Bitcoin Exchange Mt.Gox Suffers Serious Attack, Instawallet Offline

Bruce66423 writes "The BBC reports that Mt.Gox, the main exchange dealing with Bitcoins, has been attacked, and other resources are off line. A scary reminder of how insecure ALL money is in the computer age..." Also at TechWeekEurope. A message at bitcoin storage service Instawallet's site begins "The Instawallet service is suspended indefinitely until we are able to develop an alternative architecture. Our database was fraudulently accessed, due to the very nature of Instawallet it is impossible to reopen the service as-is."

Is it?

[paiute]

"A scary reminder of how insecure ALL money is in the computer age...."

I applaud the creation of Bitcoin, but really, would you trust your $10,000 more on a server somewhere or in an FDIC-covered bank?

A reminder of how insecure ALL money is?

[nysus]

Uh, no. Somehow I sleep a little better knowing my money is backed up by the FDIC if I keep it in a real bank.

BitCoin apologists

[93 Escort Wagon]

This is NOT a "reminder of how insecure all money is in the computer age". This is a reminder of what a crappy job BitCoin's developers have done. Did you somehow miss the part about the need to develop an alternative architecture before this can be reopened?

Dwolla Also Hit

[eldavojohn]

Also Dwolla was down for two days [techcrunch.com] but appears to be back up as they appeared to have worked a deal with CloudFlare. Mt. Gox uses Prolexic so this shouldn't affect them, right? Right? Accessing the database of Instawallet sounds like a total fail though.

A scary reminder of how insecure ALL money is in the computer age...

Really? My Celtic ring money is still fully intact around my wrist and still worth the silver it's made out of. All currencies have their ups and downs. Some benefits are double edged swords (just ask Renminbi traders). Nice editorial though -- the services surrounding BitCoin are clearly infantile and only now are getting DDOS protection.

My credit union offers two factor authentication. Could a Bitcoin exchange do the same? You bet. But they haven't. The fact is that it's easier to find legit and robust exchanges and institutions in USD than BitCoin.

Re:BitCoin apologists

[Anonymous Coward]

It's more of "A scary reminder of IT'S NOT OUR FAULT IT'S NOT OUR FAULT LOOK THEY DID IT TOO IT'S NOT OUR FAULT WAAAAAAH". Part of the Bitcoin zealots' never-ending quest to prove that Bitcoin is completely fucked up in the same ways real currency is, and that makes Bitcoin superior*!

*: I never said zealots were big on logic and reason.

Re:A reminder of how insecure ALL money is?

[prisoner-of-enigma]

Uh, no. Somehow I sleep a little better knowing my money is backed up by the FDIC if I keep it in a real bank.

And, as recently demonstrated by Cyprus, if the government arbitrarily changes the rules ex post facto and decides they're going to take your money "because we need it," how well do you sleep? You sleep well thinking the rules of the game can't be changed. They can. They are. This is a terrifying precedent.

is it me or bitcoin exchanges keep getting hacked?

[youn]

there are so many in the news, it is difficult to keep track

The purpose of the FDIC

[sjbe]

Remember, the FDIC has about $25B in treasury notes (not cash, that's long gone) in its fund to cover about $10T in deposits, and most of the insured banks have very low ratios (perhaps 10% cash-on-hand at most). If there's ever a bank run, the FDIC can't stop it.

The FDIC doesn't have to stop it. The purpose of the FDIC is to keep bank runs from starting in the first place, not to be able to back every dollar deposited. The FDIC is there to reassure people that even if their particular bank is having issues that they still will be able to get to their money because the government is there to back them up. Bank runs start because people think they cannot get to their money. If the money is insured there is less chance of them doing this.

Re:Is it?

[lgw]

As I understand it, a successful double-spending attack on Bitcoin requires controlling more than 50% of the computing power participating in the transaction validation network at the time you make the transaction. As that is the same thing as the bitcoin mining network, and that has gone to custom ASICs now, that's a pretty impressive obstacle. I don't think even the NSA has that kind of horsepower any more (though if anyone does, it's them).

