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Bit[coin]burg II

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COMMENT: Following our posts on Silk Road and Bitcoin, we explore the phenomenon of bicoin against the “shutdown” milieu of the GOP, itself inextricably linkd with the elements surrounding and promoting Edward Snowden. Reviewing previous points of information:

Alleged mastermind of the Silk Road online clandestine funding/merchandising network, Ross Ulbricht is a devotee of Ron Paul and the Ludwig von Mises school of social and economic theory.

Exemplifying the apparently well meaning but misinformed young citizens attracted to Paul and the von Mises school, Ulbricht appears to exemplify the adage that “The [Silk?] road to Hell is paved with good intentions.”

Ron Paul is a hardcore fascist, joined at the hip with Nazi and white-supremacist elements. The Ludwig von Mises institute is explicitly anti-democratic and is joined at the hip with the neo-Confederate movement, which justifies African-American slavery and rationalizes a future secession by the Southern states.

Indicative of Ulbricht’s superficiality is his statement that; “Just as slavery has been abolished most everywhere, I believe violence, coercion and all forms of force by one person over another can come to an end. . . .” 

In addition to the von Mises Institute’s justification of African-American slavery prior to the Civil War, Walter Block (and aide to Ron Paul and a Ludwig von Mises Institute scholar) has crafted what he calls “voluntary slavery.”

We view “voluntary slavery” as the ultimate collateralized debt obligation.

Alone among sovereign nations, Germany has recognized bitcoin as legal tender, following on the theory of Friedrich von Hayek of the Autrian school of economic theory, disseminated from (among other institutions) the Ludwig von Mises Institute.

Credit for creating this virtual currency is generally given to one Satoshi Nakomoto. An article at Fastcompany hypothesizes that three individuals named Neal J. King, Charles Bry and Vladimir Oksman are the true originators of bitcoin. (Listeners are emphatically encouraged to read the entire linked article to flesh out their understanding of Adam Penenberg’s argument.)

Of more than passing interest under the circumstances is the fact that all three of the hypothetical creators of bitcoin work for a company called Lantiq.

Lantiq is a German-based firm that has evolved from Siemens. Siemens spun-off Infineon A.G. (a semiconductor firm). Then Infineon and Golden Gate Capital created Lantiq.

Golden Gate Capitol was formed by alumni of Bain Capital, Mitt Romney’s firm.

In addition to links to the death squad-manifesting El Salvadoran junta of the 1980’s, Bain has links to the milieu of the late billionaire, Howard Hughes, as well as the milieu of Bebe Rebozo’s banking operations. The latter appears to have had links to the Bormann capital network.

If we were going to express this in biblical phraseology, it would go something like this: “And so Siemens begat Infineon. And Bain Capital begat Golden Gate Capital. Infineon did lie with Golden Gate Capital. And thus did Infineon beget Lantiq.”

Among the points to be considered here are:

  • Siemens functions as something of a quartermaster for German intelligence-the BND, the successor to the Reinhard Gehlen spy outfit. It is inextricably linked with BND, as well as with the Bormann network.
  • With Lantiq having evolved directly from Siemens, Lantiq’s possible connections with BND should be carefully weighed.
  • Lantiq’s links with Golden Gate Capital, run by alumni from Mitt Romney’s Bain Capital, warrants consideration that both Lantiq and GGC may be Underground Reich, Bormann entities.
  • We have noted that Infineon A.G. is a leading producer of TPM chips, which were cited by the German press as a backdoor source for NSA snooping. We wondered if that TPM backdoor might actually be a BND backdoor?
  • Neal J. King has denied Penenberg’s musings. He may, of course, be doing so honestly. IF, however, bitcoin’s development was in conjunction with BND, denial would be pro forma intelligence methodology.
  • “Techno-Libertarians” have suggested that bitcoin might be an alternative to the dollar as the reserve currency of choice. Their views echo Ronald Reagan’s statement that “Government isn’t the solution to your problems. Government is the problem.”
  • The dollar’s status as a reserve currency has been under critical review as a result of the “shutdown crisis,” provoked by the same political forces engenering Eddie the Friendly Spook’s “op.”
  • Bitcoin has been subject to some of the same wild swings in value as mainstream currencies.
  • Those swings in value appear to have been deliberately engineered by what one observer terms “the shark squad.” It is unclear who they might be. One wonders if the shark squad might be German, perhaps the BND. The manipulation of bitcoin is illegal in formal capital markets. Those machinatins are, to an extent, reminiscent of the maneuvering that occurred on 11/22/1963 and on 9/11/2001.
  • Peter Thiel is a big fan of bitcoin.

