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Computer compromise leads to theft of bitcoins valued at $500,000 USD

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Re: Computer compromise leads to theft of bitcoins valued at $500,000 USD

#71

Post by byrneseyeview »

recoiledsnake wrote: post #45
byrneseyeview wrote: post #35

Earlier quoted context omitted.

What prevents you from setting up a BitCoin bank? More interestingly: are the features that let you set up a dollar-denominated bank features or bugs?

Banks are regulated by law and have the funds insured by FDIC. i.e even if the bank goes belly up, the FDIC will make sure the depositors get the money. With BitCoin, how do you trust a bank? Even if it's just by word-of-mouth trust, eventually the bank will be taken over or run by non-trustworthy people. The threat of federal prison keeps most real banks honest. Nothing like that exists in the BTC world.

Well, ultimately what you're saying is that you trust the FDIC more than you trust any given bank. That's nice, but it begs the question:

- Will the FDIC fulfill its obligations at all times?

- How does the FDIC have the resources to do so?

- Does the presence of the FDIC lead to better or worse behavior among banks?

It's especially interesting to look at the issue of non-trustworthy people. When S&Ls were semi-deregulated in the early 80's, they got extra FDIC protection and were allowed to lend to a wider variety of projects. Suddenly, the credit decisions of the bank didn't matter, because the FDIC backstopped their deposits. And that attracted some really non-trustworthy people.

Wikipedia says the total cleanup cost was $87.9 billion, which discounts the opportunity cost from building pointless malls and empty offices. Can you imagine a BitCoin-based system ever hitting that level of losses?

Re: Computer compromise leads to theft of bitcoins valued at $500,000 USD

#72

Post by Ixiaus »

joeyh wrote: post #34

IMHO the shadiest side of the bitcoin daemon is that it discovers peers by connecting to an irc channel. Just like a typical virus botnet handles command and control. Connecting these two uses of IRC is pretty obvious, and then you get a virus that attacks windows machines running bitcoin and steals wallets.

It doesn't just get them from IRC. IRC is the quickest way for the daemon to get them.

Re: Computer compromise leads to theft of bitcoins valued at $500,000 USD

#73

Post by simias »

cheez wrote: post #37

Third sentence: > If only the wallet file was encrypted on the HD. Yep. Anyone who doesn't do this is stupid.

He then proceeds to say that he backed up his unencrypted wallet to "dropbox, wuala, and spideroak", which doesn't strike me as extremely clever when you're talking about something in the half a million price range.

On the other end it's a good cautionary tale. I'm quite curious about this bitcoin thing, but this reminds me I definitely don't want to secure all my money myself without any insurance or guarantees. A stupid mistake and shazam you lost all your money.

Regarding the issue of whether the application should encrypt the wallet by default, it'd probably be a good thing to have but I'm not sure it would have helped in this case. The wallet would have to be decrypted in order to mine or execute any transaction and the attacker was obviously targeting the bitcoin wallet specifically, so it could just have installed a keylogger or whatever to catch the passphrase, like they do with banking sites (or wait until the walled is decrypted and dump it then, or install a backdoored version of the bitcoin client...).

Re: Computer compromise leads to theft of bitcoins valued at $500,000 USD

#74

Post by dminor »

byrneseyeview wrote: post #30
ansy wrote: post #11

I'm a BitCoin skeptic with the best of them. But this is breathtaking. That's one thing about bitcoins. There's no FDIC or SIPC watching your back. It's the wild west with train robberies and stage coach heists in all.

It's interesting to consider why that is. I could start a BitCoin deposit insurance company, for example: you'd pay me X% of your balance each month, and I'd make you whole in the event of fraud. Of course, I'd want all sorts of regulations on how you set this up; I might sell you some kind of extra-secure system for managing your balance, for example. At that point, the market would basically be putting a price on B…

Maybe I'm missing some detail of the scheme you're proposing, or have some fundamental misunderstanding of bitcoin, but if bitcoin is anonymous and untraceable, how do you prevent insurance fraud?

Re: Computer compromise leads to theft of bitcoins valued at $500,000 USD

#75

Post by Ixiaus »

DrewHintz wrote: post #69
cheez wrote: post #37

Third sentence: > If only the wallet file was encrypted on the HD. Yep. Anyone who doesn't do this is stupid.

