wallets and used no multi-sig as far as any records show. This is consistent with what we see globally - air-gapped multi-sig wallets have an impeccable record, while other schemes tend to suffer breach after breach. We don't actually know how much CoinTrader lost because there was no visibility. Rather than publishing details of what happened, the co-founder of CoinTrader silently moved on to found another platform - the "most trusted way to buy and sell crypto" - a site that has no information whatsoever (that I could find) on the storage practices and a FAQ advising that “[t]rading cryptocurrency is completely safe” and that having your own wallet is “entirely up to you! You can certainly keep cryptocurrency, or fiat, or both, on the app.” Doesn't sound like much was learned here, which is really sad to see.
It's not that complicated or unreasonable to set up a proper hardware wallet. Multi-sig can be learned in a single course. Something the equivalent complexity of a driver's license test could prevent all the cold storage exploits we've seen to date - even globally. Platform operators have a key advantage in detecting and preventing fraud - they know their customers far better than any custodian ever would. The best job that custodians can do is to find high integrity individuals and train them to form even better wallet signatories. Rather than mandating that all platforms expose themselves to arbitrary third party risks, regulations should center around ensuring that all signatories are background-checked, properly trained, and using proper procedures. We also need to make sure that signatories are empowered with rights and responsibilities to reject and report fraud. They need to know that they can safely challenge and delay a transaction - even if it turns out they made a mistake. We need to have an environment where mistakes are brought to the surface and dealt with. Not one where firms and people feel the need to hide what happened. In addition to a knowledge-based test, an auditor can privately interview each signatory to make sure they're not in coercive situations, and we should make sure they can freely and anonymously report any issues without threat of retaliation.
A proper multi-sig has each signature held by a separate person and is governed by policies and mutual decisions instead of a hierarchy. It includes at least one redundant signature. For best results, 3of4, 3of5, 3of6, 4of5, 4of6, 4of7, 5of6, or 5of7.

History has demonstrated over and over again the risk of hot wallets even to highly credible organizations. Nonetheless, many platforms have hot wallets for convenience. While such losses are generally compensated by platforms without issue (for example Poloniex, Bitstamp, Bitfinex, Gatecoin, Coincheck, Bithumb, Zaif, CoinBene, Binance, Bitrue, Bitpoint, Upbit, VinDAX, and now KuCoin), the public tends to focus more on cases that didn't end well. Regardless of what systems are employed, there is always some level of risk. For that reason, most members of the public would prefer to see third party insurance.
Rather than trying to convince third party profit-seekers to provide comprehensive insurance and then relying on an expensive and slow legal system to enforce against whatever legal loopholes they manage to find each and every time something goes wrong, insurance could be run through multiple exchange operators and regulators, with the shared interest of having a reputable industry, keeping costs down, and taking care of Canadians. For example, a 4 of 7 multi-sig insurance fund held between 5 independent exchange operators and 2 regulatory bodies. All Canadian exchanges could pay premiums at a set rate based on their needed coverage, with a higher price paid for hot wallet coverage (anything not an air-gapped multi-sig cold wallet). Such a model would be much cheaper to manage, offer better coverage, and be much more reliable to payout when needed. The kind of coverage you could have under this model is unheard of. You could even create something like the CDIC to protect Canadians who get their trading accounts hacked if they can sufficiently prove the loss is legitimate. In cases of fraud, gross negligence, or insolvency, the fund can be used to pay affected users directly (utilizing the last transparent balance report in the worst case), something which private insurance would never touch. While it's recommended to have official policies for coverage, a model where members vote would fully cover edge cases. (Could be similar to the Supreme Court where justices vote based on case law.)
Such a model could fully protect all Canadians across all platforms. You can have a fiat coverage governed by legal agreements, and crypto-asset coverage governed by both multi-sig and legal agreements. It could be practical, affordable, and inclusive.

