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."

Comments

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?

Re:Is it?

[Anonymous Coward]

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?)

Re:Is it?

[betterunixthanunix]

If you're into security, I'd highly recommend looking through the specs. It's an incredibly beautiful piece of engineering whether or not you are using it.

I looked at the specs, in great detail. What I saw is a system that uses cryptography but which is not secure under the notion of "security" that cryptographers use. The effort required for a successful double-spending attack on Bitcoin scales linearly with the effort required to use Bitcoin; this is worthless as far as cryptographic security is concerned. It is also troubling that the Bitcoin "security proof" only rules out a single attack strategy. Usually we want security proofs to rule out *all* theoretically feasible attacks, even those that we do not know of.

Re:Is it?

[camperdave]

See! I knew bitcoins were some in-game currency.

Re:Is it?

[camperdave]

The big sack of pennies under my bed is as secure as ever.

Security through bad-guys-not-carrying-a-forklift... Clever.

Re:Is it?

[lgw]

You obviously do not work with money or banking software. Its not a ledger, its a transaction trail. And its not in "an" its in several.

For transactions that stay in Bitcoins, the entire network tracks every transaction (well, more than half of it has to). The same goal is served without a central authority. The privacy implications are more disturbing than the prospect for fraud.

However, the exchanges are a different matter. Just like those stupid mortgage derivatives, there's a real need for a regulated exchange here. Note that most of the regulations involved in trading e.g. corn at the CME aren't government regulations, they're market rules. If you want to buy or sell at the CME, you follow those rules, if not, perhaps there's another market that works the way you'd like.

The CME (and the other big markets, but that's the main one for the US) is really good at writing rules that protect traders from crap like having the exchange hacked, or any of the other crap that the likes of Goldman Sachs have come up with over centuries of trying to hack the system.

My biggest worry with bitcoins is what happens when Goldman et al discover there's money to be made by manipulating that market, and have nothing to stop their centuries-old bag of tricks.

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?

[lgw]

When I buy a share of stock or a corn future, my need to trust the government is minimal. I need to trust the exchange. And the big exchanges have an excellent track record - the exchange rules protect against 400+ years of dirty tricks by participants, and the likes of MtGox have a very long way to go. Attacking the database is just the most obvious and straightforward approach; there are so many ways to participate fraudulently in an exchange, or corner the market, or so many other dirty tricks that become rewarding if bitcoin really takes off.

Re:Is it?

[Archangel Michael]

This wasn't a hack of the database. It was a DDOS attack. The database was not at risk in this case. People who don't understand technology need to not talk about it like they do.

And unlike most other exchanges, I can actually hold on to my own bitcoins, and submit to the exchange only when I want to trade them for other currencies.

Re:Is it?

[Anon-Admin]

That is because you do not understand how the stock exchange works. Some notes to help you under stand

#1) When you buy a stock, you do not own the stock. (Unless you get a hard copy of the stock certificate)
#2) The real stock is in DTCC's (Depository Trust and Clearing Corporation) name in a hidden vault in New York City.
#3) DTCC when Clearing the sale simply moves the record of the stock from one account to another and does not change the ownership of the stock.
#4) DTCC's Data center is running on 10 to 15 year old hardware and the stuff crashes all the time.
#5) Some day the database will crash and the information as to who owns what will be lost
#6) DTCC Will profit as they own all the stocks.

DTCC the privately held company you never heard of processing 4.6 quadrillion dollars a year in stock transactions.

Wait tell you find out who makes up the board of directors!

Re:Is it?

[SydShamino]

In my opinion, microsecond stock transactions are the very type of dirty trick the exchanges should be protecting against, so based on the current actions of the stock exchanges, I disagree with your opinion on the big exchanges' track records.

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?

[lgw]

This wasn't a hack of the database. It was a DDOS attack. The database was not at risk in this case. People who don't understand technology need to not talk about it like they do.

We can at least read TFS.

"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."

Now if TFS is just wrong (as happens), it's good to say so explicitly.

My point was that securing one's DB is just the first and most obvious step. Running a successful exchange puts you in direct opposition to investment banks: folks with no morals, who hired the majority of math PhDs for several years just to look for market exploits. You may be smart. The folks who run bitcoin exchanges may be smart. But this is an advanced, persistent threat, and one that's not in any way limited to technology

And unlike most other exchanges, I can actually hold on to my own bitcoins, and submit to the exchange only when I want to trade them for other currencies.

