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Report Identifies Suspicious Bot that Could Help Explain Mt. Gox Bitcoin Scandal

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A scam involving robotic buying and selling might be to blame for an alleged fraud involving lost bitcoins at Mt. Gox and price manipulation, according to a new anonymous report.

Japan-based Bitcoin exchange and one of the most important business in crypto-currency, Mt. Gox was accused early this year of losing around 750,000 ($380 million) of its customers’ Bitcoins and 100,000 of the company’s own. This incident led many to lose trust in crypto-currencies which was partly designed to make online transactions easier.

The unnamed author of “The Willy Report” identified themselves as a Bitcoin trader who first started noticing “suspicious bot behavior on Mt. Gox” starting around December 2013 attributed to a bot known as “Willy.” The most obvious instance was that a transaction occurred every 5-10 minutes that bought 10 to 20 bitcoins. The author links this activity to a mysterious network of accounts that all shared the same undefined user fields, and which all behaved similarly.

By going through log data, The Willy Report suspects that whoever behind this plan had used these accounts spent around $112 million and bought nearly 270,000 BTC since September 2013, plus related activity from a user identified by the number 698630 or “Markus”, which bought a further 300,000 BTC for a total of around 570,000 BTC.

This network of bots, the author said, was used to manipulate the price of Bitcoins, and was possibly the greatest factor in Bitcoin’s massive price inflation.

The report states: “Mt. Gox has effectively been abusing Bitcoin to operate a Ponzi scheme for at least a year. The November “bubble” well into the $1000′s – and possibly April’s as well – was driven by hundreds of millions of dollars of fake liquidity pumped into the market out of thin air (note that this is equivalent to “with depositors’ money”). It is only natural that the Bitcoin price would deflate for around 5 months since its December peak, since there was never enough fiat coming in to support these kind of prices in the first place.”

In an update to the report dated Monday, the author notes that some of their conclusions might have been “too opinionated,” reiterating that the report was aimed at sparking new discussion into the possible causes of the Mt. Gox fiasco.

The mystery of the missing bitcoins has led to some interesting theories from an issue with “transaction malleability” (a technical issue in handling transactions) to foreign sabotage.

 

Some of this interest was exploited last week when many Twitter users were led to click on a bit.ly link that was supposedly for a video on how the the US government is trying to shutdown bitcoin. The link, in fact, sent visitors to a malicious site.

About the Author

David Hamilton is a Toronto-based technology journalist who has written for the National Post and other news outlets. He has covered the hosting industry internationally for the Web Host Industry Review with particular attention to innovative hosting solutions and the issues facing the industry. David is a graduate of Queen’s University and the Humber College School of Media Studies.

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