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What's the Matter With Bitcoin Exchanges?

The downfall of Mt. Gox highlights the instability of many virtual currency trading markets.

When Mt. Gox filed for bankruptcy in a Tokyo court Friday, it marked the culmination of a swift downfall for one of the world's largest Bitcoin exchanges. It's was only one year ago that Mt. Gox accounted for nearly 70 percent of the virtual currency's transactions globally, according to reports.

That was all before some 700,000 or so Bitcoins went missing from the exchange recently, apparently due to a DDoS attack that allowed cyber thieves to exploit a software bug in the Bitcoin "blockchain", which is supposed to record each transaction and give it a unique ID. The bug, however, creates a small window where each ID can be changed, thus allowing thieves make it appear the transactions never occurred. This makes Mt. Gox the latest in a series of virtual currency exchanges to be hacked, such as the Silk Road 2.0 exchange, which reported $2.7 million in Bitcoins being stolen last month.

I asked Steve Marchewitz, president of SecureState, a cybersecurity consulting firm, if there was something inherently insecure about virtual currency exchanges that hacks happen so frequently.

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Marchewitz says virtual currency exchanges can be secure, just at this nascent stage in their development enough of an emphasis has not been placed on it. "Like with any other new technology, in the beginning you're trying to make the thing work, and security sometimes takes a back seat," he adds. "Right now, there's nowhere near the sophistication of security that there is needed to be for the amount of money on the line."

...Read the full story on Bank Systems & Technology Bryan Yurcan is associate editor for Bank Systems and Technology. He has worked in various editorial capacities for newspapers and magazines for the past 8 years. After beginning his career as a municipal and courts reporter for daily newspapers in upstate New York, Bryan has ... View Full Bio

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IvySchmerken
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IvySchmerken,
User Rank: Author
3/11/2014 | 2:00:42 PM
re: What's the Matter With Bitcoin Exchanges?
Nouriel Roubini, NYU professor and global economist has attacked Bitcoin repeatedly for being a Ponzi scheme. "So Bitcoin isn't a currency. It is btw a Ponzi game and a conduit for
criminal/illegal activities. And it isn't safe given hacking of it." - @nouriel
Greg MacSweeney
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Greg MacSweeney,
User Rank: Apprentice
3/10/2014 | 1:42:08 PM
re: What's the Matter With Bitcoin Exchanges?
It appears what you say might be true. Forbes is reporting that hackers have broken into MtGox's servers again and have evidence that alleges the Mt.Gox failure was fraud, not theft:

http://www.forbes.com/sites/an...
Joe Brunner
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Joe Brunner,
User Rank: Apprentice
3/9/2014 | 1:22:21 PM
re: What's the Matter With Bitcoin Exchanges?
Karpeles is a just an arrogant little bastard - Mt.Gox's failure goes WAY beyond bitcoin's security flaws - presuming they really are what killed Mt.Gox - or if the BTC was just stolen by Karpeles himself. The lack of communication from Mt.Gox proves they deserved to fail. If they really did lose all the BTC through theft - let's see them ID their wallet and show us the transactions. When the adults arrive in the BTC exchange world - the problems should stop.
joeaffmdsys
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joeaffmdsys,
User Rank: Apprentice
3/9/2014 | 1:22:21 PM
re: What's the Matter With Bitcoin Exchanges?
Karpeles is a just an arrogant little bastard - Mt.Gox's failure goes WAY beyond bitcoin's security flaws - presuming they really are what killed Mt.Gox - or if the BTC was just stolen by Karpeles himself. The lack of communication from Mt.Gox proves they deserved to fail. If they really did lose all the BTC through theft - let's see them ID their wallet and show us the transactions. When the adults arrive in the BTC exchange world - the problems should stop.
Jonathan_Camhi
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Jonathan_Camhi,
User Rank: Author
3/6/2014 | 5:18:30 PM
re: What's the Matter With Bitcoin Exchanges?
Not enough security has been thought through with the exchanges. Bitcoin itself has never been hacked. But the exchanges keep falling victim to hackers left and right. Within the Bitcoin community though, there was a lot of talk about concerns with Mt. Gox's security before the fallout last week. Have to think that eventually someone will figure out the security side for an exchange. And that will really help boost Bitcoin.
IvySchmerken
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IvySchmerken,
User Rank: Author
3/6/2014 | 3:37:50 PM
re: What's the Matter With Bitcoin Exchanges?
I agree that Bitcoin exchanges need to pay serious attention to security. Another exchange went bankrupt yesterday. As today's New York Times reports: Bitcoin "was born of mistrust of humans and their institutions. It rests on the belief in the integrity of technology and the code that controls a payment system..." But some of the young Bitcoin startups seeking venture capital funding for their businesses are willing to set up "stringent technical and financial audits and insurance mechanisms" and invite regulators to monitor them, so that holders of Bitcoins won't be wiped out in the event of catastrophic losses like the case of Mt. Gox. #NYT article: (http://www.nytimes.com/2014/03...
Byurcan
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Byurcan,
User Rank: Author
3/4/2014 | 10:16:14 PM
re: What's the Matter With Bitcoin Exchanges?
I think like Marchewitz says, just not enough priority was put on on security at this early stage. Bitcoin and virtual currencies aren't going anywhere, and future exchanges will be much more secure than Mt. Gox.
IvySchmerken
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IvySchmerken,
User Rank: Author
3/4/2014 | 7:23:20 PM
re: What's the Matter With Bitcoin Exchanges?
While it's sad that Bitcoin has toppled into bankruptcy, what can it tell its user community that trusted the exchange to plug its holes and fix its bugs?
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