Unlike what exchange? You can't hold physical corn? Or live cattle? Or gold? Heck, I can get printed stock shares if I feel the need (I've done this for sentimental reasons - framed in my office). You seems to be confusing an exchange with a bank. The two have little in common.

Re:Is it?

[Algae_94]

Just to clarify, TFS is correct, but Instawallet is not an exchange. MtGOX is an exchange that is undergoing a DDoS attack. Instawallet had their DB attacked. As far as I can tell Instawallet is just a company that will hold your bitcoins for you, like a safety deposit box, only without the safety in this case.

Re:Is it?

[viperidaenz]

Without the safety or the insurance.

Re:Is it?

[AuMatar]

No, it does so in the opposite direction.

I bid $10. Someone asks $9.99. Obviously we're going to make a deal. There's an overflow of 1 cent- one of us will make 1 more cent than they expected to. Either of us could move, we could split the difference, or we could just set an exchange wide rule for this (say the seller always makes it, or the buyer).

Now add in HFT. Same scenario. The HFT sees my $10 bid before the seller does, and sends a buy for $9.99 exactly to the seller, buying the stock. He then sells to me for $10. He makes that extra penny. Has he helped me? Not at all- he took an average of half a penny from me. Does he help the seller? Nope, he took half a penny from them, for the service of completing the transaction a few microseconds sooner.

HFT are parasites. They provide no value to either side, but make a vig. There is no bid-ask gap that they reduce because the bid is higher than the ask. If it wasn't there'd be no money for them to make. Its immoral, unethical, and ought to be illegal. It also siphons millions to billions from the economy.

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.

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.

Re:A reminder of how insecure ALL money is?

[Wonko the Sane]

Those depositors were generally not "people in Cyprus" but rather "people in Russia with money in Cyprus".

No, the Russians were all tipped off ahead of time, and were able to withdraw their money via overseas branches that remained open during the freeze in Cyprus. The only people who were affected were regular people and small businesses.

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.

Dwolla Also Hit

[eldavojohn]

Also Dwolla was down for two days 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:Dwolla Also Hit

[Kiwikwi]

If you'd get off your horse for a moment, you might realize that MtGox offers two-factor authentication and has for a long time.

target

[roman_mir]

Bitcoin exchanges are a target right now at the current exchange rates, but I was thinking just a little while back, isn't it strange that somebody who released the original protocol is unknown and wishes to stay anonymous? I thought about that for a little bit, there are a number of possibilities. Of-course somebody who had the original idea could run the hash generation for a much longer time before anybody started doing it as part of a mining (proof of work) network. I don't know, it's hidden in plain sight

This feature is then used in the Bitcoin network to secure various aspects. An attacker that wants to introduce malicious payload data into the network, will need to do the required proof of work before it will be accepted. And as long as honest miners have more computing power, they can always outpace an attacker.

- good, what if somebody had a much longer stretch of time to work out the answers before they could even become questions? It's not like those transactions are random.

What other motives can somebody have to release a protocol like this one potentially to be used by millions of people who see this as a way to make money? Giving people incentives to come up with faster SHA generators? Somebody who wants to break encryption mechanisms by generating huge amounts of SHA codes against various data?

I think without actually getting into the source code it's impossible to read the answers to any of these questions, so maybe that's the next step, read the source code.

Re:BitCoin apologists

[Laser_47]

That isn't a problem with the BitCoin protocol, but Instawallet's website.

InstaTheft

[Anonymous Coward]

Was InstaWallet attacked? Or is that what they want you to believe while they abscond with all the untraceable bitcoins?

Old news?

[prisoner-of-enigma]

This is semi-old news. Mt.Gox has been under attack for at least a couple of days but they appear to be handling it pretty well. I haven't noticed any problems with using them at least. Trades might be taking a tad longer but nothing big that I can see.

Instawallet, on the other hand, crumbled at least a day or two (I read about it early yesterday morning). Their problem had nothing fundamental to do with BTC but more to do with the unique way Instawallet did business with (I believe) greater anonymity. The whole "we gotta rearchitect this thing" press release was that their fundamental way of doing business made them uniquely targetable by fraudsters, thus they gotta figure out something new.

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.

For those of you too lazy to RTFA

[slashmydots]

Hackers DDOSed just the website itself to scare people into a sell-off then bought up the cheaper coins and waited for the price to rise again. This has nothing to do with the bitcoin network or protocol, zero coins were stolen, and no security was breached at MTGox. So everyone above me, STFU and read the article or this before talking out your ass about bitcoins.