Bitstamp online wallet hacked
New trouble for Bitcoin… price has dropped below $300 in conjunction with news of the latest online wallet hack;
Not even a year has passed since top bitcoin exchange Mt. Gox collapsed into a pit of burning money, blaming a hacking incident for a nearly half-billion dollar meltdown and bankruptcy. Now another major exchange may be putting its users through a small-scale replay of that crisis.
Early Monday, a UK- and Slovenia-based bitcoin exchange Bitstamp announced that it would be going offline while it investigated a security compromise of some portion of its stored currency that occurred over the weekend. It hasn’t offered many details of the hack, but warned users to immediately stop making deposits to any addresses it issued before 4 a.m. ET Monday. Meanwhile, Bitstamp users’ money remains frozen in the company’s accounts.
“Bitstamp takes our security and soundness very seriously,” reads a statement on the company’s website. “In an excess of caution, we are suspending service as we continue to investigate. We will return to service and amend our security measures as appropriate.”
The company also tried to reassure users in its statement that they’re not facing a Gox-level debacle. Only the exchange’s “operational wallet” was compromised, it says, a fraction of coins that are frequently bought and sold. Careful exchanges (and users) keep the majority of their bitcoins in “cold storage,” on computers without any connection to the Internet to prevent their theft. “As a security precaution against compromises Bitstamp only maintains a small fraction of customer bitcoins in online systems,” the company’s statement reads. “Bitstamp maintains more than enough offline reserves to cover the compromised bitcoins.”
Bitstamp’s chief executive Nejc Kodrič didn’t immediately respond to WIRED’s request for more information, but commented on Twitter: “My sincerest apologies to those who are affected by our service being temporary suspended.” He continued, “Thank you all for your patience. We are working diligently to restore service and hope to have an ETA later today.”
Bitstamp is far from Bitcoin’s biggest exchange; prior to its suspension it accounted for only about 6 percent of transactions according to bitcoin statistics site Bitcoin Charts. But it had become one of the longest-lived and reputable ways to buy and sell currency in bitcoin’s volatile economy. After Mt. Gox’s bankruptcy, Bitstamp became a popular alternative to top exchanges BTC China, based in China’s uncertain regulatory environment, and BTC-e, a mysterious operation run by unknown owners thought to be based in Bulgaria.
“”We’re the backbone of the entire Bitcoin industry,” Kodrič told Forbes last year in an interview. “The wallet services, ATM machines, mining companies all rely on us. The price of Bitcoin is the de facto price on Bitstamp. We’re the go-to exchange.”
Its temporary shutdown due to the theft of a still-unknown number of coins could rattle bitcoin at a bad time. On Monday morning bitcoin’s price hovered below $270, its lowest since 2013 and down from $375 just a month ago. If Bitstamp doesn’t quickly emerge from its downtime and replace any lost coins, cryptocurrency’s new year could be off to a unpleasant start.
Thanks for posting that Jim. This event will provide a good look at how well the market is maturing. In the US two of the largest "Bitcoin banks" store 97%+ of all bitcoin holdings in cold storage – offline vaults with armed guards disbursed in different locations around the world and claim to have full insurance.
I suspect this won't turn out to be much – but a good reminder that if you don't own the private key (password) to your wallet, you don't own it.
I've bought one of these Trezor hardware wallets to store my bitcoin. I highly recommend it as it is the digital equivalent of Fort Knox. And it fits on your key chain.
My son and I are actively researching wallet options right now prior to changing some green paper into Bitcoin and we will look into this. I for one do not think Bitcoin is dead…. just think how many folks around the world are experiencing inflation in their native fiat currencies right now.
As much as I think Bitcoin is cool and useful, to me the real story is how bad debt-based fiat currency is. As the world wakes up to this realization… Gold, Silver, and Bitcoin will all benefit.
It is hard for the average person to wrap their heads around how banking works today. I like to think of a car loan as one example; Have you ever heard someone describe their car as being, "owned by the bank", meaning that they owe a big loan on the car? Sure you have, right? And if you default on the payments… the bank will indeed repossess the car, based on their "ownership" rights… right? But how did the bank come around to "owning" that car? Well, they ponied up that money to buy it, right?
Wrong… they created the money to buy it, out of thin air.
Firstly, here’s a short explanation of bank lending. Under normal circumstances, deposits and loans are more-or-less equal across the banking system as a whole. This is because when a bank creates a new loan, it also creates a new balancing deposit. It creates this “from thin air”, not from existing money: banks do not “lend out” existing deposits, as is commonly thought.
Few people have any idea how this all works. And some people think Bitcoin is a con?
So you guys always have your finger on the pulse of the fundamental bitcoin discussion. And I like the concept of a hardware bitcoin wallet – as long as you trust the manufacturer (and as long as you keep a backup copy of your private key, or the device itself doesn't malfunction or get lost). And you don't mind spending $120 to store your money.
