September 5, 2012

24,000 BitCoins Stolen, BitFloor Exchange Closed

Michael Harper for redOrbit.com — Your Universe Online

In 2009, a digital currency was created which uses peer-to-peer technology to transfer this “money” from one user to another. Called BitCoins, this currency can be digitally traded for goods and services in the same way physical currency can be traded or exchanged for other forms of currency. BitCoins are created as a sort of reward for solving difficult mathematical problems. For instance, someone with sufficient hardware to run complex calculations can create a problem, or “block” to be solved or “mined.”

These blocks can either be mined via P2P as a group or individually, provided the individual´s hardware can stand up to the task. Once the block is mined, the BitCoins are distributed evenly amongst the miners.

One of the main attractions to BitCoins is the difficulty in tracing transactions from one holder to another. The privacy measures implemented in these exchanges have caused many organizations, such as WikiLeaks, to adopt this currency as a way to receive anonymous and private donations.

When this currency was first proposed and implemented, many had questions about the safety and security of this new venture, as well as the validity of a digital currency. Now, it seems some of these concerns have come to life as a virtual robbery has taken place, resulting in the loss of nearly a quarter million dollars worth of BitCoins. BitFloor, one of BitCoin´s largest exchanges, has now been closed in the wake of this heist.

Last night, an attacker was able to access unencrypted backups of wallet keys and make away with 24,000 BitCoins from various individuals.

According to Preev, a BitCoin converter, one BitCoin is currently valued at $10.94, making the thief´s take away an estimated $262,000. Upon noticing this robbery, BitCoin founder Roman Shtylman closed all operations and trades of BitFloor.

In a BitCoin Forum post, Shtylman revealed how the attacker was able to make away with so much of the digital currency:

“Using these keys they were able to transfer the coins. This attack took the vast majority of the coins BitFloor was holding on hand. As a result, I have paused all exchange operations. Even tho [sic] only a small majority of the coins are ever in use at any time, I felt it inappropriate to continue operating not having the capability to cover all account balances for BTC at the time.”

Shtylman has also said he still holds the logs for each account, trades and transfers, and that no records were lost as a result of this attack.

Mr. Shtylman has also said BitFloor is the largest BitCoin exchange in the U.S. According to the BBC, the majority of BitCoins aren´t created by mining, but are instead traded in exchanges much like New York-based BitFloor.

"As a last resort, I will be forced to fully shut BitFloor down and initiate account repayment using current available funds," wrote Mr. Shtylman, who now doesn´t hold enough of his own currency to cover his users´ accounts.

As you might expect, this isn´t the first time an attacker has seen BitCoins as an easy way to pick up a quick fortune.

So far, the UK-based BitCoinica exchange has been attacked twice this year, resulting in two lawsuits by users who claimed the exchange was not able to carry out their withdrawal requests.

One of these suits was carried out in a San Francisco court, with the plaintiffs seeking $460,547 in restitution from the hacks.