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Bitcoin Security The Almighty Buck IT

Hacked Bitcoin Financial Site Had No Backups 331

Posted by timothy
from the harsh-lessons dept.
An anonymous reader writes "A fortnight ago the Bitcoin financial website Bitcoinica was hacked and the hacker stole $87,000 worth of Bitcoins. At the time the owner promised that all users would have their Bitcoins and US dollars returned in full, but one of the site developers has just confirmed that they have no database backups and are having difficulty figuring out what everyone's account balance should actually be. A failure of epic proportions for a site holding such large amounts of money."
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Hacked Bitcoin Financial Site Had No Backups

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  • How are situations like this still happening?

    • by gl4ss (559668)

      it seems they might have had backups.

      but those instances were deleted as well.

    • by Anonymous Coward on Saturday May 26, 2012 @07:16AM (#40119915)

      How are situations like this still happening?

      I think 17 year olds running online currency exchanges is a fairly recent phenomenon.

    • How are situations like this still happening?

      Because some people who are in control of servers, databases, etc seem to think that a copy of their data is a backup even if it resides on the same hard drive or computer. Send a copy of it to a different drive ... attached to a different computer ... in a different location. The cost of being prepared for a data disaster is vigilance. The cost of not being prepared is ...

      • Re:Honestly... (Score:4, Insightful)

        by Lumpy (12016) on Saturday May 26, 2012 @09:24AM (#40120697) Homepage

        " The cost of not being prepared is ..."

        That IT manager having to use the following words for the rest of his career.....

        "Welcome to burger king, can I take your order?"

        Sadly that will not happen. The IT manager will get promoted after he blames it on the IT guy that for years was asking why they dont have real backups.

    • by Shavano (2541114)
      P.T. Barnum explained it perfectly.
    • by betterunixthanunix (980855) on Saturday May 26, 2012 @07:50AM (#40120095)
      Maybe anarchists are not as good at managing currency as professional bankers?
  • No problem (Score:3, Funny)

    by Anonymous Coward on Saturday May 26, 2012 @07:27AM (#40119977)

    Just check out the WayBack machine. Use the same security hole the hackers used, and just read off everyone's bank balance. Sorted!

  • I've actually been relatively open-minded about Bitcoin in general, but this really does make them look like they're trying to cut everyone off and make off with the money. I mean, the combination of risk and technical know-how here really ought to result in a certain standard of paranoia.

    • I've actually been relatively open-minded about Bitcoin in general, but this really does make them look like they're trying to cut everyone off and make off with the money

      No surprises there. Bitcoin was one trading at like $0.10, and the people who joined the scam back then made lots and lots of (real) money. People have been calling Bitcoin a scam for years at this point.

    • You're conflating a currency exchange with the currency itself, which is actually working in this instance somewhat like cash is... Here, let me show you what you sound like:

      I've actually been relatively open-minded about Euros in general, but this bank robbery really does make the EU currency system look like they're trying to cut everyone off and make off with the money. I mean, the combination of risk and technical know-how here really ought to result in a certain standard of paranoia.

    • Re: (Score:3, Insightful)

      by benjamindees (441808)

      First of all, Bitcoinica is not Bitcoin. It is a broker of Bitcoin futures contracts. And one that is unaudited, poorly-backed, unregulated, and run by a 17 year old Singaporean student.

      So, those who were paying any attention at all know that using Bitcoinica was always a highly risky proposition. Making such a thing work flawlessly was never guaranteed to even be possible, let alone without bumps along the way, even though Zhou Tong did a relatively stellar job in my opinion, all things considered.

      But l

      • I've met the VC (actually angel investor) in question. He's a really good and honest guy. He's not a shark.

        This is due to two problems. First, the changeover to new management had not been completed yet, and when one of their systems was hacked it gave an opening to hack the trading site itself. This was a really serious failure, but also understandable since they hadn't finished auditing things to figure out how to secure them.

        The second problem is that Bitoinica was hacked together quickly by a very talen

  • Irony (Score:5, Insightful)

    by J'raxis (248192) on Saturday May 26, 2012 @07:51AM (#40120101) Homepage

    Meanwhile, the EUR is imploding due to abject irresponsibility on the part of its government backers, banks, and investors, and the USD is probably not far behind. I wonder how long off until we see wheelbarrows full of euros and dollars being used to feed woodstoves rather than as currency. The growing sovereign debt crises and $700T (yes, that's a "T") derivatives market going tits-up are going to make BTC's problems look like a joke.

    Yet I see comment after comment of how irresponsible and amateurish BTC is, and how we should only trust regulated, state-backed currencies. Yeah.

    • I wonder how long off until we see wheelbarrows full of euros and dollars being used to feed woodstoves rather than as currency.

      Actually, it would be a good idea to burn the cash regardless of financial collapse. [nationalgeographic.com]

    • Yet I see comment after comment of how irresponsible and amateurish BTC is, and how we should only trust regulated, state-backed currencies. Yeah.

      And what's amazing is that after this debacle, nobody will ever think to insist that their next Bitcoin site show that they have provable backups.

      Oh, wait, they actually will, probably insisting that somebody reputable verify that, and such a market regulation only cost $87,000, barely the benefited cost of a secretary for some big government agency.

    • by Wildclaw (15718)

      The growing sovereign debt crises

      The US can always pay its debts because it is economically sovereign. It prints its own currency, its debts are denominated in its own currency and its currency floats against other currencies. Now, can the US politicians actually be trusted to honor the debts. That isn't as clear. And that is why S&P gives JPY an AAA rating while USD doesn't get one. A pure political (not debt) crisis based on fundamentalists in the government.