Now, we are at a crossroads. We can happily give up our freedom, our innovation, and our money. We can pay hefty expenses to auditors, lawyers, and regulators year after year (and make no mistake - this cost will grow to many millions or even billions as the industry grows - and it will be borne by all Canadians on every platform because platforms are not going to eat up these costs at a loss). We can make it nearly impossible for any new platform to enter the marketplace, forcing Canadians to use the same stagnant platforms year after year. We can centralize and consolidate the entire industry into 2 or 3 big players and have everyone else fail (possibly to heavy losses of users of those platforms). And when a flawed security model doesn't work and gets breached, we can make it even more complicated with even more people in suits making big money doing the job that blockchain was supposed to do in the first place. We can build a system which is so intertwined and dependent on big government, traditional finance, and central bankers that it's future depends entirely on that of the fiat system, of fractional banking, and of government bail-outs. If we choose this path, as history has shown us over and over again, we can not go back, save for revolution. Our children and grandchildren will still be paying the consequences of what we decided today.
Or, we can find solutions that work. We can maintain an open and innovative environment while making the adjustments we need to make to fully protect Canadian investors and cryptocurrency users, giving easy and affordable access to cryptocurrency for all Canadians on the platform of their choice, and creating an environment in which entrepreneurs and problem solvers can bring those solutions forward easily. None of the above precludes innovation in any way, or adds any unreasonable cost - and these three policies would demonstrably eliminate or resolve all 109 historic cases as studied here - that's every single case researched so far going back to 2011. It includes every loss that was studied so far not just in Canada but globally as well.
Unfortunately, finding answers is the least challenging part. Far more challenging is to get platform operators and regulators to agree on anything. My last post got no response whatsoever, and while the OSC has told me they're happy for industry feedback, I believe my opinion alone is fairly meaningless. This takes the whole community working together to solve. So please let me know your thoughts. Please take the time to upvote and share this with people. Please - let's get this solved and not leave it up to other people to do.

Facts/background/sources (skip if you like):



Thoughts?
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How To End The Cryptocurrency Exchange "Wild West" Without Crippling Innovation


In case you haven't noticed the consultation paper, staff notice, and report on Quadriga, regulators are now clamping down on Canadian cryptocurrency exchanges. The OSC and other regulatory bodies are still interested in industry feedback. They have not put forward any official regulation yet. Below are some ideas/insights and a proposed framework.



Many of you have limited time to read the full proposal, so here are the highlights:

Offline Multi-Signature

Effective standards to prevent both internal and external theft. Exchange operators are trained and certified, and have a legal responsibility to users.

Regular Transparent Audits

Provides visibility to Canadians that their funds are fully backed on the exchange, while protecting privacy and sensitive platform information.

Insurance Requirements

Establishment of basic insurance standards/strategy, to expand over time. Removing risk to exchange users of any hot wallet theft.


Background and Justifications


Cold Storage Custody/Management
After reviewing close to 100 cases, all thefts tend to break down into more or less the same set of problems:
• Funds stored online or in a smart contract,
• Access controlled by one person or one system,
• 51% attacks (rare),
• Funds sent to the wrong address (also rare), or
• Some combination of the above.
For the first two cases, practical solutions exist and are widely implemented on exchanges already. Offline multi-signature solutions are already industry standard. No cases studied found an external theft or exit scam involving an offline multi-signature wallet implementation. Security can be further improved through minimum numbers of signatories, background checks, providing autonomy and legal protections to each signatory, establishing best practices, and a training/certification program.
The last two transaction risks occur more rarely, and have never resulted in a loss affecting the actual users of the exchange. In all cases to date where operators made the mistake, they've been fully covered by the exchange platforms.
• 51% attacks generally only occur on blockchains with less security. The most prominent cases have been Bitcoin Gold and Ethereum Classic. The simple solution is to enforce deposit limits and block delays such that a 51% attack is not cost-effective.
• The risk of transactions to incorrect addresses can be eliminated by a simple test transaction policy on large transactions. By sending a small amount of funds prior to any large withdrawals/transfers as a standard practice, the accuracy of the wallet address can be validated.
The proposal covers all loss cases and goes beyond, while avoiding significant additional costs, risks, and limitations which may be associated with other frameworks like SOC II.