I doubt that encrypting the wallet on the HD would have helped much. It sounds like allinvain's computer was compromised. The attacker could have copied the decryption key when it was used legitimately by allinvain.

I put my wallet on an IronKey - I imagine that helps the situation.

Re: Computer compromise leads to theft of bitcoins valued at $500,000 USD

#76

Post by ctide »

chopsueyar wrote: post #27
pavel_lishin wrote: post #9

Valued by who? Hasn't this been fluctuating like crazy lately?

No. One exchange one day.

No? I'd say a high of $24 and a low of $16.10 over the last 48 hours most assuredly qualifies as 'fluctuating like crazy.'

Re: Computer compromise leads to theft of bitcoins valued at $500,000 USD

#77

Post by mrvc »

pygy_ wrote: post #38
mrvc wrote: post #15

It's not really $500,000 though is it? As soon as you exchange a small amount of that into dollars you crash the exchange and the value drops significantly. I'd estimate it at about $30,000 worth.

If you try to cash them out all at once, yes. On June 12th, $3,5M were exchanged on MtGox. For 8 of the last 10 days, the daily volume has been above $1M. I think that you could get these $500K in small chunks in a few days, provided you do it full time. Edit -- Source: http://bitcoincharts.com/charts/mtgoxUSD#rg30zigDailyzvzcvzl...

Allegedly.

Without an unbiased third party auditing of their accounts I would be loath to place too much trust in data they themselves produce to say how awesome they are. Especially with such a significant amount of capital allegedly at stake and nothing to lose for bending the truth.

Re: Computer compromise leads to theft of bitcoins valued at $500,000 USD

#78

Post by recoiledsnake »

Astrohacker wrote: post #48
recoiledsnake wrote: post #45

Earlier quoted context omitted.

Banks are regulated by law and have the funds insured by FDIC. i.e even if the bank goes belly up, the FDIC will make sure the depositors get the money. With BitCoin, how do you trust a bank? Even if it's just by word-of-mouth trust, eventually the bank will be taken over or run by non-trustworthy people. The threat of federal prison keeps most real banks honest. Nothing like that exists in the BTC world.

> Banks are regulated by law and have the funds insured by FDIC. i.e even if the bank goes belly up, the FDIC will make sure the depositors get the money. With BitCoin, how do you trust a bank? There were banks before the FDIC and people trusted them. The threat of insolvency can (but doesn't always) keep them honest.

True, but atleast the banks were real physical places with real people at the helm. It is really hard to trust anything over the internet these days,except if one of the big financial players like Citibank or someone like Amazon starts a bitcoin bank.

AFAIK any of the online banks could be running out of a hole in the wall in Ukraine or Nigeria. Even paying online sites with credit cards is risky these days with the rampant fraud etc, I wouldn't trust anything online only enough to entrust my money unless backed by a big player.

Re: Computer compromise leads to theft of bitcoins valued at $500,000 USD

#79

Post by shareme »

ahem, read up on European history..

The Merchant trade in Europe came up with three valued things:

1. Corporations 2. Insurance 3. Banks

Those three items are related to one another. While its true that due to the anonymous nature BitCoin is biased towards illegal mafia-like formation of banks and such for illegal activities as soon as legal activities start using them as trade banks, insurance, etc will form as a nature evolution.

Re: Computer compromise leads to theft of bitcoins valued at $500,000 USD

#80

Post by timbowhite »

jonknee wrote: post #60
timbowhite wrote: post #54

Earlier quoted context omitted.

Banks also inflate the money supply using fractional reserve banking, effectively diminishing the value of every other dollar in active currency. If you think that is honest behavior, then bury all your money for 10 years and then try to spend it. Suprise! You've been robbed. If I'm not mistaken, there is an eventual limit on the amount of bitcoins that can ever be created.

That's not entirely a negative... We're better off that people are incentivized to not bury all their money. Deflationary spirals are no fun.

I agree that circulation of currency/commodities is necessary for a healthy economy. I don't agree that we're better off having value stolen from our currency by inflating it for the sake of "incentive".

How many joe sixpacks actually spend their money as quickly as possible because they're afraid of inflation? Hopefully it never comes to that.

> Deflationary spirals are no fun. $5/gallon of gas and $7/gallon of orange juice are no fun either.

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