The Bitcoin Hack Story

In the last couple of months there have been two stories that have been hot in the media when it comes to technology. One of the stories has been all of the hack attacks that have been happening recently. But while that has been going on, there has been another story that has been in creation for the past two years that has also been gaining steam. And that story is the emergence of the new digital currency that is known as Bitcoin. And surprisingly enough, these two stories actually go with each other because of an attack on the Bitcoin currency recently.

do you use Bitcoins?

do you use Bitcoins?

So what is a Bitcoin?

The most obvious question for a lot of people right now might be what a Bitcoin is. And of course that is a perfectly reasonable question. While the technology itself is starting to gain more attention it has not reached mainstream levels yet. So I will explain what Bitcoin is, what the security problems with the technology are, and why it could prove to be one of the most important technological innovations in the past ten years.

Bitcoin is a technology that was started in 2009 that was based on an article by someone named Satoshi Nakamoto. It was the answer that a lot of people desired due to the economy as it is today. There are a lot of people who feel that the government intervention into the monetary policy is a bad thing and something that we should be able to work around. They feel as if having a central authority that is able to both raise and lower rates, while also at the same time being able to create as much money as they want harms the overall economy. They want the world’s currency to go back to being based on the gold standard and not how it is now which is that the money has value just because the government says that it has value. Most of the people who feel this way are known as Libertarians but the Bitcoin movement has picked up more than just that movement. The Bitcoin movement has seemed to strike a nerve with people from all different parts of society. Some of the people are people who just want to make money while others are people who are fascinated with this new technology and see the promise that it could bring if it survives.

The Bitcoin security issues

A lot of the allure of Bitcoins is how it is not a regulated entity. There is no central bank to control the value of Bitcoins. It is all done by using peer to peer technology. All transactions that are done by using Bitcoins that have to go through a peer to peer approval model first to make sure that the transaction is legitimate and that the person who is making the transaction has as much coins as they say they do. It is a system that is regulated by its peer and not just a central authority.

Another aspect of Bitcoins is that if you want to purchase any, you can trade your USD dollars for Bitcoins at one of the several exchanges that exist for the Bitcoin market. Some of the more popular ones are Mt Grox and Tradehill. These are the only things in the Bitcoin community that you will see close to being a central organization and that is only because everyone decides to use these two exchanges. But that is also where the problems when it comes to the security of Bitcoins begins.

Just recently someone was able to hack into the database of the Bitcoin exchange known as Mt Grox and they were able to get a lot of information from this exchange. They were able to get emails and passwords from a lot of the users. And they were also able to access the accounts of some of the users and steal some of their money. When they tried to dump the coins of one of the users of the exchange onto the Bitcoin marketplace they were able to drive the price down to almost a penny. So one person or a group was able to bring down the share prices of Bitcoins and some people were able to pick them up for very cheap. This is the kind of action that disrupts the economy in real life and the reason why we have so many regulations in our financial system. In the end a lot of the people who are against the government regulating real life currency were calling for a regulation of the Mt Grox exchange.

So far this attack has only been a hiccup in what is a vibrant new technology taken form and most of the Bitcoin community has not abandoned the ideal. While the price of a Bitcoin still shows some of the affects of the attack it has, for the most part, bounced back nicely.

About Lee Munson

Lee's non-technical background allows him to write about internet security in a clear way that is understandable to both IT professionals and people just like you who need simple answers to your security questions.

Comments

  1. Your information is out of date, by the way. According to the latest press release the bitcoins dumped on the market didn’t just come from one account; the attacker had write access to the database and added a load of entirely fictional bitcoins to an account which they then sold. If Mt Gox hadn’t rolled back the transaction they wouldn’t have had enough bitcoins to cover their liability; it’s possible they still don’t.

    • Thanks for the update – I did actually write this a while ago and then scheduled it so its good to hear the latest news.

Trackbacks

  1. […] where they were expected to be able to handle a lot of money. This led to robberies by outside black hat hackers taking advantage of the nature of the experiment. So as you can see when you are putting your money […]

  2. […] talk about what the technology is for people who have never heard of it. Even though the term Bitcoin has been around for at least the past two years, even to this day most people still do not know […]

Speak Your Mind

*