01:05 PM

Bitcoin Heists Cause More Trouble

Attackers continue to pummel bitcoin "banks," exchanges, and crypto-currency users themselves via malware that steals virtual wallets.

Self-styled bitcoin "bank" Flexcoin this week announced that it's been forced to shut down after online thieves stole 896 bitcoins, worth nearly $600,000.

"As Flexcoin does not have the resources, assets, or otherwise to come back from this loss, we are closing our doors immediately," the Alberta, Canada, based company said in a statement. "Having this be the demise of our small company, after the endless hours of work we've put in, was never our intent. We've failed our customers, our business, and ultimatley (sic) the Bitcoin community."

The bitcoin bank generated profits by charging users 0.01 BTC (bitcoins), or 0.005% of the total transfer amount -- whichever was greater -- whenever they transferred bitcoins outside of Flexcoin. Users earned "interest" on their deposits in the form of discounts on their own out-of-bank transfers.

This is but the latest in a string of recent incidents that have rocked the crypto-currency system.

Flexcoin: Hackers exploit withdrawal system flaw
The Flexcoin hacker exploited the fact that bitcoins could be freely transferred from one Flexcoin account to another. "By sending thousands of simultaneous requests, the attacker was able to 'move' coins from one user account to another until the sending account was overdrawn, before balances were updated," according to the company's statement.

Anyone who had funds stored in Flexcoin's Internet-connected "hot wallet" won't get them back. While the three-year-old Flexcoin advertised itself as "the bitcoin bank," as the company noted in its terms of service, "technically we're not a licensed bank," and that "Flexcoin Inc is not responsible for insuring any bitcoins stored in the Flexcoin system."

[Are bitcoins already passé? See Bye, Bitcoin: Criminals Seek Other Crypto Currency.]

On the upside, however, the attacker didn't steal bitcoins stored in Flexcoin's offline, cold-storage service. Flexcoin said it would be contacting anyone with bitcoins in cold storage and transferring the virtual currency to them directly, after first verifying their identity.

Mt. Gox shutdown: Source code leaked
Flexcoin's failure follows the demise of Mt. Gox, which was once the world's third-largest bitcoin exchange. Friday, the Japan-based company filed for bankruptcy, saying that hackers stole about $500 million in bitcoins stored by the site.

Evidence that the 850,000 missing bitcoins were obtained via a hack attack arrived Sunday, when 1,719 lines of PHP code were posted to Pastebin. The code included the SSH keys required to connect to Mt. Gox's transaction-processing server, which would have allowed an attacker to redirect transactions or drain users' bitcoin wallets, Ars Technica reported.

Last week, Flexcoin boasted about not being affected by the Mt. Gox shutdown. "We hold zero coins in other companies, exchanges, etc.," Flexcoin tweeted. "While the Mt. Gox closure is unfortunate, we at Flexcoin have not lost anything."

Poloniex hacked: Owner launches bitcoin reimbursement program
Flexcoin and Mt. Gox weren't the only crypto-currency exchange -- a.k.a. "darkcoin trading" -- sites to have been successfully exploited in recent weeks. Notably, crypto-currency exchange Poloniex Tuesday revealed that an online attacker successfully stole 12.3% of the exchange's bitcoins -- worth about $50,000, based on the attacker's Bitcoin address and the currency's market value that day -- after exploiting a flaw in the site's withdrawal system. The attack was stopped, however, after the exchange's security controls noticed unusual withdrawal activity.

The flaw allowed the attacker to withdraw more money than his or her account balance should have allowed because the system failed to process withdrawals in a sequential fashion. "The hacker discovered that if you place several withdrawals all in practically the same instant, they will get processed at more or less the same time," Poloniex owner "Busoni" said on Bitcoin Forum. "This will result in a negative balance, but valid insertions into the [Poloniex] database, which then get picked up by the withdrawal daemon."

"I take full responsibility for this and am committed to repaying the debt of BTC," Busoni said. But to prevent a run on the exchange's bitcoins, he

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Mathew Schwartz served as the InformationWeek information security reporter from 2010 until mid-2014. View Full Bio

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User Rank: Ninja
3/5/2014 | 4:21:58 PM
Rotten in Denmark
I can't help but think that the utter annihilation of cryptocurrency is a concerted effort by the central banking cartel to destroy the threat Bitcoin et al. clearly poses to the status quo.
User Rank: Apprentice
3/6/2014 | 4:27:47 AM
Re: Rotten in Denmark
I think Bitcoin's troubles come from within. The developer/chief behind Mt. Gox, for example, didn't code clean-enough code to prevent very, very patient attackers from finding a way to exploit the exchange. Likewise, Internet-connected virtual wallets are a sitting duck.

There are now more than 30 cryptocurrencies available. If Bitcoin dies, many more can take its place. I'd say this is less a fatwa against cryptocurrencies, and more of a Darwinian thing. Which, when you're dealing with developing stable monetary systems, is exactly how it should be.
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