Saturday, March 22, 2014

Bitcoin theft

A friend of mine had the misfortune of storing his bitcoins in Flexcoin, the Canadian Bitcoin Bank that was robbed of 800 bitcoins by a hacker earlier this week. Although of course, when I write "Canadian Bitcoin Bank", what it actually turns out to be is a company registered to a rented mailbox in the city of Edmonton Alberta, according to provincial records, with its sole director and voting shareholder one James Andrew Gray, who also gave the rented mailbox as his address. This according to Reuters.

The case is similar to Trade Fortress, another robbed Bitcoin Bank, that time in Australia, which lost 4100 bitcoins, allegedly to a hacker. Again, the "Bank" turned out to be a young Australian developer (I couldn't find out what his name was though).
It's tricky though to determine from a web page whether you're dealing with a teenager working from his parents' spare bedroom, or a large established company with proper offices in the bitcoin world.
However, even larger companies with proper offices don't offer any guarantees. Mt. Gox was supposedly one of those proper companies, but managed to somehow lose over 650,000 bitcoins. Again, information has since leaked out that the company didn't use bug tracking systems or source control for the code that it's developers produced, and the CEO was more interested in setting up a cafe that accepted bitcoins than running the exchange.
The only truly safe way of storing your bitcoins seems to be:

  1. Get yourself a computer that's never been on the internet
  2. Copy OpenSSL across to it using a USB stick
  3. Generate a private key by tossing a coin 256 times, carefully writing down the result
  4. Spend half a day checking you've typed the private key into your disconnected laptop properly, and generate a public key
  5. Send your bitcoins to the address associated with the public key

And even that's not guaranteed.

This is, in my opinion, the biggest problem bitcoin faces.

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