“World to Washington: ‘Really?'” by Serge Schmemann; The New York Times; 10/20/2013.

Some of the more alarmed and outraged voices rose from China, the country holding the largest share of American debt. One commentary from China that attracted attention in Europe was by Liu Chang of Xinhua, the official Chinese news agency, who called not only for the diversification of Beijing’s huge dollar holdings, but for a “de-Americanized world.” That, he wrote, would include “new international reserve currency that is to be created to replace the dominant U.S. dollar, so that the international community could permanently stay away from the spillover of the intensifying domestic political turmoil in the United States.”

From Athens — where an American default could have turned an unending economic crisis into catastrophe — Nikos Konstandaras wrote in the daily Kathimerini that Aristophanes, the master of ancient Greek comedy, “would have loved the idea of a group of lawmakers exploiting their position to abolish the state they are sworn to serve. For Greece’s ancient tragedians, the vain indifference, the ignorance of dangers caused by our character and actions, was familiar material.” The question, he added, was whether America is “the scene of comedy or tragedy.”

When the deal was reached in Washington last Wednesday, the world exhaled. But nobody believed it was over. “There is nothing more temporary than the defeats and victories in Washington,” wrote Le Figaro, the Paris daily. Even if civil servants are back at work for now, “America’s financial credibility is damaged and its democratic system has revealed to the world its gaping blockages.”

The questions abroad will continue; answers, however, are hard to find.

“The Federal Government’s Reactin to Bitcoin Is an Acknowledgement of the Dollar’s Vulnerability” b Peter Ferrara; Forbes; 8/25/2013.

EXCERPT: The Senate Homeland Security and Government Affairs Committee has private alternative currencies in its crosshairs.  The Chairman, Senator Tom Carper (D-DE) and Ranking Member, Senator Tom Coburn (R-OK), sent a joint letter to seven federal agencies last week asking for feedback and policy proposals for regulation of virtual currencies, like Bitcoin.

Bitcoin has surged in value and popularity recently as it has come to be embraced by more users across the planet.  In a world of government fiat currencies, Bitcoin is an admirable innovation.  But in a sense it extends the current currency framework, as opposed to revolutionizing it.  It was created out of less than thin air when cybergeeks who saw it as a natural progression of the modern web specified the creation and distribution of the new cybercurrency in a paper posted on the Internet in 2008.  The virtual currency was then launched into operation in 2009. . . .

. . . . The economy is already barely growing, if inflation is currently measured correctly.  If the Fed further destabilizes the economy, the dollar will probably further decline, as who will want to buy dollars to invest in a declining economy only continuously threatened with even higher tax and regulatory burdens?  But if the Fed redoubles on its current policies, the dollar will probably decline further under the threat of eventual inflation.  Who will want to hold dollars under this increasingly narrowing conundrum?  That is when the world may turn to something different.

It is not Bitcoin that will arise as the alternative global reserve currency, because as discussed above, it has no inherent value either, so it is subject to wide swings in market value too.  The real threat to the dollar is a different, private, alternative currency that can arise, that is based in real commodities with inherent value. . . .

“The Antisocial Network” by Paul Krugman; The New York Times; 4/14/2013.

Bitcoin’s wild ride may not have been the biggest business story of the past few weeks, but it was surely the most entertaining. Over the course of less than two weeks the price of the “digital currency” more than tripled. Then it fell more than 50 percent in a few hours. Suddenly, it felt as if we were back in the dot-com era.

The economic significance of this roller coaster was basically nil. But the furor over bitcoin was a useful lesson in the ways people misunderstand money — and in particular how they are misled by the desire to divorce the value of money from the society it serves.

What is bitcoin? It’s sometimes described as a way to make transactions online — but that in itself would be nothing new in a world of online credit-card and PayPal transactions. In fact, the Commerce Department estimates that by 2010 about 16 percent of total sales in America already took the form of e-commerce.