On The Subject of Third Party Custodians
Many Canadian platforms are currently experimenting with third party custody. From the standpoint of the exchange operator, they can liberate themselves from some responsibility of custody, passing that off to someone else. For regulators, it puts crypto in similar categorization to oil, gold, and other commodities, with some common standards. Platform users would likely feel greater confidence if the custodian was a brand they recognized. If the custodian was knowledgeable and had a decent team that employed multi-sig, they could keep assets safe from internal theft. With the right protections in place, this could be a great solution for many exchanges, particularly those that lack the relevant experience or human resources for their own custody systems.
However, this system is vulnerable to anyone able to impersonate the exchange operators. You may have a situation where different employees who don't know each other that well are interacting between different companies (both the custodian and all their customers which presumably isn't just one exchange). A case study of what can go wrong in this type of environment might be Bitpay, where the CEO was tricked out of 5000 bitcoins over 3 separate payments by a series of emails sent legitimately from a breached computer of another company CEO. It's also still vulnerable to the platform being compromised, as in the really large $70M Bitfinex hack, where the third party Bitgo held one key in a multi-sig wallet. The hacker simply authorized the withdrawal using the same credentials as Bitfinex (requesting Bitgo to sign multiple withdrawal transactions). This succeeded even with the use of multi-sig and two heavily security-focused companies, due to the lack of human oversight (basically, hot wallet). Of course, you can learn from these cases and improve the security, but so can hackers improve their deception and at the end of the day, both of these would have been stopped by the much simpler solution of a qualified team who knew each other and employed multi-sig with properly protected keys. It's pretty hard to beat a human being who knows the business and the typical customer behaviour (or even knows their customers personally) at spotting fraud, and the proposed multi-sig means any hacker has to get through the scrutiny of 3 (or more) separate people, all of whom would have proper training including historical case studies.
There are strong arguments both for and against using use of third party custodians. The proposal sets mandatory minimum custody standards would apply regardless if the cold wallet signatories are exchange operators, independent custodians, or a mix of both.

On The Subject Of Insurance
ShakePay has taken the first steps into this new realm (congratulations). There is no question that crypto users could be better protected by the right insurance policies, and it certainly feels better to transact with insured platforms. The steps required to obtain insurance generally place attention in valuable security areas, and in this case included a review from CipherTrace. One of the key solutions in traditional finance comes from insurance from entities such as the CDIC.
However, historically, there wasn't found any actual insurance payout to any cryptocurrency exchange, and there are notable cases where insurance has not paid. With Bitpay, for example, the insurance agent refused because the issue happened to the third party CEO's computer instead of anything to do with Bitpay itself. With the Youbit exchange in South Korea, their insurance claim was denied, and the exchange ultimately ended up instead going bankrupt with all user's funds lost. To quote Matt Johnson in the original Lloyd's article: “You can create an insurance policy that protects no one – you know there are so many caveats to the policy that it’s not super protective.”
ShakePay's insurance was only reported to cover their cold storage, and “physical theft of the media where the private keys are held”. Physical theft has never, in the history of cryptocurrency exchange cases reviewed, been reported as the cause of loss. From the limited information of the article, ShakePay made it clear their funds are in the hands of a single US custodian, and at least part of their security strategy is to "decline[] to confirm the custodian’s name on the record". While this prevents scrutiny of the custodian, it's pretty silly to speculate that a reasonably competent hacking group couldn't determine who the custodian is. A far more common infiltration strategy historically would be social engineering, which has succeeded repeatedly. A hacker could trick their way into ShakePay's systems and request a fraudulent withdrawal, impersonate ShakePay and request the custodian to move funds, or socially engineer their way into the custodian to initiate the withdrawal of multiple accounts (a payout much larger than ShakePay) exploiting the standard procedures (for example, fraudulently initiating or override the wallet addresses of a real transfer). In each case, nothing was physically stolen and the loss is therefore not covered by insurance.
In order for any insurance to be effective, clear policies have to be established about what needs to be covered. Anything short of that gives Canadians false confidence that they are protected when they aren't in any meaningful way. At this time, the third party insurance market does not appear to provide adequate options or coverage, and effort is necessary to standardize custody standards, which is a likely first step in ultimately setting up an insurance framework.
A better solution compared to third party insurance providers might be for Canadian exchange operators to create their own collective insurance fund, or a specific federal organization similar to the CDIC. Such an organization would have a greater interest or obligation in paying out actual cases, and that would be it's purpose rather than maximizing it's own profit. This would be similar to the SAFU which Binance has launched, except it would cover multiple exchanges. There is little question whether the SAFU would pay out given a breach of Binance, and a similar argument could be made for a insurance fund managed by a collective of exchange operators or a government organization. While a third party insurance provider has the strong market incentive to provide the absolute minimum coverage and no market incentive to payout, an entity managed by exchange operators would have incentive to protect the reputation of exchange operators/the industry, and the government should have the interest of protecting Canadians.

