Bitcoin vulnerability exploited; BTC in Freefall on Mtgox
This week the value of bitcoin in some exchanges fell following the exploitation of a vulnerability in bitcoins by hackers. The attack did not result in the loss of bitcoins but did force the exchanges offline; all but one (Mtgox) soon recovered. However, Mtgox went on to suffer a virtual ‘run-on-the-bank’ which left it standing over 85% down at $110 USD/BTC.
Although the vulnerability exploited only allows for a denial of service attack, the operators of Silk Road 2, an elicit website on the Tor network, used it to announce the theft of over $2m from its customer escrow service. Many users posted their scepticism and displeasure.
Cryptocurrencies Gain Further Acceptance
Despite the hyper-volitivity of the week, cryptocurrencies continued to gain mainstream acceptance with many stores both online and traditional now accepting BTC. Whether this is a long-term trend has yet to be established; brands appear to be using them as much to generate interest and publicity as to provide a new channel for payment.
One investment clearly backing the former however is the introduction this week of an cryptocurrency ATM, the first in the USA. The company behind the installation, Robocoin, expects to roll out more over the coming weeks.
Bitcoin Legal Position Remains Uncertain
Alex Daley, the FBI’s check technology strategist, suggested that bitcoins that had previously been used in an illicit transaction but which were now owned legally could still be seized. In an unexpected departure from existing currency laws, bitcoins in this case would be seem as transfer able goods. The FBI have already developed a statistical method to track transactions on Bitcoin’s public ledger that would allow them to do this.
If you aren’t using Bitcoin for crime, the FBI could still seize it. At least according to Alex Daley, chief technology strategist at Casey Research. The crux of the problem is that Bitcoin isn’t really anonymous. In fact, all Bitcoin transactions are kept in a public ledger which could theoretically be used to identify who made Bitcoin transactions. That means that if you receive payment in bitcoins that were previously used for something illegal, like buying drugs, the Feds could in theory seize it from you because the person who gave it to you didn’t actually “own” the ill-gotten bitcoins - so they can’t legitimately transfer them to you. (Bloomberg Businessweek)