But that bitcoin chart looks horrible. The latest breakdown from the interminable 13-month descending triangle may be driven by the latest bit of bad news for bitcoin, but in bull markets such dips are bought – in bear markets, such news is sold hard. In short, this chart is telling me that over the past year, all those speculators who bought during the massive 3-month rally at the end of 2013 are slowly losing hope and bailing out, and this latest news was just the latest excuse for them to sell.
This is a really good object lesson here. Back in 2013, I heard people saying that the price of bitcoin was rising because it was this intrinsically awesome thing, and that you'd better buy now or else your next entry point might be $50k, because it was just that awesome.
My sense is, in 2013 bitcoin was rising for two reasons: 1) bitcoin did have real utility, and 2) because a bunch of gamblers decided to roll the dice on the latest "sure thing get rich quick" scheme that they didn't really understand.
What percentage of the Grand Move Higher in 2013 was utility-driven and what was gambler-driven? Well, when the price drops from $1163 to $270, presumably utility hasn't changed, so that 13-month price drop had to have come from gamblers bailing out.
From my perspective, price action conclusively demonstrates that most of the big move higher wasn't based on bitcoin's awesomeness, but on a rush of gambler money. Once they are washed out, then we'll find out what the true "utility value" of bitcoin might be.
And that would be the time to buy.
My guess is that will be somewhere between $130 and $200 – but we really need to watch the chart to let the market tell the story.
Bitcoin is just as awesome today as it was back in December of 2013. Even more awesome, because you can get 4 times more bitcoins now than you could back then for the same money.
I would agree that speculation got ahead of itself… but the real question one has to ask themselves is whether this is a one-way street, or not. If not, then there will be a floor found, and as the true rotten nature of fiat shows itself, AND the Bitcoin infrastructure and usefulness continues to expand, these forces will conspire to cause the supply vs. demand profile to shift back toward appreciation. I cannot predict at what price this all happens… maybe within your proposed range of $130 – 200 Dave.
I am willing to pick up a few Bitcoins at current prices…. not betting the ranch yet though.
Hind site is very helpful. Now that we've had a year to digest the numbers and learn more about the schemes that were going on at MT GOX before they imploded we know that a huge percentage of the new money that made the price jump so high was Chinese gamblers. They had a couple of Exchanges open in China with zero fees for trading so they took advantage. Many were looking for capital outflow possibilities before China cracked down on the exchanges but even if you look at the currency doing the most trading today – it's in Chinese Yuan.
Real time chart:
Bitcoin's utility days are still ahead of us. The invention underneath is the block chain and it is going to be the powerhouse of technologies in the next 20 – 50 years and many (if not most) will peg themselves to the bitcoin as the main chain. Even if bitcoin doesn't work out as a currency, it seems it's future is secure in being the valued property or commodity that might be coveted going forward.
I've started to think of it as the "railroad" of the next generation. Somebody had to invest in the main rail road to get the track laid, secure the land, fight off Indians – protect against gamblers and train robbers. There were scams and corruption as the new technology opened up entire new marketplaces and allowed commerce in places it wasn't allowed before.
The bitcoin blockchain is similar in that it will be the defacto standard having benefited from 'first mover advantage' and having the most security via the mining network that process the transactions and protect it. Here's a link to a quick video that explains just a few of the entirely new business models that are being built up around the technology. These were all just developed this last year.
On the Trezor – you can loose the device completely and be ok because of the technology behind it. By using 12 English words assigned it is able to reconstruct the wallet and funds that you can use to recover your funds if the hardware is destroyed or lost. This device protects the keys digitally but it also allows you to plug it into any device with a usb anywhere and encrypts the keys and transactions from beginning to end without exposing them to the network through a series of software encrypted gates to protect the signing keys.
Just have the 12 words stored somewhere safe and you can recreate the wallet funds and move them to another device if needed. The setup process makes you validate them twice and insists you go put that card somewhere offline- pen and paper only. They will allow you to reassemble to wallet using the open source software if needed.
When will we hit bottom? I've been following the tweets of some of the bigger investors waiting for the New York State regulations to be officially handed down for some investment vehicles. They've been tweeting to each other about the timing and funds going in but have to be deliberately coy – the latest word was in two to three months. Money is there waiting for the 'on switch' for these companies that invest in bitcoin the commodity. Will that make bitcoin itself raise at the same time? I would think so, but I'm a technologist, not an investor or trader. I an dig up some links for those tweets if you are interested.
Watching the Google trends on the term bitcoin lately is interesting.
Hind site is very helpful. Now that we've had a year to digest the numbers and learn more about the schemes that were going on at MT GOX before they imploded we know that a huge percentage of the new money that made the price jump so high was Chinese gamblers.
While hindsight is helpful, how is it that some people were able to predict ahead of time that this particular move in bitcoin was speculative in nature and would likely end in tears? Were they psychic, or just very lucky?
Back in 2013, I said that in about every post I wrote. The speed of the advance in combination with the commentary written at the time was my clue. It didn't take a genius, just someone who had seen a bubble form before. The words surrounding any bubble sound the same. Whatever-it-is, is literally the greatest thing ever, it will remake the world, there isn't very much of it, and by golly if you don't buy now, you'll never be able to get in at these prices ever again! Meanwhile, the price seems to confirm every astonishing statement made. Price was absolutely going vertical. The fact that bitcoin had no actual (current) utility, and that google trends was screaming higher right along with price was another clue.