On The Subject of Fractional Reserve
There is a long history of fractional reserve failures, from the first banks in ancient times, through the great depression (where hundreds of fractional reserve banks failed), right through to the 2008 banking collapse referenced in the first bitcoin block. The fractional reserve system allows banks to multiply the money supply far beyond the actual cash (or other assets) in existence, backed only by a system of debt obligations of others. Safely supporting a fractional reserve system is a topic of far greater complexity than can be addressed by a simple policy, and when it comes to cryptocurrency, there is presently no entity reasonably able to bail anyone out in the event of failure. Therefore, this framework is addressed around entities that aim to maintain 100% backing of funds.
There may be some firms that desire but have failed to maintain 100% backing. In this case, there are multiple solutions, including outside investment, merging with other exchanges, or enforcing a gradual restoration plan. All of these solutions are typically far better than shutting down the exchange, and there are multiple cases where they've been used successfully in the past.

Proof of Reserves/Transparency/Accountability
Canadians need to have visibility into the backing on an ongoing basis.
The best solution for crypto-assets is a Proof of Reserve. Such ideas go back all the way to 2013, before even Mt. Gox. However, no Canadian exchange has yet implemented such a system, and only a few international exchanges (CoinFloor in the UK being an example) have. Many firms like Kraken, BitBuy, and now ShakePay use the Proof of Reserve term to refer to lesser proofs which do not actually cryptographically prove the full backing of all user assets on the blockchain. In order for a Proof of Reserve to be effective, it must actually be a complete proof, and it needs to be understood by the public that is expected to use it. Many firms have expressed reservations about the level of transparency required in a complete Proof of Reserve (for example Kraken here). While a complete Proof of Reserves should be encouraged, and there are some solutions in the works (ie TxQuick), this is unlikely to be suitable universally for all exchange operators and users.
Given the limitations, and that firms also manage fiat assets, a more traditional audit process makes more sense. Some Canadian exchanges (CoinSquare, CoinBerry) have already subjected themselves to annual audits. However, these results are not presently shared publicly, and there is no guarantee over the process including all user assets or the integrity and independence of the auditor. The auditor has been typically not known, and in some cases, the identity of the auditor is protected by a NDA. Only in one case (BitBuy) was an actual report generated and publicly shared. There has been no attempt made to validate that user accounts provided during these audits have been complete or accurate. A fraudulent fractional exchange, or one which had suffered a breach they were unwilling to publicly accept (see CoinBene), could easily maintain a second set of books for auditors or simply exclude key accounts to pass an individual audit.
The proposed solution would see a reporting standard which includes at a minimum - percentage of backing for each asset relative to account balances and the nature of how those assets are stored, with ownership proven by the auditor. The auditor would also publicly provide a "hash list", which they independently generate from the accounts provided by the exchange. Every exchange user can then check their information against this public "hash list". A hash is a one-way form of encryption, which fully protects the private information, yet allows anyone who knows that information already to validate that it was included. Less experienced users can take advantage of public tools to calculate the hash from their information (provided by the exchange), and thus have certainty that the auditor received their full balance information. Easy instructions can be provided.
Auditors should be impartial, their identities and process public, and they should be rotated so that the same auditor is never used twice in a row. Balancing the cost of auditing against the needs for regular updates, a 6 month cycle likely makes the most sense.

Hot Wallet Management
The best solution for hot wallets is not to use them. CoinBerry reportedly uses multi-sig on all withdrawals, and Bitmex is an international example known for their structure devoid of hot wallets.
However, many platforms and customers desire fast withdrawal processes, and human validation has a cost of time and delay in this process.
A model of self-insurance or separate funds for hot wallets may be used in these cases. Under this model, a platform still has 100% of their client balance in cold storage and holds additional funds in hot wallets for quick withdrawal. Thus, the risk of those hot wallets is 100% on exchange operators and not affecting the exchange users. Since most platforms typically only have 1%-5% in hot wallets at any given time, it shouldn't be unreasonable to build/maintain these additional reserves over time using exchange fees or additional investment. Larger withdrawals would still be handled at regular intervals from the cold storage.
Hot wallet risks have historically posed a large risk and there is no established standard to guarantee secure hot wallets. When the government of South Korea dispatched security inspections to multiple exchanges, the results were still that 3 of them got hacked after the inspections. If standards develop such that an organization in the market is willing to insure the hot wallets, this could provide an acceptable alternative. Another option may be for multiple exchange operators to pool funds aside for a hot wallet insurance fund. Comprehensive coverage standards must be established and maintained for all hot wallet balances to make sure Canadians are adequately protected.