So how is bitcoin different? Unlike credit card transactions, which leave a digital trail, bitcoin transactions are designed to be anonymous and untraceable. When you transfer bitcoins to someone else, it’s as if you handed over a paper bag filled with $100 bills in a dark alley. And sure enough, as best as anyone can tell the main use of bitcoin so far, other than as a target for speculation, has been for online versions of those dark-alley exchanges, with bitcoins traded for narcotics and other illegal items.

But bitcoin evangelists insist that it’s about much more than greasing the path for illicit transactions. The biggest declared investors in bitcoins are the Winklevoss brothers, wealthy twins who successfully sued for a share of Facebook and were made famous by the movie “The Social Network” — and they make claims for the digital product similar to those made by goldbugs for their favorite metal. “We have elected,” declared Tyler Winklevoss recently, “to put our money and faith in a mathematical framework that is free of politics and human error.”

The similarity to goldbug rhetoric isn’t a coincidence, since goldbugs and bitcoin enthusiasts — bitbugs? — tend to share both libertarian politics and the belief that governments are vastly abusing their power to print money. At the same time, it’s very peculiar, since bitcoins are in a sense the ultimate fiat currency, with a value conjured out of thin air. Gold’s value comes in part because it has nonmonetary uses, such as filling teeth and making jewelry; paper currencies have value because they’re backed by the power of the state, which defines them as legal tender and accepts them as payment for taxes. Bitcoins, however, derive their value, if any, purely from self-fulfilling prophecy, the belief that other people will accept them as payment.

However, let’s leave that strangeness on one side, along with the peculiar “mining” process — actually a process of complex calculation — used to add to the bitcoin stock. Instead, let’s focus on the two huge misconceptions — one practical, one philosophical — that underlie both goldbugism and bitbugism.

The practical misconception here — and it’s a big one — is the notion that we live in an era of wildly irresponsible money printing, with runaway inflation just around the corner. It’s true that the Federal Reserve and other central banks have greatly expanded their balance sheets — but they’ve done that explicitly as a temporary measure in response to economic crisis. I know, government officials are not to be trusted and all that, but the truth is that Ben Bernanke’s promises that his actions wouldn’t be inflationary have been vindicated year after year, while goldbugs’ dire warnings of inflation keep not coming true.

The philosophical misconception, however, seems to me to be even bigger. Goldbugs and bitbugs alike seem to long for a pristine monetary standard, untouched by human frailty. But that’s an impossible dream. Money is, as Paul Samuelson once declared, a “social contrivance,” not something that stands outside society. Even when people relied on gold and silver coins, what made those coins useful wasn’t the precious metals they contained, it was the expectation that other people would accept them as payment.

Actually, you’d expect the Winklevosses, of all people, to get this, because in a way money is like a social network, which is useful only to the extent that other people use it. But I guess some people are just bothered by the notion that money is a human thing, and want the benefits of the monetary network without the social part. Sorry, it can’t be done.

So do we need a new form of money? I guess you could make that case if the money we actually have were misbehaving. But it isn’t. We have huge economic problems, but green pieces of paper are doing fine — and we should let them alone.

“Bitcoin’s Vast Overvaluation Appears Partially Caused by (Usually) Illegal Price-Fixing” by Rick Falkvinge; Falkvinge.net; 9/2013.

EXCERPT: . . . . In securities trading, the expression painting the tape is used for any trading activity that is intended to manipulate the trading statistics (price, volume, other metrics) rather than to execute a trade. It is highly illegal, jail-time illegal, in all civilized parts of the world. The expression comes from the ancient price ticker tape, and how it could be “painted” with false data.

I’m going to illustrate how this Shark Squad has operated recently to fix the price in luring other traders of their money and hiking the price. (While luring other traders of their money is part of the game, there are legal and illegal ways to do so. Insider trading, for example, is one of the better-known illegal ones – our legal framework generally fights hard to create a level playing field for all traders.) The squad is a small team of collaborating traders.

In Step 1 of the cycle, the shark squad makes a large buyup, causing prices to skyrocket. Illustrated here, the buyup at 10:00 European time on Thursday September 12, 2013, from USD 135 to 145.9, an instant 8-percent increase. This causes a lot of downward-betting traders to flush out.

