The great Bitcoin robbery
News came this week that those who invested in Bitcoin are at risk of saying goodbye to their money after the collapse of the Mt Gox exchange. A year ago Mt Gox accounted for 70 percent of the most popular cryptocurrency's global transactions. By Wednesday it was closed.
A total of 744,400 Bitcoins went missing. Officially this was the result of a "malleability-related theft" and it's quite possible the theft had been going on since the Mt Gox exchange first opened.
Wikiquote disputes whether celebrated physicist Richard Feynman ever said:
"If you think you understand quantum mechanics, you don't understand quantum mechanics."
Even if they aren't his words, they make a good point. Quantum mechanics isn't for the faint of heart.
If anything Bitcoin is even harder to understand. For many, hardest of all is understanding why people would place trust in a currency created by someone who won't reveal their real name or face and mainly favoured by drug dealers, tax dodgers and, it turns out, a more technically talented brand of crook.
Online thieves stole Bitcoins by making it look as if transactions didn't occur. They exploited a software bug that Bitcoin developers had known about since 2011. For a brief amount of time it was possible to change the unique identifier given to each transaction.
The bug was bad enough, but it turns out Mt Gox's software made the loophole easier to exploit. The online crooks managed to steal about six percent of all Bitcoins in circulation - that's about half a billion New Zealand dollars at today's rates. It would have been worth even more if Bitcoins had maintained their value.
Either way, it looks like this has been the biggest online theft in history.
Many Bitcoin fans are still in a state of denial over the attack. It turns out other Bitcoin exchanges have been the target of massive distributed denial-of-service (DDoS) attacks aiming to exploit the same bug.
There's no question most, if not all, of the Bitcoin trading system has been compromised. Earlier this week what is left of the currency was trading at about half its peak value - prices are fluctuating madly. Many Bitcoin owners who haven't lost their money can't access their accounts.
Ironically, those involved with Bitcoin who were so eager to bypass traditional financial systems are now screaming for financial regulators to help. Sadly, that's not going to happen.
Wall Street Journal: Pay Me in Bitcoin, IT Professionals Say
The Economist: Cryptocurrencies: The great hiccup
Bill Bennett is Editor of TechBlog.
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