Hacked BitCoin Exchange Sued By Customers

judgecorp writes "Bitcoinica, an exchange for the BitCoin virtual currency, is being sued by former customers, after it was hacked. Thieves stole around $180,000 worth of BitCoins in two attacks. The site is now closed, and customers are suing to get their money back."

Comments

LOL

[Anonymous Coward]

But Bitcoins are secure and stuff! Not like that stoopid fiat currency.

Re:LOL

[stephanruby]

And good luck suing for untaxed, untraceable, and unregulated currency.

Generally speaking, even internet income or internet capital gains is supposed to be taxable for US citizens, so don't expect the Californian/US justice system to come running to help you if you give them any inkling that you purposefully invested in bitcoins to avoid giving them a piece of the action.

If I had been one of the victims, I would have sued the site directly in Singapore court. A small tax haven and tax shelter like Singapore is much more likely to want to encourage this type of industry and therefore encourage straight dealings in those types of transactions. Furthermore, it will be much easier to demand discovery and collect damages from a Singapore company in Singapore than trying to do the same remotely from a Superior Court in San Francisco.

Re:LOL

[iluvcapra]

Everyone! Everyone look at him!

Now we see the violence inherent in the system! Come and see the violence inherent in the system! HELP HELP I'M BEING REPRESSED!

Good luck with that!

[ad454]

I wish them the best of luck, they will need it!

That is a problem a virtual currency not official backed by any government, bank, or mega-corp, and is not legally tied to any hard valued currency, fungible commodity, or hard product.

Maybe Bitcoinica will offer a store credit good for their own non-transferable virtual currency?

Re:Good luck with that!

[Sir_Sri]

Gold stored in a bank is the only money you can count on

not really no. Gold can float in price wildly (http://goldprice.org/charts/history/gold_10_year_o_usd.png ). That's only a 10 year, during which gold has done very well, until the 2008 crash, and then it's been down 15% or so since then.

Gold (and diamonds) are just commodities like any other. Sometimes they do well, sometimes they do badly. In the same 10 years gold has gone from the 300-400 ish (not sure exactly for 2002) to 1600 roughly a factor of 4-5, oil has gone from 22 to 93 dollars a barrel (with a spike in between just like gold) which is a factor of 4 and a bit.

http://inflationdata.com/inflation/inflation_rate/historical_oil_prices_table.asp If you notice, in 1998 oil was just under 12 dollars a barrel. It went up to 27 in 2000, dropped to 20 ish and then has a long climb since.

So ok, we looked at some 10 year trends and proved lots of commodities swing wildly, including fake money (gold). Now lets have some real fun. Lets look at the price of gold since the unification of germany (1871) on an inflation adjusted (rather than just nominal) basis http://www.vanguardblog.com/2010.07.26/gold-rush.html now that's interesting. Notice the batshit crazy spikes in the late 70's and 2010. Uh huh. That doesn't mean it will go down, but if you'd bought gold in 1981 and needed to retire 20 years later you would have lost most of your buying power.

Re:Good luck with that!

[Sir_Sri]

but not as many as the paper dollar which has lost 95% of its value since 1913.

Which is completely irrelevant. Dollars today aren't the same as dollars 99 years ago, and no one would expect them to be. This is why governments have things like social safety nets that they index to inflation (government pensions, health care etc.).

Remember, if you have debt, any debt, the devaluing currency has real benefits. And by the way government debts are your debts. So are your dollar denominated direct assets (cash, bank savings, but not stocks or mutual funds) worth *more* than the debt you owe through your government.

which they are steadily eroding in value

which as I say, is reducing the relative value of your debts too.

The way to preserve your savings is to own things that can draw income. Owning *some* gold isn't a bad plan, but just owning gold is stupid because if you didn't know, the US doesn't control world gold production, that would be china australia and south africa (and south africa and australia are particularly problematic because of their per capita production being able to wreck havoc on bigger countries).

Gold has all of the problems real money does, and a few others, which is why no one sane still uses it.