      The Euro-zone, now that is a different matter. There is some real sovereign

  • $87k is two day's work for a CEO (or sports star) earning $10 million/year . Not really very much money, at least as far as the 1%-ers are concerned. And we all know they're the only ones who matter.

    Do I really need a here?

  • by Beautyon (214567) on Saturday May 26, 2012 @07:56AM (#40120145) Homepage

    This story about the woes of Bitcoinica is grossly overblown. The amount of money is comparatively very small, and the Bitcoin network itself is nothing to do with this theft and is sound.

    To put some perspective on the Bitcoinica incidents, in 2008, the estimated UK bank fraud level was £52.5 million; that is 990.28441 times the amount of this Bitcoin theft:

    http://www.themoneystop.co.uk/042009/online-banking-fraud-is-on-the-rise-in-the-uk.html [themoneystop.co.uk]

    There are people on many sides who want Bitcoin to fail, and who will do anything to stop it from growing. The banks hate it, because it will disintermediate and replace their business. The Statists dont like it because it will defund their socialist dreams. The gold bugs loathe it because it is not gold. Keynesian journalists bristle at the fact that the money supply in Bitcoin is limited, and dream of seeing it destroyed.

    None of these people will matter in the end, and they do not understand Bitcoin.

    Bitcoin will continue to grow, and events like this will winnow out the weak services and strengthen the existing ones. Each theft, disaster and problem are iterations that add to the unpublished "how to run a safe Bitcoin service" manual. Bitcoin and the services that will grow up around it cannot be stopped, just like Bittorrent cannot be stopped, and the latter is responsible for 53.3% of upstream traffic:

    http://torrentfreak.com/bittorrent-still-dominates-global-internet-traffic-101026/ [torrentfreak.com]

    It doesn't take much to see how important Bitcoin is going to become once the core public facing interfaces are solidified, refined and reliable. Bitcoinica is not Bitcoin, and neither are any of the services that are built on it. Bitcoin is a protocol. Events like this are nothing more than a bump in the road, and a vanishingly small one at that.

    • by Ash-Fox (726320)

      To put some perspective on the Bitcoinica incidents, in 2008, the estimated UK bank fraud level was £52.5 million; that is 990.28441 times the amount of this Bitcoin theft

      To put some perspective, you're protected by law with the above, not with Bitcoin. Any money stolen from individuals is certainly returned.

      There are people on many sides who want Bitcoin to fail, and who will do anything to stop it from growing. The banks hate it, because it will disintermediate and replace their business. The

    • by Jawnn (445279) on Saturday May 26, 2012 @09:05AM (#40120563)

      The banks hate it, because it will disintermediate and replace their business.

      No. It will not... ever. Your mistake is in assuming that what people will value, and how they will treat the things they value, is always based on reason. If history teaches us anything, it is that people are often far from reasonable. So no matter how much bitcoin has going for it, when viewed dispassionately, it is not shiny and tangible. The fact that the shiny things, and more importantly, the things that people build and do for each other are far more tangible, and that those things would steadily become worth fewer bitcoins per unit rather than more, is guaranteed to keep it nothing more than another geek fad.

    • by RogerWilco (99615) on Saturday May 26, 2012 @10:43AM (#40121195) Homepage Journal

      I don't think Bitcoin will work in the long run. The main reason is that it's designed to be limited to a fixed amount. This leads to three problems:

      1) And financial transaction that requires interest is a problem. Anything from a business loan to a mortgage is basically impossible in a fixed money supply.

      2) Assuming the economy grows, there would be deflation, which will mean people try to hoard their bitcoins instead of spending them. This in turn increases the deflation.

      3) Related to the first two points: One person can over time become the owner of all bitcoins if this person has a sizeable initial stack of bitcoins, and lends them out at interest, and keeps spending well below the gained interest, you end up gaining a larger and larger share of the total bitcoin supply.

      These effects feed into each other, enforcing the effects and if kept unchecked will lead to a situation where a few players own the vast majority of the bitcoin supply. The pool of bitcoins not in their hands will dwindle as more and more of it is paid as interest to the large lenders, given continuous deflation and ultimately concludes in a credit crunch of epic proportions.

      A successful bitcoin is a setup for a major economic disaster, a failed bitcoin can be ignored. I choose the second option because I think the first one would create problems much bigger than the economy has now.

  • 87k is not that great a sum of money. If you think a "failure of epic proportions" in the business world involves five figures, you've got a lot to learn about business.
  • No Backups?!?? (Score:4, Insightful)

    by Hasai (131313) on Saturday May 26, 2012 @08:46AM (#40120429)

    It isn't the amount, it's the sheer amateurishness of the operation and the subsequent loss of trust.

    Banks, exchanges, and other monetary systems, including currencies themselves, can only function when there exists an implied trust that the system will continue to function, and do so reliably. A loss of that trust is what causes bank runs, hyperinflation, and economic collapses.

    Bitcoin has destroyed that trust. They're toast.

  • Seriously, you are dealing with financials. How can you be so stupid? I guess that is what happens in a field where you throw away your most experienced people because they are too old and just don't "get it".

  • by shentino (1139071)

    My prediction?

    The SEC will consider bitcoins as "unlicensed securities" and start prosecuting people for selling them.

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