Current Draft Proposal

(1) Proper multi-signature cold wallet storage.
(a) Each private key is the personal and legal responsibility of one person - the “signatory”. Signatories have special rights and responsibilities to protect user assets. Signatories are trained and certified through a course covering (1) past hacking and fraud cases, (2) proper and secure key generation, and (3) proper safekeeping of private keys. All private keys must be generated and stored 100% offline by the signatory. If even one private keys is ever breached or suspected to be breached, the wallet must be regenerated and all funds relocated to a new wallet.
(b) All signatories must be separate background-checked individuals free of past criminal conviction. Canadians should have a right to know who holds their funds. All signing of transactions must take place with all signatories on Canadian soil or on the soil of a country with a solid legal system which agrees to uphold and support these rules (from an established white-list of countries which expands over time).
(c) 3-5 independent signatures are required for any withdrawal. There must be 1-3 spare signatories, and a maximum of 7 total signatories. The following are all valid combinations: 3of4, 3of5, 3of6, 4of5, 4of6, 4of7, 5of6, or 5of7.
(d) A security audit should be conducted to validate the cold wallet is set up correctly and provide any additional pertinent information. The primary purpose is to ensure that all signatories are acting independently and using best practices for private key storage. A report summarizing all steps taken and who did the audit will be made public. Canadians must be able to validate the right measures are in place to protect their funds.
(e) There is a simple approval process if signatories wish to visit any country outside Canada, with a potential whitelist of exempt countries. At most 2 signatories can be outside of aligned jurisdiction at any given time. All exchanges would be required to keep a compliant cold wallet for Canadian funds and have a Canadian office if they wish to serve Canadian customers.
(2) Regular and transparent solvency audits.
(a) An audit must be conducted at founding, after 3 months of operation, and at least once every 6 months to compare customer balances against all stored cryptocurrency and fiat balances. The auditor must be known, independent, and never the same twice in a row.
(b) An audit report will be published featuring the steps conducted in a readable format. This should be made available to all Canadians on the exchange website and on a government website. The report must include what percentage of each customer asset is backed on the exchange, and how those funds are stored.
(c) The auditor will independently produce a hash of each customer's identifying information and balance as they perform the audit. This will be made publicly available on the exchange and government website, along with simplified instructions that each customer can use to verify that their balance was included in the audit process.
(d) The audit needs to include a proof of ownership for any cryptocurrency wallets included. A satoshi test (spending a small amount) or partially signed transaction both qualify.
(e) Any platform without 100% reserves should be assessed on a regular basis by a government or industry watchdog. This entity should work to prevent any further drop, support any private investor to come in, or facilitate a merger so that 100% backing can be obtained as soon as possible.
(3) Protections for hot wallets and transactions.
(a) A standardized list of approved coins and procedures will be established to constitute valid cold storage wallets. Where a multi-sig process is not natively available, efforts will be undertaken to establish a suitable and stable smart contract standard. This list will be expanded and improved over time. Coins and procedures not on the list are considered hot wallets.
(b) Hot wallets can be backed by additional funds in cold storage or an acceptable third-party insurance provider with a comprehensive coverage policy.
(c) Exchanges are required to cover the full balance of all user funds as denominated in the same currency, or double the balance as denominated in bitcoin or CAD using an established trading rate. If the balance is ever insufficient due to market movements, the firm must rectify this within 24 hours by moving assets to cold storage or increasing insurance coverage.
(d) Any large transactions (above a set threshold) from cold storage to any new wallet addresses (not previously transacted with) must be tested with a smaller transaction first. Deposits of cryptocurrency must be limited to prevent economic 51% attacks. Any issues are to be covered by the exchange.
(e) Exchange platforms must provide suitable authentication for users, including making available approved forms of two-factor authentication. SMS-based authentication is not to be supported. Withdrawals must be blocked for 48 hours in the event of any account password change. Disputes on the negligence of exchanges should be governed by case law.

