Hackers are stealing bitcoin. Think you can protect yourself? Stealing bitcoin is complex, but owners cannot protect themselves like they can physical currency. Are you concerned about people stealing bitcoin?
Cryptocurrencies were supposed to offer a secure, digital way to conduct financial transactions, but they have been dogged by doubts. Concerns have largely focused on their astronomical gains in value and the likelihood of painful price crashes. Equally perilous, though, are the exchanges where virtual currencies are bought, sold and stored. These exchanges, which match buyers and sellers and sometimes hold traders’ funds, have become magnets for fraud and mires of technological dysfunction, posing an underappreciated risk to anyone who trades digital coins.
Huge sums are at stake. As the prices of bitcoin and other virtual currencies have soared this year – bitcoin has quadrupled – legions of investors and speculators have turned to online exchanges. Billions of dollars’ worth of bitcoins and other cryptocurrencies – which aren’t backed by any governments or central banks – are now traded on exchanges every day.
“These are new assets. No one really knows what to make of them,” said David L. Yermack, chairman of the finance department at New York University’s Stern School of Business. “If you’re a consumer, there’s nothing to protect you.”
Regulators and governments are still debating how to handle cryptocurrencies, and Yermack says the U.S. Congress will ultimately have to take action.
Some of the freewheeling exchanges are plagued with poor security and lack investor protections common in more regulated financial markets. Some Chinese exchanges have falsely inflated their trading volume to lure new customers, according to former employees.
There have been at least three dozen heists of cryptocurrency exchanges since 2011; many of the hacked exchanges later shut down. More than 980,000 bitcoins have been stolen, which today would be worth about $4 billion. Few have been recovered. Burned investors have been left at the mercy of exchanges as to whether they will receive any compensation.
Nearly 25,000 customers of Mt. Gox, once the world’s largest bitcoin exchange, are still waiting for compensation more than three years after its collapse into bankruptcy in Japan. The exchange said it lost about 650,000 bitcoins. Claims approved by the bankruptcy trustee total more than $400 million. There have been many heists over the years with hackers stealing bitcoin:
Bitcoin, the first digital currency to gain widespread acceptance, sprang up during the financial crisis about nine years ago. Its attraction, early proponents maintained, was that it offered a way to bypass banks and governments, and to conduct financial transactions more cheaply. Every transaction is validated and recorded on a public ledger called a blockchain that is maintained by a network of computers. While anonymous, the individual transactions are available for all to see on the internet. They are secured by cryptography, the computerized encoding and decoding of data, but clearly, people are stealing bitcoin.