The value has remained almost constant. Suit == 1/3 ounce of gold.

Precisely as I showed, the buying power of one ounce of gold has been all over the place, from 1920-30 it tanked quite a lot, now it's worth almost 4x what it was 100 years ago, but 30 years ago you could have said the same thing, and 3 years later it dropped 3/4 of its value. That's what's wrong with it.

Oh and the price of a suit has changed over time too as labour has changed.

Approximte value?

[Lieutenant_Dan]

+/- $180,000.

Other estimates calculate the loss at "ham sandwich and a glass of milk".

I offer to cover their full losses

[Trepidity]

The only catch is that the settlement will be paid out in Trepidicoins.

Re:FDIC insured

[lightknight]

I could answer this one two ways, but I'm going to go with blaming the victim on this one. There have been a rash of thefts surrounding BitCoin wallets in some of the stupidest ways (any number of BitCoin sites, for God knows what reason, have been using MySQL for their backend, and more than a few have been using PHP) -> show of hands on /., if you were designing / developing a website that dealt primarily with money, would you use MySQL? And why not?

Your wallet.dat file is your wallet. BitCoins = cash. Think about online areas the same way you think about offline areas -> there this dude who wants to hold my wallet for me, I don't really know him, but everyone else seems to trust him, even though he's only been standing on this street corner for about 5 minutes, and has all the wallets in a 20 gallon transparent plastic bag...should I trust him as well? Fuck no. Put your wallet on your cellphone or usb keychain or anything that you can see, and PHP encrypt it. Don't know what PGP is? Good news, it's the equivalent of Fort Knox, has been around for a long time, and is the key to not hating yourself if / when you store over $1,000 worth of BitCoins in your wallet and have it stolen because you couldn't be troubled to lock the f*cking door. Takes like 30 minutes, possibly less, to find a helpful tech (something above the level 1 hell-desk types, find a domain / network admin, bring tea as a peace offering), have him / her generate the key and set you up.

Bonus question -> since I know a few of you are interested in getting into the financial district -> what is the natural consequence of using floating point data types for fiscal transactions?

It's the server that's not

[Taco Cowboy]

The Bitcoin infrastructure might be secured, it's just that the weakest link is in the server

When the server is hacked, and all the info (Bitcoin is made up of encrypted information, please correct me if I am wrong) contained within it is stolen, it's as good as the Bitcoins were stolen and can be used elsewhere

Therefore, the one crucial thing for the Bitcoin infrastructure designers to do is to find ways to shore up the security of the Bitcoin servers, and make it as difficult as possible (it's impossible to make _any_ server 100% guarantee secured, I know) to be hacked
 

Re:It's the server that's not

[Anonymous Coward]

You know what the biggest current problem with bitcoins is? Scarcity. The current model has them scaling back logarithmically as the number of transactions increases. What this means is that every generation it becomes that much harder to mine bitcoins and thus that much more lucrative to steal them instead. Combine this with the new FPGA mining rigs and the lowered electricity cost to generate them as a result and what you have is a digital representation of modern financial society.

The lower-class, with ineffecient rigs unable to produce more bitcoins than it's costing them.
The middle-class, with rigs just good enough to break even.
The upper-class, with rigs that provide a net benefit in bitcoin mining compared to cost, thanks to efficiency and scale.
The black market-class, hacking the latter three, disadvantaging the lower two, and having the uppers pass the buck back down.

In that light, it makes an excellent sociology and economy experiment given how well it reflects the various groups involved in modern global society.

Re:It's the server that's not

[retep]

I think you're really missing the point of Bitcoin mining. It's like gold mining, in an economy using Gold as a currency; you'd never expect the majority of economic effort being involved in digging the stuff out of the ground. Rather a small segment of society does that, and the rest of society does whatever they do in the economy, buying gold from other people as needed.

