Authentication & Security

Bitcoin Achilles Heel - Wallets getting hacked, other thefts

MEDICI

Bitcoin is a digital alternative currency. It's strengths, which also can be seen as it's weaknesses are that it's not regulated by Governments or central banks, transactions can be done anonymously and there is no trace back so chances of hacking are high. It Behaves like monetary system that can be exchanged and traded for dollars and/or Euros. Bitcoin is the most widely used alternative currency accepted by various merchants and services internationally.

The virtual currency, some argue, might not be all that safe. Some recent incidents have come to light where the Bitcoin has been hacked in large amounts:

Australia Bitcoin bank hacked :

  • An Australian Bitcoin bank that was only 4 months old  had been holding more than $1 Mn of crypto currency.
  • The bank was hacked between October 23rd and 26th 2013 with the service’s operator called ‘Tradefortress’, leaving users with nothing – this is one of the largest thefts in the Bitcoin’s History.
  • Tradefortress claimed to ABC News that he was a male above the age of 18 hailing from Sydney but never disclosed his real name.
  • The site charged customers a small fee to store their coins. It utilized two-factor authentication and location-based email confirmation and said it was the most secure wallet available.
  • There were 4100 Bitcoins valued at $1.3 Mn held by the bank at the time of theft.
  • Tradefortress told Fairfax Media that a part of the hacked money would be refunded using 1000 of his own Bitcoins and the cash that wasn’t stolen by the hackers.

Bitcoin wallet service Instawallet hacked :

    • In April 2013, when the Bitcoin was Value at around $145, Instawallet was shutdown.
    • Instawallet is a website which offers a quick way to create your own Bitcoin wallet to store the currency and associated data.
    • The company announced that it was suspending its operations indefinitely until it changes its security system architecture. Instawallet database was actually hacked and it has become impossible for them to reopen the service as it is. Users that had invested in the virtual currency at Instawallet were asking for a refund.
    • Instawallet accepted claims of users wallets and refunded the amount deposited in the wallet.

--> There have been more thefts. List of Major Bitcoin Heists, Thefts, Hacks, Scams, and Losses as compiled by Bitcointalk.org

LTP View: Wallets getting hacked, theft of Bitcoin currency has created a doubt amongst its users that whether Bitcoin is a viable, stable and secure currency or not? Well, the argument we should consider is that hacking and theft happens in the existing setup as well. In banks and with credit cards. There was a huge multi million dollar theft recently using prepaid cards. The value of the bitcoin currency seems to keep on rising. It started off at $50 at the beginning of the year and crossed the $200 mark in October. One bitcoin is currently (Nov 9th 2013) worth more than $336.35 on Mt. Gox. Whatever the pitfalls, there seems to be no stopping the Bitcoin.

Update:

On October 26th 2013, the Chinese Bitcoin exchange GBL suddenly shut down. GBL was founded in May 2013 and was initially  branded as a Hong-Kong based exchange. However, it was later uncovered that the company’s servers were actually based in Beijing. It was never even granted a financial services license. GBL managed to take $4.1 Mn worth of its client funds.

According to Coindesk, GBL started issuing stock to its clients rather than offer cash redemptions, with the intention of maximizing the profit of their scam before shutting down. The company had more than 1000 users when this development took place. The Bitcoin is currently valued at $385.2 (Nov 12th 2013) on Mt.Gox's exchange.

MEDICI Team

MEDICI

MEDICI Team is a group of content writers, bloggers, journalists, researchers, and editors from the MEDICI team who collaborate to create FinTech insights.

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