Steps Forward

Continued review of existing OSC feedback is still underway. More feedback and opinions on the framework and ideas as presented here are extremely valuable. The above is a draft and not finalized.
The process of further developing and bringing a suitable framework to protect Canadians will require the support of exchange operators, legal experts, and many others in the community. The costs of not doing such are tremendous. A large and convoluted framework, one based on flawed ideas or implementation, or one which fails to properly safeguard Canadians is not just extremely expensive and risky for all Canadians, severely limiting to the credibility and reputation of the industry, but an existential risk to many exchanges.
The responsibility falls to all of us to provide our insight and make our opinions heard on this critical matter. Please take the time to give your thoughts.
submitted by azoundria2 to QuadrigaInitiative [link] [comments]

It could take 2 years for Mt Gox creditors to get paid

It could take 2 years for Mt Gox creditors to get paid submitted by CryptoNoob-17 to Bitcoin [link] [comments]

Crypto-Powered: Understanding Bitcoin, Ethereum, and DeFi

Crypto-Powered: Understanding Bitcoin, Ethereum, and DeFi
Until one understands the basics of this tech, they won’t be able to grasp or appreciate the impact it has on our digital bank, Genesis Block.
https://reddit.com/link/ho4bif/video/n0euarkifu951/player
This is the second post of Crypto-Powered — a new series that examines what it means for Genesis Block to be a digital bank that’s powered by crypto, blockchain, and decentralized protocols.
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Our previous post set the stage for this series. We discussed the state of consumer finance and how the success of today’s high-flying fintech unicorns will be short-lived as long as they’re building on legacy finance — a weak foundation that is ripe for massive disruption.
Instead, the future of consumer finance belongs to those who are deeply familiar with blockchain tech & decentralized protocols, build on it as the foundation, and know how to take it to the world. Like Genesis Block.
Today we begin our journey down the crypto rabbit hole. This post will be an important introduction for those still learning about Bitcoin, Ethereum, or DeFi (Decentralized Finance). This post (and the next few) will go into greater detail about how this technology gives Genesis Block an edge, a superpower, and an unfair advantage. Let’s dive in…
https://preview.redd.it/1ugdxoqjfu951.jpg?width=650&format=pjpg&auto=webp&s=36edde1079c3cff5f6b15b8cd30e6c436626d5d8

Bitcoin: The First Cryptocurrency

There are plenty of online resources to learn about Bitcoin (Coinbase, Binance, Gemini, Naval, Alex Gladstein, Marc Andreessen, Chris Dixon). I don’t wanna spend a lot of time on that here, but let’s do a quick overview for those still getting ramped up.
Cryptocurrency is the most popular use-case of blockchain technology today. And Bitcoin was the first cryptocurrency to be invented.
Bitcoin is the most decentralized of all crypto assets today — no government, company, or third party can control or censor it.
Bitcoin has two primary features (as do most other cryptocurrencies):
  1. Send Value You can send value to anyone, anywhere in the world. Nobody can intercept, delay or stop it — not even governments or financial institutions. Unlike with traditional money transfers or bank wires, there are no layers of middlemen. This results in a process that is much more cost-efficient. Some popular use-cases include remittances and cross-border payments.
  2. Store Value With nothing but a smartphone, you can become your own bank and store your own funds. Nobody can seize your assets. The funds are digital and stored on a blockchain. Your money no longer needs to be stored at a bank, in a vault, or under your mattress. I covered a few inspiring use-cases in a previous post. They include banking the unbanked, protecting assets from government seizure, mitigating the risk of a bank run, and protection against hyperinflation (like what recently happened in Venezuela).
The fact that there are so few things one can do with Bitcoin is one of its greatest strengths.
Its design is simple, elegant, and focused. It has been 10+ years since Satoshi’s white paper and no one has been able to crack or hack the Bitcoin network. With a market cap of $170B, there is plenty of incentive to try.
https://preview.redd.it/bizndfpkfu951.png?width=800&format=png&auto=webp&s=456c53b798248e60456a65835a33c69b2fe8daf0