In step 2, the shark squad reverses this trend by causing a slow pullback, causing those who bought in greed to sell off in panic as the market has reversed and causing more stop losses to trigger and people to sell to the squad‘s bids. Note that I write causes a pullback – this is not a normal market pullback. Let’s look at the big picture first as displayed by the site bitcoinwisdom, which displays much more detail than most sites. You can see the pullback over Thursday lunch-to-afternoon (blue box, right half), and there is also a display of the current order book (yellow box) and the recent transactions (red box) which we will look at shortly. Note how the recent transactions in the indicated red box are all red, red, red, indicating a massive selloff – there’s nobody buying at all on cursory inspection, only selling, and a lot of selling.

However, let’s take a closer look at the minute details of the recent transactions in the bottom right corner, displaying time, price, and amount of the last bitcoin transactions:

Do you see a pattern here? All the transactions are for exactly one bitcoin, and the transactions are spaced exactly five seconds apart. This pattern can continue for hours, a claim verifiable by checking the MtGox transaction history. This is not market trading; this is one (1) automated process intended to give the illusion of many different players panic-selling. Furthermore, let’s take a closer look at the order book:

Do you see the numbers below and to the left of the current big red price? That’s the bid order book. That’s the current buy orders. Note how the currently executing buy orders are at 7-8 bitcoin each, placed just 0.0001 (!) bitcoin apart in price, evading detection on most sites. This is coordinated with the selling person. Those buy orders keep replenishing as the sales orders keep ticking one bitcoin per five seconds; they are coordinated. This is one person in the Shark Squad selling to another person in the Shark Squad, to give the illusion of market downward pressure and sell volume.

Both of these activities – splitting an order to give the illusion of many trades, and trading within a group to give the appearance of increased volume and a certain market direction – are considered painting the tape and highly illegal. (I’m going to stop writing “usually illegal” now, as it’s illegal in practically all countries where you can read this.)

So, how can I state with certainty that the seller and buyer are conspiring? Based on only this screenshot, the evidence could be improved, but having watched the market at this level for some two months and seen how these kind of buy and sell orders follow each other very closely, it’s obvious there is talking and coordinating within a team dedicated to fabricating a market impression. Normally, you would need to see how they moved in lockstep to identify this cooperation, but it’s particularly visible in this snapshot. (Besides, the visible order-splitting is enough to constitute tape-painting entirely on its own.)

Here’s the kicker, then: we have observed that the buy orders being executed – the ones with 7, 7, 7, 7, 7, 8, 8, etc. bitcoin at the moment at a price of 137.64xyz – belong to this shark squad. What happens when a trader sees the (false) image of a massive selloff going on, and sells in panic? Well, he’s selling his bitcoin into those buy orders to the shark squad, at the price they have set. Here, the price is 137.64. So the obvious question is, what happens next? Well, a fabricated price hike, of course, tricking other traders to buy those same bitcoin at higher prices from the coordinated shark squad. We’ll be returning to when and how that happens in step 4.

In Step 3, the shark squad puts up an enormous bidwall – so large it’s effectively a lid on the market – and lure other traders to sell into it, intending to sell the bought bitcoin at a higher price after the next fabricated hike. There is plenty of fake trading going on into these bidwalls as visible in step 2. We can also see that this lure is effective – look at the transaction history of bitcoin around these walls, and you can easily find trades of hundreds of coins amid the fake trading. Or perhaps it’s the shark squad selling to itself again with the transactions in the hundreds. Hard to know – most likely a mix of in-group trading and others being lured to sell. In any case, unsuspecting traders are selling into the shark squad‘s bidwalls. These lurewalls are easily identifiable in the close-up market history, as well as when they were removed:

In Step 4, finally, the price is hiked to new highs and the shark squad begins offloading its booty at higher prices, and the cycle repeats with them trading in-between themselves to give the appearance of market activity. That price hike happened at 15:25 Thursday, European time, up to 145 USD for this cycle, as also visible in the image above.

This cycle has repeated very visibly at least five times in the past weeks, and likely since much earlier in a variant version:

This – this illegal activity – is very troubling for the bitcoin ecosystem. . . .

“Dark Wallet: A Radical Way to Bitcoin” by Michael del Castillo; The New Yorker; 9/24/2013.

EXCERPT: . . . . Wilson believes Bitcoin should remain the backbone of a separate economy that undermines the government’s ability to collect taxes and to control the value of currency—not be subsumed into the mainstream economy.

