Bitcoin exchange glitch almost* results in a $20 trillion loss.

[OfficialLament]

Just found this, amusing glitch but with potentially disastrous consequences if it wasn't so swiftly discovered.

 

Essentially what happened is that a Bitcoin exchange based in Japan called Zaif experienced a glitch that allowed users to buy Bitcoin at $0 (aka, for free).

These users then tried to transfer this money elsewhere (another wallet, bank, etc), but the company found out pretty quickly and reversed the transactions. In my experience smaller exchanges often review transactions manually and the larger exchanges do not (since there are far too many transactions for all of them to be manually reviewed).

Obviously the Bitcoin exchange didn't have $20 trillion in Bitcoin so any attempt to withdraw would've failed even if the company hadn't been aware of it, which is pretty lucky since hypothetically (since it was impossible for it to have gone through) had the transaction gone through it would've caused a mass crash in BTC (and other major cryptocurrencies) and the damage done would be extensive (Bitcoin has a market cap of approximately $183 billion, so $20 trillion of BTC is impossible in any case).

 

In my opinion this would've been extremely disastrous for an exchange had it been smaller amounts that a security system didn't mark as "suspicous" (to the point of bankruptcy), especially if the exchange was one of the larger ones such as Coinbase. If an exchange had a glitch that allowed the purchase of BTC for free and many users had purchased tiny amounts of BTC, and then transferred out out successfully, the exchange would be forced to cease trading while the issue was being investigated and if the money couldn't be retrieved, they may even go bankrupt.

 

I'm unsure what the legal processes would be though- if you purchased a currency which the exchange was selling for nothing, would they legally be able to get it back (I'm guessing it depends on your country of residence)?
It's obvious that it would've been a glitch but I'm not even sure how pulling the "it was a glitch, it's their fault" card would fare in court...

 

Here's a quote from the article which can be found here.

 

Quote

 

Zaif, a government-registered exchange run by Osaka-based Tech Bureau Corp, said on Tuesday that a system glitch had let seven customers buy bitcoin with no yen value during a 20-minute window last week.

The exchange voided the trades after discovering the error, which happened on Feb. 16 - though it was still trying to resolve the issue with one customer who tried to transfer the knock-down bitcoins from the exchange, a spokesman told Reuters.

 

 

[themctipers]

im still confused after reading it 3 times

[Crunchy Dragon]

Please edit your post to meet posting guidelines or it will be removed.

 

 

[OfficialLament]

10 minutes ago, themctipers said:

im still confused after reading it 3 times

Basically an exchange had a glitch which allowed users to buy Bitcoin at no cost to them, and then these users attempted to transfer the funds elsewhere (bank account, another wallet, etc.).

 

It seems that the company running the exchange found out pretty quickly & found the glitch and the users that were attempting to exploit it, and fix the problem.

[RagnarokDel]

3 minutes ago, OfficialLament said:

Basically an exchange had a glitch which allowed users to buy Bitcoin at no cost to them, and then these users attempted to transfer the funds elsewhere (bank account, another wallet, etc.).

 

It seems that the company running the exchange found out pretty quickly & found the glitch and the users that were attempting to exploit it, and fix the problem.

In other words nothing happened.

[OfficialLament]

10 minutes ago, Crunchy Dragon said:

Please edit your post to meet posting guidelines or it will be removed.

 

 

Edited the post and changed source to Gizmodo (which most will agree is pretty reputable).

Let me know if there are any other issues to fix.

[OfficialLament]

5 minutes ago, RagnarokDel said:

In other words nothing happened.

If a major exchange such as Coinbase had this happen to it, it would've been all over the news and the exchange's value (not to mention trust) would've declined significantly (it's that the glitch occurred, and what could happen if a similar glitch happened again).

 

Imagine what would've happened if (many) users cashed out tiny amounts that were not classed as "suspicious" by any security protocols. Such an event would completely and utterly destroy an exchange and its reputation.

[Crunchy Dragon]

20 minutes ago, OfficialLament said:

Edited the post and changed source to Gizmodo (which most will agree is pretty reputable).

Let me know if there are any other issues to fix.

You need to add your own thoughts/opinions to the post (=

[OfficialLament]

9 minutes ago, Crunchy Dragon said:

You need to add your own thoughts/opinions to the post (=

Added.