Public Awareness

A few negative moments in Bitcoin’s history include the collapse of Mt. Gox — which resulted in hundreds of millions of customer funds being stolen — as well as Bitcoin’s role in dark markets like Silk Road — where Bitcoin arguably found its initial userbase.
However, like most breakthrough technology, Bitcoin is neither good nor bad. It’s neutral. People can use it for good or they can use it for evil. Thankfully, it’s being used less and less for illicit activity. Criminals are starting to understand that transactions on a blockchain are public and traceable — it’s exactly the type of system they usually try to avoid. And it’s true, at this point “a lot more” crimes are actually committed with fiat than crypto.
As a result, the perception of bitcoin and cryptocurrency has been changing over the years to a more positive light.
Bitcoin has even started to enter the world of media & entertainment. It’s been mentioned in Hollywood films like Spiderman: Into the Spider-Verse and in songs from major artists like Eminem. It’s been mentioned in countless TV shows like Billions, The Simpsons, Big Bang Theory, Gray’s Anatomy, Family Guy, and more.
As covid19 has ravaged economies and central banks have been printing money, Bitcoin has caught the attention of many legendary Wall Street investors like Paul Tudor Jones, saying that Bitcoin is a great bet against inflation (reminding him of Gold in the 1970s).
Cash App already lets their 25M users buy Bitcoin. It’s rumored that PayPal and Venmo will soon let their 325M users start buying Bitcoin. Bitcoin is by far the most dominant cryptocurrency and is showing no signs of slowing down. For more than a decade it has delivered on its core use-cases — being able to send or store value.
At this point, Bitcoin has very much entered the zeitgeist of modern pop culture — at least in the West.
https://preview.redd.it/dnuwbw8mfu951.png?width=800&format=png&auto=webp&s=6f1f135e3effee4574b5167901b80ced2c972bda

Ethereum: Programmable Money

When Ethereum launched in 2015, it opened up a world of new possibilities and use-cases for crypto. With Ethereum Smart Contracts (i.e. applications), this exciting new digital money (cryptocurrency) became a lot less dumb. Developers could now build applications that go beyond the simple use-cases of “send value” & “store value.” They could program cryptocurrency to have rules, behavior, and logic to respond to different inputs. And always enforced by code. Additional reading on Ethereum from Linda Xie or Vitalik Buterin.
Because these applications are built on blockchain technology (Ethereum), they preserve many of the same characteristics as Bitcoin: no one can stop, censor or shut down these apps because they are decentralized.
One of the first major use-cases on Ethereum was the ability to mint and create your own token, your own cryptocurrency. Many companies used this as a way to fundraise from the public. This led to the 2017 ICO bubble (Initial Coin Offerings). Some tokens — and the apps/networks they powered — were fascinating and innovative. Most tokens were pointless. And many tokens were outright scams. Additional token reading from Fred Ehrsam, Balaji, and Naval.
https://reddit.com/link/ho4bif/video/b5b1jh9ofu951/player

Digital Gold Rush

Just as tokens grew in popularity in 2017–2018, so did online marketplaces where these tokens could be bought, sold, and traded. This was a fledgling asset class — the merchants selling picks, axes, and shovels were finally starting to emerge.
I had a front-row seat — both as an investor and token creator. This was the Wild West with all the frontier drama & scandal that you’d expect.
Binance — now the world’s largest crypto exchange —was launched during this time. They along with many others (especially from Asia) made it really easy for speculators, traders, and degenerate gamblers to participate in these markets. Similar to other financial markets, the goal was straightforward: buy low and sell high.
https://preview.redd.it/tytsu5jnfu951.jpg?width=600&format=pjpg&auto=webp&s=fe3425b7e4a71fa953b953f0c7f6eaff6504a0d1
That period left an embarrassing stain on our industry that we’ve still been trying to recover from. It was a period rampant with market manipulation, pump-and-dumps, and scams. To some extent, the crypto industry still suffers from that today, but it’s nothing compared to what it was then.
While the potential of getting filthy rich brought a lot of fly-by-nighters and charlatans into the industry, it also brought a lot of innovators, entrepreneurs, and builders.
The launch and growth of Ethereum has been an incredible technological breakthrough. As with past tech breakthroughs, it has led to a wave of innovation, experimentation, and development. The creativity around tokens, smart contracts, and decentralized applications has been fascinating to witness. Now a few years later, the fruits of those labors are starting to be realized.

DeFi: Decentralized Finance

So as a reminder, tokens are cryptocurrencies. Cryptocurrencies can carry value. And value is a lot like money. Because tokens are natively integrated with Ethereum, it’s been natural for developers to build applications related to financial services — things like lending, borrowing, saving, investing, payments, and insurance. In the last few years, there has been a groundswell of developer momentum building in this area of financial protocols. This segment of the industry is known as DeFi (Decentralized Finance).
https://preview.redd.it/f0sjzqspfu951.png?width=461&format=png&auto=webp&s=8e0a31bf29250fc624918fbd8514b008762f379e
In Q2 of 2020, 97% of all Ethereum activity was DeFi-related. Total DeFi transaction volume has reached $11.5B. The current value locked inside DeFi protocols is approaching $2 Billion (double from a month ago). DeFi’s meteoric growth cannot be ignored.
Most of that growth can be attributed to exciting protocols like Compound, Maker, Synthetix, Balancer, Aave, dYdX, and Uniswap. These DeFi protocols and the financial services they offer are quickly becoming some of the most popular use-cases for blockchain technology today.
https://preview.redd.it/wn3phnkqfu951.png?width=800&format=png&auto=webp&s=02f56caa6b94aa59eadd6e368ef9346ba10c7611
This impressive growth in DeFi certainly hasn’t come without growing pains. Unlike with Bitcoin, there are near-infinite applications one can develop on Ethereum. Sometimes bugs (or typos) can slip through code reviews, testing, and audits — resulting in loss of funds.
Our next post will go much deeper on DeFi.

