A massive cyber attack from unknown sources that has been
spamming
bitcoin exchanges is highlighting some of the dangers people can encounter
when they exchange cash for digital currencies like the bitcoin, experts said
on Wednesday.
The attack, which is technically known as a distributed denial of
service attack, involved thousands of phantom transactions, forcing at
least three of the online platforms that store bitcoins and trade them for traditional currencies to halt
withdrawals of bitcoins until they can determine which transactions were real.
It showed that bitcoin, which exists solely in cyberspace
and operates on a software code written by an unknown programmer or group of
programmers, is as vulnerable to such an assault as any other internet-based
business. It exposes the higher risks involved in owning and trading the
instrument compared with the dollar and other traditional currencies. Bitcoins
slumped in value as a result of the disruptions.
"Bitcoin is still an experimental protocol in its infancy,"
said Micky Malka, a venture capitalist who is on the board of Bitcoin's trade
group, the Bitcoin Foundation.
"It will grow and mature over time," he added.
"No one should be investing an amount they cannot afford to lose."
This week's attack was not the first, said Andreas
Antonopoulos, chief security officer for blockchain.info, a website that tracks
bitcoin activity and provides online storage services for bitcoin users.
Antonopoulos is also a member of a group of core bitcoin
programmers and is part of an emergency response team of programmers who have
been working to fix the flaws in the code governing some bitcoin transactions
that the attackers were exploiting. He said that work that should be completed
by the middle of next week, echoing an estimate provided by a spokeswoman for
the Bitcoin Foundation who said its core developers were all participating in
the effort to fix the code.
Bitcoin is a decentralised digital system of value
transfers that is not governed by any central bank, company or government. No
assets back the bitcoin, whose value has fluctuated widely as its visibility
has increased. Last September, a bitcoin was worth around US$150. By late
December the value was near the US$1000 mark.
Regulators around the world are struggling how to
categorise the bitcoin. Some want to call it an asset class, others a
commodity. Bitcoin users call it a currency and many advocate for its mass
adoption, claiming it can help solve problems created by expensive and
time-consuming bank transactions.
Early adopters also liked the anonymity bitcoin has
offered, since it can be transferred between users without any exchange of
personal identification information. However, moves by various authorities to
pursue bitcoin users who they say have laundered money using the currency and
attempts to regulate bitcoin exchanges could soon lower the level of anonymity
in transactions.
On Tuesday, Slovenia-based Bitstamp became the second
major bitcoin exchange to halt customer withdrawals in the past several days,
citing "inconsistent results" and blaming a denial-of-service attack.
That was a day after Mt Gox, based in Tokyo and the
best-known digital marketplace operator, said a halt on withdrawals would
continue indefinitely. Traders reacted to the halt by sending the bitcoin value
to its lowest level in nearly two months.
A Bulgaria-based bitcoin exchange also had to halt
withdrawals, Antonopoulos said.
The price of bitcoins, which have gained wider acceptance
in recent months, dropped in the wake of the attacks from around US$850 late
last month. On Wednesday, they were quoted down nearly 2 percent for the day at
US$656 per coin on the bitcoin tracking website CoinDesk.
"Anyone who plays in this space, you better have a
plan for when an attack happens because it's going to be a when, not an
if," said Brian Krebs, a Washington-based cyber security expert who runs
the blog KrebsOnSecurity.com.
The lesson for investors was that the bitcoin wasn't as
liquid as initially advertised, said Jason Scharfman, a financial due diligence
expert and managing partner at consulting firm Corgentum.
"These types of attacks, they're effectively
freezing some of the accounts because the exchanges don't want to pay out to
the wrong person," he said. "If something's frozen or there's a
question about me being able to redeem my bitcoins, the value of them
drops."
"Does this spook financial investors?" he
added. "The answer is yes."
Scharfman said one way to mitigate the risks of such
attacks would be to spread holdings of bitcoins out among several different
online storage facilities. That way if one were attacked the other might still
have a chance at being safe.
Scharfman said the more regulatory scrutiny that bitcoin
exchanges received, the safer they were likely to be.
"Regulation will sort of normalise which exchanges
are the most secure. They'll mandate security measures and smaller exchanges
just won't be able to afford it," he said.
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