“The state is basically allowed because we have all chosen to use these certain institutions to channel our activity and commerce,” he told me. “But when we are enabled, through alternative means and technologies, to channel our commerce as we will, channel our production as we will, the state simply disappears.”

Not everyone agrees, of course, that society would benefit from the disappearance of governments. Wilson used the Liberator to make the point that the government shouldn’t regulate the flow of information; he wants to use Bitcoin to help build an economy outside of the government’s reach.

But his ideology, taken to its logical conclusion, would also leave services like roads, libraries, fire fighting, and policing in the hands of the private sector—whose interests may not be aligned, Wilson’s critics argue, with those of the public at large.

Wilson knows that he could see blowback for his stance against the foundation: as a self-described “crypto-anarchist,” perhaps he shouldn’t be so concerned with who is or isn’t determining the currency’s future. And if the U.S. government attempts to regulate the currency, which seems likely, Wilson will also find himself once again in direct opposition to the government. . . .

“Former PayPal CEO Signs Off on Bitcon” by Sam Biddle; ValleyWag; 5/16/2013.

EXCERPT: Before he was one of the most powerful VCs in the world, Peter Thiel created PayPal, which deals in real dollars and boomed accordingly. If you think this might make him wary of unregulated internet funny money, you’re wrong: $2,000,000 wrong.
Thiel’s Founders Fund just wrapped a $2 million round for BitPay, which helps other companies accept Bitcoin payments—namely for things “like electronics, precious metals, and other low-margin products,” says TechCrunch.

The cash infusion comes only a week after Fred Wilson led a $5 million round in another company that does pretty much the exact same thing, and at a time when the most powerful Bitcoin exchange in the world is getting its ass kicked by the US government. [This is a reference to Silk Road–D.E..] . .

 

 

 

 

 

 

 

 

 

Discussion

3 comments for “Bit[coin]burg II”

  1. Absolutely stunning: Bitcoins for political assassination. More at link:

    http://www.zerohedge.com/news/2013-11-18/dark-web-exposes-75000-bitcoin-based-bounty-bernankes-assassination

    “Dark Web” Exposes $75,000 Bitcoin-Based Bounty For Bernanke’s Assassination
    Submitted by Tyler Durden on 11/18/2013 11:32 -0500

    As Silk Road emerged from the “dark-web”, other sites have appeared offering services that are frowned upon by most. As Forbes reports, perhaps the most-disturbing is “The Assassination Market” run by a pseudnymous Kuwabatake Sanjuro. The site, remarkably, a crowdfunding service that lets anyone anonymously contribute bitcoins towards a bounty on the head of any government official–a kind of Kickstarter for political assassinations. As Forbes reports, NSA Director Alexander and President Obama have a BTC40 bounty (~$24,000) but the highest bounty – perhaps not entirely surprising – is BTC 124.14 (~$75,000) for none other than Ben Bernanke. Sanjuro’s raison d’etre is chilling, “as a few politicians gets offed and they realize they’ve lost the war on privacy, the killings can stop and we can transition to a phase of peace, privacy and laissez-faire.”

    Via Forbes,

    As Bitcoin becomes an increasingly popular form of digital cash, the cryptocurrency is being accepted in exchange for everything from socks to sushi to heroin. If one anarchist has his way, it’ll soon be used to buy murder, too.

    For now, the site’s rewards are small but not insignificant. In the four months that Assassination Market has been online, six targets have been submitted by users, and bounties have been collected ranging from ten bitcoins for the murder of NSA director Keith Alexander and 40 bitcoins for the assassination of President Barack Obama to 124.14 bitcoins–the largest current bounty on the site–targeting Ben Bernanke, chairman of the Federal Reserve and public enemy number one for many of Bitcoin’s anti-banking-system users. At Bitcoin’s current rapidly rising exchanges rate, that’s nearly $75,000 for Bernanke’s would-be killer.

    Sanjuro’s grisly ambitions go beyond raising the funds to bankroll a few political killings. He believes that if Assassination Market can persist and gain enough users, it will eventually enable the assassinations of enough politicians that no one would dare to hold office. He says he intends Assassination Market to destroy “all governments, everywhere.”