Now, in answer to your question – no, this is not a "dip", its a downtrend. A dip that should be bought is a correction within an uptrend. Buy the dips is the right move, but only in an uptrend. Once you have a pattern of lower highs and lower lows, that's a downtrend. It is a very important rule of trading: do not "buy the dips" in a downtrend!
You don't have to be a trader to spot a downtrend, you just have to look at a chart and be honest with yourself as to what it is saying. Advocates usually have a very difficult time looking at a chart squarely and accepting its message. All sorts of (emotionally supportive) reasons are advanced as to why this or that happened, excuses are given for the badly performing instrument – but none of it matters. Money is either flowing in, or out. Right now, it is flowing out.
People always say, "its impossible to know when the low will hit", and that's true. But you do not have to be a trader to wait for the downtrend to be over prior to buying. At a minimum, wait for it to start tracking sideways! While 276 was an amazingly good deal when bitcoin was trading at 1163, in a downtrend, prices can drop farther than you think they will.
Take this latest event. Prior to the event, the market was showing us a descending triangle during Nov-Dec 2014. The bad news triggered the breakdown, but it happened right near the apex of that descending triangle. The news caused the break lower, but market sentiment/money flow reflected by the chart was terrible even before that news hit.
It will be interesting to see how the bitcoin chart reacts in advance of whatever bit of long-expected exciting news is going to hit in the next few months. If the market stops dropping on bad news, that is one clue that buyers are starting to appear. However, if The Exciting News produces a rally that gets sold (i.e. bitcoin forms yet another lower high) then the downtrend remains in place.
After reading the recent posts about the dips in the price of bitcoin, I wanted to introduce another angle to the conversation and see where this might lead.
It's important to remember that bitcoin has great functionality because it operates outside of the current fiat currency systems. Unless you are a trader (you are looking for a profit in fiat currency and have no true investment in the principles of the blockchain) or you want to conduct commerce on the fringe between the bitcoin and fiat environments, the price of bitcoin is truly not all that relevant. The price when you buy bitcoin just reflects how much of your fiat money you've been able to convert into a very different environment. That environment might undergo much turmoil, but you have done the important thing of getting your hard-earned money out of a failing system. From there, the "price" of bitcoin does not actually matter until you go to exchange it for another currency. But until you do that, you have your money outside the banking system and into a very cool environment full of opportunities. As the bitcoin community grows, based on real activity operating outside the current paradigm, its strength and utility will continue to develop.
Of course, regulators will regulate their way to the moon in an effort to keep people operating in a sphere they can control. It will come as no surprise if, as the financial breakdown of the current paradigm of fiat currency and cheap energy becomes increasingly catastrophic, those controls over alternatives become increasingly extreme. People are already fed up with the capital controls on their bank accounts, and if there is an opportunity to get out, some might take it. That is a threat to those most invested in the current paradigm. For this reason, I think your discussion about cold storage is a very important one to follow up on. (On a side note, is there anyone on this chat who has programming experience who could convert a USB stick into a bitcoin cold-storage device? I would love to get in touch with anyone who could help with this little project…)
For those who are unsure about the low price in bitcoin, now would be a great time to conduct an experiment by buying one BTC and exploring the growing bitcoin community. Hold onto them and see what happens. Explore the opportunities that are being created with the blockchain protocol. At the very worst, you lose $225. But, with a little patience, you might also be surprised…
You just need to encrypt you wallet using the software program (such a multibit). Use 12 digit length alpha numeric special characters that do not contain dictionary words. The file that stores the goods is called "wallet.dat". In Microsoft windows you can find that file in your wallet program's directory. These wallet programs are usually installed inside your %appdata% folder. (you can type %appdata% in the Windows 'run' line and it will shortcut you right to that directory so you can browse from there.
Copy your encrypted wallet.dat file to your usb drive – and make a few backups in other places in case you lloseyour usb drive. (Some suggestions Dropbox, google drive. yes, the authorities can get access to those locations too – but if you've encrypted it, it won't do anybody any good to simply have a copy of it without the password) That level of password complexity would even take the NSA supercomputers thousands of years to crack (according to Ed Snowden telling us the NSA can attempt one trillion password attempts per second).
(note: a fun place to test how effective your password strategy is can be found here:)
Still, the Trezor is a better option as it was made to be able to use on an infected computer on a hostile network with hacking 'key loggers' remote in to watch every move. It uses a clever on-device screen password location grids that you have to read in person and click the appropriate grid location on the Trezor website of the character position in the grid which randomize each time you use it.
The Trezor devices talks from beginning to end in encrypted data that can't be monitored or "sniffed" on the network. If you truely want a 'off the grid' or 'off-shore' banking account, that's the way to go. The password security also uses a unique method that you can rebuild the entire wallet on a new device if your device is ever stolen or lost. (Probably too technical to go into here).