[OfficialLament]

1 hour ago, themctipers said:

im still confused after reading it 3 times

Try reading it again, I added more info and switched to another source.

[themctipers]

1 minute ago, OfficialLament said:

Try reading it again, I added more info and switched to another source.

it works

 

shh i skimmed  

[Energycore]

1 hour ago, OfficialLament said:

Basically an exchange had a glitch which allowed users to buy Bitcoin at no cost to them, and then these users attempted to transfer the funds elsewhere (bank account, another wallet, etc.).

 

It seems that the company running the exchange found out pretty quickly & found the glitch and the users that were attempting to exploit it, and fix the problem.

So the company buys and sells bitcoin directly to people, rather than facilitating the buys and sells between users like a traditional exchange?

 

In that case, the biggest amount that could have been lost is the entirety of the company's reserve, which I bet doesn't come close to even 10% of the global market cap.

 

It would have caused a dump though, but not a significant one (we're already on a downtrend in the short term)

[OfficialLament]

11 minutes ago, Energycore said:

So the company buys and sells bitcoin directly to people, rather than facilitating the buys and sells between users like a traditional exchange?

 

In that case, the biggest amount that could have been lost is the entirety of the company's reserve, which I bet doesn't come close to even 10% of the global market cap.

 

It would have caused a dump though, but not a significant one (we're already on a downtrend in the short term)

That's how I understand it.

 

The thing about most exchanges is that even if you buy cryptocurrency from them, it's still under their control (in wallets managed by them) until you withdraw it to somewhere else- all you did is buy a number that sits in a database table you can withdraw (that's one of the main negatives that many miners have against storing cryptocurrency in an exchange, and something that was brought up in the Mining Adventure Part 4 video). That means that if an exchange loses the entirety of its reserve, it also loses the money of its customers (unless they've been clever and have their reserve and customer account wallets separate, which infamously isn't something that Nicehash* did).

 

An observation that I've made is that Japanese exchanges seem to be prone to these sort of issues (glitches, theft, hacking, etc.- I'm not saying that exchanges from other countries don't have these issues too, just that the Japanese exchanges are the ones that mostly make the news concerning this type of stuff). To top that, this particular exchange is currently under investigation for breaching trading legislation.

 

*Although technically not a "true" exchange, they still buy and sell cryptocurrency.

[Energycore]

2 minutes ago, OfficialLament said:

That's how I understand it.

 

The thing about most exchanges is that even if you buy cryptocurrency from them, it's still under their control (in wallets managed by them) until you withdraw it to somewhere else- all you did is buy a number that sits in a database table you can withdraw (that's one of the main negatives that many miners have against storing cryptocurrency in an exchange, and something that was brought up in the Mining Adventure Part 4 video). That means that if an exchange loses the entirety of its reserve, it also loses the money of its customers (unless they've been clever and have their reserve and customer account wallets separate, which infamously isn't something that Nicehash* did).

 

An observation that I've made is that Japanese exchanges seem to be prone to these sort of issues (glitches, theft, hacking, etc.- I'm not saying that exchanges from other countries don't have these issues too, just that the Japanese exchanges are the ones that mostly make the news concerning this type of stuff). To top that, this particular exchange is currently under investigation for breaching trading legislation.

 

*Although technically not a "true" exchange, they still buy and sell cryptocurrency.

That makes sense. That's why you don't have to wait for the transaction to confirm when you buy / sell within the exchange, because a transaction isn't actually placed in the blockchain.

[Froody129]

So is there any legal ramifications for the customers?

[Cole5]

Damn, SO close

[RagnarokDel]

14 hours ago, OfficialLament said:

If a major exchange such as Coinbase had this happen to it, it would've been all over the news and the exchange's value (not to mention trust) would've declined significantly (it's that the glitch occurred, and what could happen if a similar glitch happened again).

 

Imagine what would've happened if (many) users cashed out tiny amounts that were not classed as "suspicious" by any security protocols. Such an event would completely and utterly destroy an exchange and its reputation.

Nothing happened because nothing happened. If it had happened (like it wouldnt have stopped before a billion, let alone 20 trillion) then it'd be an interesting story but they were not able to do shit since they caught it in time.