    “I believe it will change the world for the better,” writes Sanjuro, who shares his handle with the nameless samurai protagonist in the Akira Kurosawa film “Yojimbo.” (He tells me he chose it in homage to creator of the online black market Silk Road, who called himself the Dread Pirate Roberts, as well Bitcoin inventor Satoshi Nakamoto.) ”Thanks to this system, a world without wars, dragnet panopticon-style surveillance, nuclear weapons, armies, repression, money manipulation, and limits to trade is firmly within our grasp for but a few bitcoins per person. I also believe that as soon as a few politicians gets offed and they realize they’ve lost the war on privacy, the killings can stop and we can transition to a phase of peace, privacy and laissez-faire.”

    Like other so-called “dark web” sites, Assassination Market runs on the anonymity network Tor, which is designed to prevent anyone from identifying the site’s users or Sanjuro himself.

    As for technically proving that an assassin is responsible for a target’s death, Assassination Market asks its killers to create a text file with the date of the death ahead of time, and to use a cryptographic function known as a hash to convert it to a unique string of characters.

    “I am a crypto-anarchist,” Sanjuro concludes. “We have a bright future ahead of us.”

    Read more here…

    Of course – this will likely be another reason for TPTB to ban bitcoin…

    The reporter contacted the Secret Service and the FBI to ask if they’re investigating Assassination Market, and both declined to comment.

    Posted by Swamp | November 18, 2013, 10:15 am
  2. Read more: http://www.businessinsider.com/the-history-of-bitcoin-theft-2013-11#ixzz2l7aB7ywn

    If Bitcoin Is So Secure, Why Have There Been Dozens of Bitcoin Bank Robberies And Millions In Losses?
    Jim Edwards Nov. 17, 2013, 8:38 AM 22,940 64

    One of the most powerful myths about Bitcoin — the encrypted, independent online currency that’s become a huge trend in recent months — is that Bitcoin is “secure.”

    Bitcoin.org, the semi-official voice of the Bitcoin community, says “the whole system is protected by heavily peer-reviewed cryptographic algorithms like those used for online banking. No organization or individual can control Bitcoin, and the network remains secure even if not all of its users can be trusted.”

    But Bitcoin is not secure.

    There have been dozens of robberies of Bitcoin banks and exchanges, and millions of dollars have been lost.

    To put that in perspective, if robbers were routinely walking into brick-and-mortar banks and taking millions of dollars, with zero consequences and no arrests, it would make huge headlines every day. The media would be on high alert for the next heist.

    But on the Internet, Bitcoin thefts worth hundreds of thousands and millions of dollars happen on a weekly basis and no one cares.

    Here are a few recent examples of Bitcoin robberies, and then we’ll explain why Bitcoin is not 100% “secure.”

    The Chinese Bitcoin GBL went offline earlier this month, taking $4.1 million in users’ accounts with it.
    In Australia, a Bitcoin exchange run by an 18-year-old user named “Tradefortress,” claims to have lost $1 million of his users’ money.
    Also in November, a Czech exchange, Bitcash.cz, declared that hackers had made off with an undisclosed amount stored in its users’ Bitcoin wallets.
    In September, Bitfloor announced that it had lost $250,000 in hacked Bitcoins.
    Last year $228,845 was stolen from a trading platform known as Bitcoinica.

    Perhaps the biggest heist was pulled off by the U.S. government. After Ross Ulbricht, the alleged “Dread Pirate Roberts” who ran the online drugs market Silk Road was arrested by the FBI, authorities reported they had seized nearly $29 million in Bitcoins controlled by him. Techdirt later noted that some of the money may have belonged to users who did business on his site, and not all the business transacted there was illegal.

    Don’t hold you breath for refunds.

    Here’s a website devoted to listing dozens of Bitcoin robberies through 2012. In 2011.
    https://bitcointalk.org/index.php?topic=83794.0

    Ars Technica reported on this description of what it is like to be the victim of Bitcoin theft:

    The user known as “allinvain” is a long-time contributor to the Bitcoin forums. He says he’s been mining Bitcoins for over a year, and had amassed a fortune of 25,000 BTC. This was a modest sum a few months ago, when Bitcoins were worth pennies, but over the last two months the value of a Bitcoin skyrocketed to around $20, which means 25,000 BTC would have been worth half a million dollars. “I remember watching the price like a hawk,” he wrote.

    And then disaster struck. “I just woke up to see a very large chunk of my bitcoin balance gone,” he wrote. “Needles [sic] to say I feel like I have lost faith in bitcoin.” He speculated that a Windows security flaw may have allowed the culprit to gain access to his digital wallet. “I feel like killing myself now,” he said.