Bitcoin mining was *never* meant to be the way that the majority of people would get their Bitcoins. Rather it's a way of securing the network, namely in that Bitcoin essentially consists of an accounting system, where value is exchanged by writing public key crypto signed messages saying things like "Alice gives 10 bitcoins to Bob". Mining is required because there needs to be some canonical way of ordering those transactions in time. That's done by saying that whatever at least 51% of the computing power in the network thinks is true, is. So long as no one party ever controls that 51%, you can determine if coins have been spent to another party before you decide to accept them.

Look at the pool hashrate diagram. Each of those pie slices is a group of dozens to hundreds of users, each with at least a few hundred dollars worth of mining hardware, securing the network. Do I care if they are making more in Bitcoins than their rigs are costing them? Heck no. I just want a secure network so when I receive some Bitcoins I can know that they haven't been spent before. FPGAs and the upcoming ASICs are good for that, because they perform so much faster than off-the-shelf CPU's that any attacker would have a hard time getting enough computing power to attack the network.

Besides, if I did want to become a miner, all I'd have to do is spend about $600 on a Butterfly Labs fpga platform and I'd gradually have Bitcoins trickle in. But it's a lot faster to just buy them from someone else, just like it's a lot faster to buy gold from someone than mine it.

Re:It's the server that's not

[retep]

No, that Butterfly labs platform will currently mine about 0.37BTC/day, or 11.17BTC/month. Currently the exchange rate is $12/BTC, with fluctuations of about +-$1/BTC in the past few weeks. GPU's use up way more power, although they hardware cost is less. Either way, it's easy to turn a profit after power costs, albeit with the risk that your capital investment and coins generated will be useless if bitcoin busts. Obviously lots of miners immediately sell every coin they generate to recoup that capital investment.

It's irrelevant what Bitcoins are, only how scarce they are, what's the inflation rate, and what people are willing to pay for them. The latter driven because the scarcity and inflation rate is fixed, and you can transfer them from one person to the other easily.

They also are *not* a series of 1s or 0s in the correct pattern; you're confusing Bitcoins with hash cash. Rather it's an accounting system where the number of Bitcoins you have is based on a transaction trail back to the original creation of a Bitcoin. That creation happens out of thin air, but in a manner where the network only allows a (on average) fixed amount every 10minutes, automatically adjusted both to slowly decline that amount over time, and to ensure that as more people compete for that amount, it gets harder to get coins. All this stuff about "mining" is just proving how much computer power you control, so that the users of the system can vote on what is the authentic and true ordering of transactions. If the system didn't vote on transaction ordering, people could spend money twice, by signing statements to the affect of "I, Alice, transfer x coins to Bob" followed by "I, Alice, transfer x coins to Charlie".

It's just a form of fiat with a fixed, and declining, inflation rate that happens to be transferably digitally and can't be counterfeited, where all those properties are controlled by a distributed group of computers with many different owners. It's really not that complex or magical.

Modern banking is actually really similar, except that transactions guaranteed by accountants, and we say the government decides how many coins to create.

Re:FDIC insured

[arose]

To be fair bitcoins are quite a bit more traceable than cash, you'd need a fair amount of resources to untangle all of the dummy accounts (if peope are smart enough to use dummy accounts), but at some point or another a good number of users will turn the anonymosly traceable bitcoins into less traceable cash (tracing by serial numbers is really hard). If you can get your hands on that information (by, say, running a bitcoin exchange or two and hacking a few more) and correlate to bitcoin tranaction logs you will get a fair amount of information. AInvolved, but not impossible for a government or large corporation.

Re:FDIC insured

[dissy]

Bonus question -> since I know a few of you are interested in getting into the financial district -> what is the natural consequence of using floating point data types for fiscal transactions?

Answer: The plot to a cheesy super-villain world domination movie about stealing the rounded off pennies on the transactions of his employer, where something always goes wrong and hilarious shenanigans ensue.

