Risk of Bitcoin Hacks and Losses Is Very Real, Fortune

When hackers penetrated a secure authentication system at a bitcoin exchange called Bitfinex earlier this month, they stole about $70 million worth of the virtual currency.

The cyber theft—the 2nd largest by an exchange since hackers took toughly $350 million te bitcoins at Tokyo’s MtGox exchange ter early 2014—is hardly a zonderling occurrence ter the emerging world of crypto-currencies.

Fresh gegevens disclosed to Reuters shows a third of bitcoin trading platforms have bot hacked, and almost half have closed te the half dozen years since they burst on the toneel.

This rising risk for bitcoin holders is compounded by the fact there is no depositor’s insurance to absorb the loss, even tho’ many exchanges act like virtual banks.

Not only does that treatment personages the cybersecurity risk ter stark ease, but it also exposes the fact that bitcoin investors have little choice but to do business with undercapitalized exchanges that may not have the capital buffer to absorb thesis losses the way a traditional and regulated handelsbank or exchange would.

“There is a general sense te the bitcoin community that any centralized repository is at risk,” said a U.S.-based professional trader who lost about $1,000 ter bitcoins when Bitfinex wasgoed hacked. He declined to be named for this article.

“So when investing, you always have that expectation at the back of your head. I lost a puny amount compared to the others, but I know of traders who lost millions of dollars worth of bitcoins,” the trader said.

The security challenge for the bitcoin world does not show up to be letting up, according to experts te the currency.

“I am skeptical there’s going to be any technological silver bullet that’s going to solve security breach problems. No technology, crypto-currency, or financial mechanism can be made safe from hacks,” said Tyler Moore, assistant professor of cybersecurity at the University of Tulsa’s Tandy Schoolgebouw of Pc Science, who will soon publish the fresh research on the vulnerability of bitcoin exchanges.

His explore, funded by the U.S. Department of Homeland Security and collective with Reuters, shows that since bitcoin’s creation ter 2009 to March 2015, 33% of all bitcoin exchanges operational during that period were hacked. The figure represents one of the very first estimates of the extent of security breaches te the bitcoin world.

Ter tegenstelling, gegevens from the Privacy Rights Clearinghouse, a nonprofit organization, showcased that of the 6,000 operational U.S. banks, only 67 experienced a publicly disclosed gegevens breach inbetween 2009 and 2015. That’s toughly 1% of U.S. banks.

Among the world’s stock exchanges, however, security breaches are much higher, with hackers attracted to the large pools of contant moving ter and out of thesis trading venues. The latest survey of 46 securities exchanges released three years ago by the International Organization of Securities Commissions and World Federation of Exchanges found that more than half had experienced a cyber attack.

Moore collaborated on the research with Nicolas Christin, associate research professor at Carnegie Mellon University and Janos Szurdi, a doctoral student also at Carnegie.

Te 2013, Moore and Christin wrote a research paper on security risks surrounding bitcoin exchanges when Moore wasgoed still a professor at Southern Methodist University. That research, “Beware of the Middleman: Empirical Analysis of Bitcoin Exchange Risk,” wasgoed peer-reviewed and introduced at the 17th International Financial Cryptography and Gegevens Security Conference te Okinawa, Japan, ter 2013.

Te the most latest probe, the rate of closure for bitcoin exchanges ter Moore’s research edged up to 48% among those operating from 2009 to March 2015. Hacking did not necessarily trigger the closure te each case.

“A 48% closure is not acceptable, but not surprising given that bitcoin is a fresh technology,” said Richard Johnson, vice voorzitter of market structure and technology at Greenwich Associates. Johnson has written reports on risk and security issues te the crypto-currency world.

Profitability is a big problem for bitcoin exchanges, with many of them incapable to generate enough volume to keep afloat.

Bitcoin exchanges overall could be launched for spil low spil $100,000 up to $1 million, said Erik Voorhees, founder and chief executive officer of digital currency exchange ShapeShift. That is a fraction of what U.S. forex exchanges’ are required to waterput up.

Retail FX trading toneelpodium FXCM, for example, is required by the Commodity Futures Trading Commission to have at least $25 million te capital at all times.

A key factor tied to the risk posed by exchanges is whether customers are reimbursed after closure or after the loss of bitcoins following a hack. Each closure and breach have bot treated differently, but Tandy’s Moore said the risk of losing funds stored ter exchanges is real.

Ter the case of Bitfinex, which is now up and running after the hack Aug. Two, customers lost 36% of the assets they had on the toneelpodium and were compensated for the losses with tokens of credit that would be converted into equity ter the parent company.

At Tokyo’s MtGox, customers have yet to recover their investments more than two years after closure.

Experts say trading venues acting like banks such spil Bitfinex will remain vulnerable. Thesis exchanges act spil custodial wallets te which they control users’ digital currencies like banks control customer deposits.

“The big exchanges that hold customer deposits are a big target for hackers,” said ShapeShift’s Voorhees, “and unluckily most bitcoin exchanges store user funds.”

When customers’ checking accounts are hacked, there is always a third party at the canap that can step ter to overeenkomst with the theft.

Not so with bitcoin, said Seattle-based Darin Stanchfield, chief executive officer at KeepKey, a hardware wallet provider. He expects more of thesis attacks to toebijten despite efforts to improve security at bitcoin exchanges.

“Unfortunately because of its irreversible nature, bitcoin requires near flawless security,” he said.

Related movie: How To Earn FREE Bitcoin Tutorial – Bitcoin Mining Generator [2018]


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