    Bitcoin is vulnerable in the same way any other online asset is vulnerable: Passwords can be stolen or guessed, accounts can be hacked. Most of the thefts involve hacking into users’ accounts. Bitfloor’s description of how it lost $250,000 in Bitcoin is typical. A hacker found an unencrypted copy of the coded keys to users’ wallets:

    Last night, a few of our servers were compromised. As a result, the attacker gained accesses to an unencrypted backup of the wallet keys (the actual keys live in an encrypted area). Using these keys they were able to transfer the coins. This attack took the vast majority of the coins BitFloor was holding on hand. As a result, I have paused all exchange operations.

    money on fire

    In fact, Bitcoin defenders say this is exactly the point. Bitcoin isn’t insecure — you are!

    Here’s Bitcoin.org’s answer to that very question on security:

    Although these events are unfortunate, none of them involve Bitcoin itself being hacked, nor imply inherent flaws in Bitcoin; just like a bank robbery doesn’t mean that the dollar is compromised. However, it is accurate to say that a complete set of good practices and intuitive security solutions is needed to give users better protection of their money, and to reduce the general risk of theft and loss.

    The idea that Bitcoin is “secure” even though it can be stolen is a bit like saying that gold is “secure,” even if it is being spirited away by gangsters. They can’t destroy the gold, after all.

    What they really mean is that Bitcoins themselves cannot be copied or faked, like counterfeit bills. Anyone receiving a Bitcoin can be confident that it is real and valuable.

    But that aspect of its security — the permanence of the value in the transaction — turns out to be Bitcoin’s biggest security flaw. Once a Bitcoin transaction has been approved by both sides, it cannot be reversed without the permission of the receipient. So when hackers engineer the transaction, the cash is gone forever.

    That’s not what happens with traditional currency. In the U.S., if your bank is robbed or even if the bank goes out of business, the FDIC backs up the lost deposits and replaces your money, up to $250,000 per bank.

    And then there is this new theory from Cornell University which posits that there is an incentive in the system for users to cooperate and hoard their coins until they control a majority of available Bitcoins. At that point, the currency collapses.

    Bitcoin is only as “secure” as the fallible, ill-intentioned users who open accounts, create passwords and covet their fellows’ wallets.

    Which is to say, not especially secure.

    Posted by Vanfield | November 19, 2013, 11:32 am
  3. http://arstechnica.com/tech-policy/2011/06/bitcoin-the-decentralized-virtual-currencyrisky-currency-500000-bitcoin-heist-raises-questions/

    A risky currency? Alleged $500,000 Bitcoin heist raises questions
    A longtime Bitcoin user claims that a hacker has stolen half a million dollars …

    by Timothy B. Lee – June 15 2011, 9:41am PDT

    229
    Photo illustration by Aurich Lawson

    Bitcoin, the decentralized virtual currency whose value has skyrocketed in recent weeks, faced a key test Monday as a veteran user reported that Bitcoins worth hundreds of thousands of dollars had been stolen from his computer.

    Ars Technica was unable to independently verify the user’s story, and he did not respond to our request for an interview. But whether the story is true or not, it highlights a major disadvantage of the currency’s much-touted lack of intermediaries. Bypassing middlemen frees users from government meddling and bank fees. But it also deprives them of the benefits those intermediaries provide, including protection against theft and fraud.

    As we reported last week, Bitcoin’s key selling point is its clever peer-to-peer scheme for recording transactions. Rather than relying on a centralized database, the Bitcoin protocol allows any computer on the Internet to participate in the payment clearing process. At the end of each 10-minute round, one of the nodes is chosen at random to receive a payment for his contribution to the process. For this reason, participating in the clearing process is known as “mining” Bitcoins.
    Wiped out

    The user known as “allinvain” is a long-time contributor to the Bitcoin forums. He says he’s been mining Bitcoins for over a year, and had amassed a fortune of 25,000 BTC. This was a modest sum a few months ago, when Bitcoins were worth pennies, but over the last two months the value of a Bitcoin skyrocketed to around $20, which means 25,000 BTC would have been worth half a million dollars. “I remember watching the price like a hawk,” he wrote.

