Bitcoin exchange is a lucrative area for hackers. For one, most jurisdictions have blatantly refused to offer the necessary legal protection to Bitcoin owners. In addition, all Bitcoins are stored in a digital vault. As a result, this makes it one of the easiest hacks for anyone with the right skills. Additionally, when Bitcoin is stolen, it is impossible to trace it. The anonymity of Bitcoin is also its Achilles heel. A Bitcoin exchange was the victim of such harsh reality a few weeks ago. It was realized after they lost a significant chunk of their Bitcoin.
What Happened
Bitcoin has been quite lucrative in the recent past. It allowed traders to make staggering profits at that exchange. For instance, some traders were making as much as 700% in profits. It amounted to a few thousand dollars each day. To make such amount of money, one would need decades at some of the leading securities exchanges. The news of the successful hack was quite sudden. Traders woke up to a notice by Bitfinex informing them that the online platform had been temporarily taken offline. They added that they had been the victim of a hack. In total, the exchange reported that nearly 120,000 of its Bitcoin had been stolen in the smash and grab operation. At the current exchange, that is about $65 million in Bitcoin. The company, however, did not suffer any loss in its dollars.
The Solution Offered
For now, the Bitfinex Bitcoin exchange is back online. However, the Hong Kong-based exchange is only offering limited features to its clients. It is in an effort to prevent a mass pull out from the exchange that would essentially bring it to its knees. In addition, the company has cut everyone’s Bitcoin by about 36%. Although no explanation has been given as to how they arrived at this figure, they have promised to do so in the coming weeks. The cut will apply to everyone, whether their Bitcoin were stolen or not.
Most customers were quite disappointed. However, they have very few legal options. If they decide to sue the company, the cases could drag on for years in the Hong Kong courts. The financial regulator expressly said Bitcoin is not their jurisdiction. As a result, anyone who decides to pursue the matter in court would be setting legal precedence. It does not seem like the best move. Especially considering what the exchange is willing to offer in return for patience. Furthermore, the 36% deducted will not be entirely lost. The exchange is offering tokens in exchange. The tokens can be exchanged for shares in the company later. They have promised to work hard to resolve this issue as soon as possible.
The Effects
Once news of this broke out, it badly affected Bitcoin exchange. There was a massive drop in value due to lack of investor confidence. The price dropped by about 20% after hitting a high of around $607 the previous week before the hack. It seemed well on its way to $1,000 as some analysts have been predicting.
Other Hacks
However, it is only the second largest successful Bitcoin hack in history. The biggest bitcoin hack was about $460 million dollars. The hack, which occurred in 2014, forced MtGox to close shop. At that time, the ripples were quite severe on Bitcoin. The reason this hack was so significant is that Bitfinex was a major Bitcoin- US dollar exchange. It represents nearly 50% of all Bitcoin traded in this category.
Besides Bitcoin, other cryptocurrencies have been the victims of hackers too. Ethereum was also stolen recently in an apparent hack. In that cyber-attack, nearly $50 million was stolen. However, the community was better able to take reactionary measures. They made the stolen cryptocurrency useless by splitting into a “hard fork.”
Summary
For years now, security analysts have been asking people to keep their Bitcoin off the exchanges. They advise them to have only what they need to trade stored there. However, their advice has been largely ignored. Traders are advised to keep their Bitcoin in secure vaults unless they need to move it around. Having so much Bitcoin in a central location is too tempting for hackers.