Wrap Up

I know that for the hardcore crypto people, what we covered today is nothing new. But for those who are still getting up to speed, welcome! I hope this was helpful and that it fuels your interest to learn more.
Until you understand the basics of this technology, you won’t be able to fully appreciate the impact that it has on our new digital bank, Genesis Block. You won’t be able to understand the implications, how it relates, or how it helps.
After today’s post, some of you probably have a lot more questions. What are specific examples or use-cases of DeFi? Why does it need to be on a blockchain? What benefits does it bring to Genesis Block and our users?
In upcoming posts, we answer these questions. Today’s post was just Level 1. It set the foundation for where we’re headed next: even deeper down the crypto rabbit hole.
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Other Ways to Consume Today's Episode:
We have a lot more content coming. Be sure to follow our channels: https://genesisblock.com/follow/
Have you already downloaded the app? We're Genesis Block, a new digital bank that's powered by crypto & decentralized protocols. The app is live in the App Store (iOS & Android). Get the link to download at https://genesisblock.com/download
submitted by mickhagen to genesisblockhq [link] [comments]

Mt. Gox, tutta la verità, una balena impazzita, crollerà il bitcoin? Insider BTC: Josh Jones of BitcoinBuilder.com talks Mt. Gox Bad News is Good News - Mt. Gox Troubles Continue ... Mt.Gox Transfer Issues + Bitcoin Threatens Paypal + CoinStax  Morning Bit Ep 43 MTGOX heeft net zo veel met bitcoin te maken als de DSB met de euro.

16,000 bitcoins (an amount worth about $141 million) tied to the now-defunct bitcoin exchange Mt Gox were moved on Thursday. According to CryptoGround, which monitors Mt Gox’s remaining wallets ... Launched in 2011, Mt. Gox was the world’s largest bitcoin exchange, handling up to 70% of bitcoin trades, until its spectacular demise in 2014. Mt Gox Trustee: $400 Million Sale Didn’t Drop Bitcoin Price The trustee overseeing the bankruptcy of the defunct Mt. Gox cryptocurrency exchange has denied being the cause of the decline in ... Bitcoin; Blockchain; Mt.Gox – CoinDesk. June 8, 2020. Launched in 2010 Mt. Gox was the world’s largest bitcoin exchange until its demise in 2014. By 2013, the Japan-based exchange was handling 70 percent of all bitcoin trades worldwide, but collapsed in 2014 after it was revealed that it had lost 744,408 of its customers’ bitcoins and 100,000 of its own bitcoins, amounting to the loss of ... Mt. Gox's bankruptcy proceedings have been halted and its bitcoin holdings could soon be distributed to creditors seeking reimbursement.

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Mt. Gox, tutta la verità, una balena impazzita, crollerà il bitcoin?

It's one of the most famous confrontations in crypto: An angry MtGox user corners Mark Karpeles outside of his office and demands the return of his lost bitcoin. Now, years later, Kolin Burges ... Als iemand je voor 50 euro een I-phone aanbied op markt plaats , zo je er redelijke zekerheid vanuit kunnen gaan dat er iets niet klopt , Dit geld ook voor MTGOX , ze hadden soms duidelijk hogere ... Mt. Gox CEO Mark Karpeles: 'I Am Still In Japan' Mark Karpeles, the chief executive of troubled Bitcoin exchange Mt Gox, has sought to calm market concerns by insisting he remains in Japan, where ... This video is unavailable. Watch Queue Queue. Watch Queue Queue Bitcoin Falls - Round Two! Whale Trader Games, Playing The Charts, Gemini, CFTC Regulations - Ep160 - Duration: 22:27. Coin Mastery 42,157 views

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