One of the most powerful myths about Bitcoin — the encrypted, independent online currency that’s become a huge trend in recent months — is that Bitcoin is “secure.”
Bitcoin.org, the semi-official voice of the Bitcoin community, says “the whole system is protected by heavily peer-reviewed cryptographic algorithms like those used for online banking. No organization or individual can control Bitcoin, and the network remains secure even if not all of its users can be trusted.”
But Bitcoin is not secure.
There have been dozens of robberies of Bitcoin banks and exchanges, and millions of dollars have been lost.
To put that in perspective, if robbers were routinely walking into brick-and-mortar banks and taking millions of dollars, with zero consequences and no arrests, it would make huge headlines every day. The media would be on high alert for the next heist.
But on the Internet, Bitcoin thefts worth hundreds of thousands and millions of dollars happen on a weekly basis and no one cares.
Here are a few recent examples of Bitcoin robberies, and then we’ll explain why Bitcoin is not 100% “secure.”
- The Chinese Bitcoin GBL went offline earlier this month, taking $4.1 million in users’ accounts with it.
- In Australia, a Bitcoin exchange run by an 18-year-old user named “Tradefortress,” claims to have lost $1 million of his users’ money.
- Also in November, a Czech exchange, Bitcash.cz, declared that hackers had made off with an undisclosed amount stored in its users’ Bitcoin wallets.
- In September, Bitfloor announced that it had lost $250,000 in hacked Bitcoins.
- Last year $228,845 was stolen from a trading platform known as Bitcoinica.
Perhaps the biggest heist was pulled off by the U.S. government. After Ross Ulbricht, the alleged “Dread Pirate Roberts” who ran the online drugs market Silk Road was arrested by the FBI, authorities reported they had seized nearly $29 million in Bitcoins controlled by him. Techdirt later noted that some of the money may have belonged to users who did business on his site, and not all the business transacted there was illegal.
Don’t hold you breath for refunds.
The user known as “allinvain” is a long-time contributor to the Bitcoin forums. He says he’s been mining Bitcoins for over a year, and had amassed a fortune of 25,000 BTC. This was a modest sum a few months ago, when Bitcoins were worth pennies, but over the last two months the value of a Bitcoin skyrocketed to around $20, which means 25,000 BTC would have been worth half a million dollars. “I remember watching the price like a hawk,” he wrote.
And then disaster struck. “I just woke up to see a very large chunk of my bitcoin balance gone,” he wrote. “Needles [sic] to say I feel like I have lost faith in bitcoin.” He speculated that a Windows security flaw may have allowed the culprit to gain access to his digital wallet. “I feel like killing myself now,” he said.