Hmm. If I were a customer of Mt Gox and lost money, I don't think I would agree that it's an example of a market working as intended.

Well, what if you were the investor in a start-up, which failed, and you lost your invested money? Would you consider that the market working as intended? What if you loaned someone some money, and they failed and got bankruptcy, meaning you lost your loan. Is that the market working as intended?

We've created this kind of weird deal with banks, where you loan people money at super-low rates, but in return you're insulated from the normal consequences of failure, and have a ton of flexibility in terms of when you can demand repayment of your loan -- to the point where most people don't probably consider their bank balances a loan.

I'm not here to say that this is a good or a bad thing. Mt. Gox was more like a normal loan or almost every other financial instrument in the world, and less like a bank. It seems hard to suggest that it's uniquely bad for Mt. Gox to act like almost every other financial instrument in the world -- as long as expectations are aligned that it's not the curious anomaly known as a "bank."

I don't have a dog in this fight and I'm not interested in an extended debate... but I don't think most of Mt Gox's customers realized that by letting Mt Gox hold their money they were effectively investing in a high-risk venture under extremely unfavorable terms.

There were plenty of warning signs that Gox had serious issues, and they had existed for months.

The real situation turns out to be far worse than I expected, but what I expected had me off Gox months ago.

That's their problem, it's a currency exchange, trading is a risky business, giving your money to strangers shouldn't be taken lightly and you shouldn't just presume it's safe. The Gox problems were not a secret, 10 seconds of research would have informed anyone of them.

Trading is a risky business, but "the exchange loses my money" is not supposed to be a substantial portion of that risk...

Or to put it another way, if people properly understood (i) the nature of counterparty risk, and (ii)how the average Bitcoin exchange handled transactions, suddenly those banking fees would seem like an absolute bargain.

Comity! I don't have a dog in the fight either, and I agree that expectations alignment and transparency are key, and that it is likely that neither were present here.

And if I were a career criminal, I'd probably have a pretty low opinion of the justice system (actual problems with said justice system aside).

My point? It's hard to be reasonable about things when you're coming at them from a certain perspective. Just as a criminal sentenced to life without parole probably thinks that the courts trying him are corrupt, people who lost a lot of money on MtGox probably think that the entire economic system and Bitcoin market is broken. Are they correct? It's possible, but they're not in the most rational frame-of-mind right now, are they?

So? Businesses fail, whether you like it or not, that is how markets are supposed to function. It is clearly an example of a functional market. That doesn't mean people aren't defrauded, there's no such thing as a market without crime.

A bad business took millions of people's dollars and disappeared them — that's not what is supposed to happen.

Yes it is, that's what a failure is. A business can't fail and not lose money, it fails because it loses money.

There's an enormous difference between a business taking a loss and making other people's money disappear. If the corner grocer up and decides to close the place, they don't take my property with them. If my dry cleaner had to close up shop, I would not expect them to sell my suit off. Destroying other people's property upon closure is not a normal characteristic of a business failing. That's more than just a business failure.

You're making huge presumptions about a failure that is still in progress. You have no idea if that money actually disappeared or not or whether fraud was involved or not. You're claiming the unknown isn't normal, but you can't know that because you don't know what happened yet, no one does.

If fraud is involved, someone will go to jail and authorities will attempt to recover assets. This is perfectly normal in a functioning market.

You cannot claim that because crime occurs the market isn't functioning.

This is what I was addressing:

"what exactly is so worrying? A bad business failed; that's what's supposed to happen."

If all that had happened was a bad business failed, that would not be very worrying. I don't think anybody would be upset if MtGox had simply closed their doors and returned all their customers' funds. What is worrying is how many people outside of the business appear to have lost their property in the incident.

You can judge for yourself whether you feel the market is "functioning" — but if that many people lost that much money, it is absolutely not what is supposed to happen when a business fails.

You seem to be of the opinion that whether a market is riskier than most participants realize (and would be willing to tolerate if they did know) is tangential to how well it is functioning. That's a valid viewpoint. But it still makes sense for participants to worry when they realize how little safety they have in the market.

I didn't say it's what's supposed to happen when a business fails, I said bad businesses are supposed to fail. We can't talk about what happened yet, the incident is still in progress. For all we know the acquisition rumours are true, Gox will reappear under new management and investors will be compensated.

'The money' was mostly imaginary, even beyond the imaginariness of bitcoins. Lots of the coins were bought at a much lower rate; they were ALL valued at the value of the last coin traded. Makes for a big, inflated, imaginary 'loss'.

But in fact only the money invested was lost, which I imagine was an order of magnitude smaller than what was reported.

All money is imaginary.

It is in its infancy; if bitcoins are viable, something will have to be done.

It's not an if; they're already viable and already used enough to matter.