    And then disaster struck. “I just woke up to see a very large chunk of my bitcoin balance gone,” he wrote. “Needles [sic] to say I feel like I have lost faith in bitcoin.” He speculated that a Windows security flaw may have allowed the culprit to gain access to his digital wallet. “I feel like killing myself now,” he said.

    Some other members of the Bitcoin forum expressed skepticism about allinvain’s story, but most believed it. Another member of the Bitcoin forums chimed in to report that he’d lost a smaller amount of money to the same Bitcoin address.

    Forum members discussed several options, including calling the police and asking MtGox, the popular Bitcoin currency exchange, to block the funds from being converted into more traditional currencies.
    “An expensive test case”

    Ars Technica talked to Gavin Andresen, the leader of the Bitcoin software project, about the incident. Andresen said that it would be difficult to confirm the authenticity of the report. “All Bitcoin transactions are broadcast on the network,” he said. “So if someone wanted to claim they lost a bunch of bitcoins, they could claim that any transaction on the network belonged to them.”

    Still, the kind of attack described in the post is certainly possible. Andresen says he always emphasizes that Bitcoin is an experiment, and not (yet) for the faint of heart. “Unfortunately, this is an expensive test case for the guy who lost the Bitcoins,” he said.

    Andresen says that there’s currently no good infrastructure for tracking down stolen Bitcoins. And, he said, there may never be a good mechanism for reversing unauthorized transactions because Bitcoin transactions are designed to be irreversible. “Once a transaction hits the network, you can generate other transactions that depend on that transaction,” he said. “So Bitcoin transactions get tangled up fairly quickly.”

    Even if it were technically feasible, adding a mechanism for disputing transactions would create headaches of its own, because that mechanism could be used fraudulently as well. “Merchants like that there are no chargebacks” with Bitcoin transactions, Andresen said.

    Right now, then, Bitcoin is a “work in progress” only suitable for the most technically savvy users. Will Bitcoin eventually be ready for the masses? Andresen thinks so. He told Ars that the Bitcoin protocol is flexible enough to support clients that handle security in a more sophisticated way. For example, a future client could split a user’s private key between his PC and his cell phone. As long as no one compromised both devices simultaneously, the user’s bitcoin would be safe.
    The benefits of intermediaries

    Still, a financial system without intermediaries has some inherent downsides. Splitting a Bitcoin user’s private key between a computer and a cell phone makes it harder to compromise, but it also creates new risks. For example, unless the user backs up his cell phone separately from his computer, losing the phone would mean losing the Bitcoins. A multifactor authentication scheme also can’t protect a user who is tricked into authorizing a payment to the wrong party.

    Indeed, the traditional banking system offers consumers protections against fraud that are hard to replicate in any system without intermediaries. For example, federal regulations limit consumer liability for fraudulent credit card transactions to $50, and some banks offer cards that reduce the consumer’s liability to zero.

    And because liability for fraud falls mostly on the banks and credit card networks, these parties have invested in infrastructure to detect and deter fraud. They set minimum standards for getting a merchant account to exclude fly-by-night companies. They carefully monitor their customers’ transactions and investigate any that look suspicious. And with the help of law enforcement, they aggressively prosecute fraud, both to recover lost funds and to deter other potential criminals.

    Of course, some anti-theft and anti-fraud services can be built on top of the extant Bitcoin infrastructure. For example, Clearcoin holds payments in escrow for sellers until buyers receive their orders, making Bitcoin purchases less risky. And services like MyBitcoin hold Bitcoins on their customers’ behalf. Presumably, these “online wallet” services can invest more heavily in securing their systems than individual users would.

    But this is just to say that the disadvantages of an intermediary-free banking system can be mitigated by reintroducing intermediaries. And if most users are interacting with Bitcoin via intermediaries like ClearCoin and MyBitcoin, it’s not obvious how many of the system’s much-touted advantages are preserved. If your Bitcoins are held by a third party like MyBitcoin, then a government can force MyBitcoin to freeze your account just as it can force a traditional bank to do so.

    In any event, Andresen seems unfazed by the heist and confident of Bitcoin’s long-term viability. “These problems will get solved,” he told Ars, arguing that the Bitcoin community simply hasn’t grown large enough to throw serious engineering resources at them. And the broader Bitcoin community seems to agree. The market price of a Bitcoin has been stable over the last 48 hours at just under $20.

    Posted by Vanfield | November 19, 2013, 11:35 am

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