If there's some flaw you see in the implementation of that, it's a really interesting flaw and you should publish.

Usually we want security proofs to rule out *all* theoretically feasible attacks, even those that we do not know of.

You contradict yourself there. Everything is vulnerable. Everything from AES to SHA-x relies on the premise that no one has come forward with a weakness, and lots of smart people have looked, and that's as good as it gets. You can't prove a negative.

Re:Is it?

[Princeofcups]

And if you did trust it on a server somewhere, would that server be "Magic The Gathering Online Exchange"?

(Or are we supposed to forget that that's what "MtGOX" stands for?)

Since some people will pay $10,000 for a mint Black Lotus, it's in the same ballpark. :-)

Re:Full faith and credit

[DragonWriter]

Within the past century, 95% of the purchasing power of the US dollar has been taken away by inflation. Exactly how safe do you think the US dollar is again?

If you are using currency as a long-term store of value, you are mostly using it wrong.

Re:Is it?

[betterunixthanunix]

The attack only requires that the attacker does as much work as the rest of the network until the original transaction is accepted (e.g. after six confirmations), at which point the attacker introduces the malicious block chain where he paid himself. That is not exponential: the attacker is maintaining his own block chain in secret, and only has to work as hard as is needed to keep that block chain as long as the current consensus, which means the attacker will work just slightly harder than the entire rest of the network is working. The concise way of saying that is that the attacker's effort scales linearly with the work done by the rest of the Bitcoin network, which is what I said in the first place.

Re:Is it?

[viperidaenz]

Without the safety or the insurance.

Re:Is it?

[lgw]

I'm going to ignore your sarcasm, and hope this helps some readers.

There are many potential sellers and buyers. For a given market, at a given point in time: the "bid" is the highest price any buyer is offering; the "ask" is the lowest price any seller is willing to take.

When the bid and ask intersect, people do business. In a "thick" market this happens all the time, and the bid and ask tend to stay very close together. That's great for a casual market participant: you don't need to study the behavior of the exchange in order to get a fair price. If you'd like to buy or sell corn at about $6 per bushel, and the last trade was $6, you can just buy or sell "at market" (just taking the best price at the moment), trade immediately, and not get screwed. You might pay $6.01 or get $5.99, but there's no need to carefully craft a stop or limit order, being careful of which way the market might move, and how long you're willing to wait, and what opportunity you might lose. Further if you accidentally buy 10x what you intended, you can turn around and sell immediately and lose only a trivial amount.

On the other hand, a "thin" market just sucks. If corn is going for about $6/bushel, but the bid is $5 and the ask is $7, it's a real problem for a casual market participant. If you unwittingly accept "market price", you get a terrible deal. To get any kind of fair price, you need to follow trading to know that when occasional trades happen, they're "about $6". You put in a stop or limit order for $6, but the guys sitting at $5 and $7 do nothing but trade this market full time, and they can wait. Let's say you're selling. No buyers for a minute at $6, five minutes, you say heck, maybe I was off a bit, and try $5.90. Still nothing. Eventually someone takes you out at $5.70. Most markets used to trade like that. Great for the investment bank that has a team of full-time speculators, bad for the guy who just needs to sell a couple tons of corn. And heaven help you if you accidentally buy 10x what you intended.

But there's obviously a profit to be made there: buying at $5.70 from the little guy and selling at $6 - the business of "market making". Once you have multiple competing market makers, the game changes. A isn't going to let B buy at $5.70, he'll take it at $5.71, except C will take it at $5.72, and so on, until you can just sell at $5.99 and not worry about it. The minimum profit the market makers will take is limited by 2 things: how fast the market is moving (which creates risk during the time the market maker owns the contract) and the amount of automation available. The reason most markets used to be thin was the lack of automation: unless there was a total of millions to be made in a given market, it's not worth paying someone to become the expert there. But now everything is algorithmic, and there's almost no per-market cost, and bid-ask gaps are tiny almost everywhere.

Sure the intermediary wants a profit- but when every market has multiple competing intermediaries, everyone wins. The more market makers participate, and the more frequently they do so, the less money gets siphoned off on each trade by those guys.