Bitconica was shady bucket shop from the start

[Anonymous Coward]

Note that on this so-called "exchange" you could never actually convert Bitcoins to any other currency. Sure you could "sell" your coins, but you had to buy new Bitcoins to ever get your money out. Mainly Bitconica was used by people trying to short Bitcoins or dollars. This kind of arrangement is known as a bucket shop and has been illegal for a very long time for very good reasons. Namely the people running the site can always manipulate the exchange rates to clean you out, and therefor pocket all your money.

Of course, the 17 year old kid running the whole thing always said that trades went out to real exchanges, but the volume on other exchanges never was anything near what was required for that to be plausible. Meanwhile the whole time people were "zoutong'd" whenever the alleged exchange rate went against their bets.

The whole thing is shady as fuck, although to the credit of Bitcoin people, a lot were asking questions about the thing right from day one, see here and here. (the latter is one of Bitcoins main developers)

Bitcoinica wasn't an exchange, it was a scam

[retep]

Ever heard of the term "bucket shop"? That's exactly how Bitconica functioned. Sure you could sell, or sell on margin, your Bitcoins for imaginary US dollars, but you couldn't never withdraw or deposit anything but Bitcoins. What went on was people would use the margin given to them by Bitconica to speculate on the price of Bitcoin, then they'd conveniently lose their whole positions whenever the market went against them, which is quite easy to do if you happen to have everyones Bitcoins to manipulate the market with. This happened so often that a new term was invented for it: zhou tonged, named in honor of the 17 year old kid running the site. (seriously, 17!) Hell, even in the Bitcoin community lots of people were calling them out on this right from the start, for instance here is a post by one of the main devs, obviously concerned about all the other scams that of course have cropped up using bitcoin. Speaking of, wait'll you see the press when the pyramid scheme known as "Bitcoin Savings and Trust" fails, as it of course will given it pays out %3400 a year.

Personally I'd suggest you use your Bitcoins for something reputable, like buying pot, getting cash out of Argentina or donating to wikileaks. All this investment non-sense, as opposed to just using the currency for moving value around digitally, is getting out of hand.

Re:FDIC insured

[retep]

Also, many in the community think that Zhou Tong, the buy behind the site, was the one who stole the money in the first place. For instance, after the initial hack and after Bitcoinica shut down, a bunch of money was stored with a legit exchange, Mt Gox. Well those funds got conveniently hacked, and another exchange noticed Zhou Tong trying to transfer the same amount of cash, as well as the fact that an email address associated with the hack was in control of Zhou Tong himself. Source

the alchemists did succeed

[circletimessquare]

their gold lust started a snowballing chain of inquiring efforts that eventually led through the centuries to the accumulation of enough knowledge to do this:

http://en.wikipedia.org/wiki/Synthesis_of_precious_metals#Gold

of course, it's not financially worth the effort. but we have realized the dreams of the alchemists

Re:But WHY do we think these items have value?

[downhole]

I'm not a hardcore economics geek or anything, but the argument that I've found the most persuasive is that gold and other fixed-supply currencies are a bad idea because the economy itself is growing and increasing it's value. If your currency supply is fixed and your overall economic value is growing, then you get deflation, which discourages people from spending or investing their money because letting it just sit there will increase its value just as fast as investing it would. Apparanly, you get a nasty boom-bust cycle when large economic activity creates lots of extra wealth, but the money supply is fixed so it all deflates, then nobody wants to spend anymore, and the economy crashes again until total wealth drops back down to where it makes sense to invest again. I'm not completely sure if it's true, but I've heard that the whole European colonial period really came about because the societies at the time were creating lots of extra wealth and they had to find more gold to represent that wealth in order to avoid deflation, and it seems to make a kind of sense.

Essentially, to have a economy that it stable in the long term, you must inflate your currency at a controlled pace to create low but positive inflation. Thus, you must have a Fiat currency, and it basically has to be controlled by the Government.

Also persuasive is that we have hundreds of countries with all sorts of governments and economic policies. If the gold standard was such a great idea, then wouldn't some country somewhere try it and out-compete everyone else, or at least their neighbors/local rivals?

Now whether recent government have done a lousy job of running the economy and the currency, that's a whole different argument...