After Series Of Hacks, Bitcoin Faces Tough Future

Tags : hacking
(Photo : REUTERS/Jim Urquhart) Bitcoins continue to see wild price fluctuations.

Mt. Gox, the largest exchange for the virtual cryptocurrency Bitcoin, completely shut down on Feb. 25, 2014 after a prolonged cyberattack may have scammed customers out of millions of dollars.

Mt. Gox, which is based in Japan and founded by a French 20-something named Mark Karpeles, saw its website go blank, and while the company has yet to acknowledge anything, reports indicate that the hacking attempt was successful.

"As there is a lot of speculation regarding Mt. Gox and its future, I would like to use this opportunity to reassure everyone that I am still in Japan, and working very hard with the support of different parties to find a solution to our recent issues," Karpeles, who is also the exchange's CEO, said in a statement.

The Wall Street Journal reported that Mt. Gox has revived a subpoena from federal prosecutors in New York, but the currency's design, which ensures anonymity, makes tracing the stolen bitcoins effectively impossible.

The attackers exploited a flaw in Mt. Gox's verification system, spoofing the transactions of thousands of Bitcoins that never existed, and over time, slowing down the transaction process to a crawl by forcing exchanges to verify each transaction manually. Over time, these phantom transactions added up, and the hackers absconded with the Bitcoins on hand in the exchanges. The attack causes three exchanges, Mt. Gox being one of them, to suspend all withdrawals of Bitcoins in early February 2014.

"Mt Gox has been broken and it was obvious there was something really bad going on there for nearly a year. They were processing withdrawals very slowly and generally being very opaque about what was going on there," said Mike Hearn, a bitcoin miner in Zurich, Switzerland.

"There is no Federal Reserve or IMF to come to the rescue. There is no deposit insurance," said Campbell Harvey, a professor at the Duke University's School of Business who specializes in financial markets and global risk management.

The mystery deepens as a blogger and Bitcoin enthusiast by the name of Ryan Selkis claims to have been handed an 11-page "crisis strategy draft" from a "reliable source" outlining a contingency plan for Mt. Gox should it succumb to such an attack. Selkis published the report on his blog.

"At the risk of appearing hyperbolic, this could be the end of bitcoin, at least for most of the public," read the draft.

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