Hear about the $500,000 heist of online currency this month? Not only was the digital dough stolen, the theft was followed by a major hack at an exchange website that led to a precipitous drop in the currency's actual value.
Bitcoin, "the first decentralized digital currency," suffered a personal data breach at the largest Bitcoin-to-real-money exchange, Mt. Gox, that caused values to drop from $17 to $0.01 per Bitcoin credit. The news was coupled with the Electronic Frontier Foundation's decision to stop accepting donations using the virtual currency, partially because, "We don't fully understand the complex legal issues involved with creating a new currency system."
If Bitcoin is a virtual currency, how and why can it have value — let alone lose value — and be stolen? And why should you — let alone anyone — care? If censorship, illegal drugs and hacker heists pique your interest, here's what you need to know.
Is this whole virtual currency thing new?
Hardly. Bitcoin — both the virtual money and the open source software it requires — came out in 2009. But virtual currency has long been used (in one for or another) in massively multiplayer online role-playing games (MMORPGs) such as World of Warcraft to simple social network games like FarmVille.
Bitcoin has real currency value outside the virtual environment, and on occasion, has a value several times higher than the U.S. dollar, the British pound, and the Euro.
So, how is Bitcoin virtual money "made?"
BitCoin credits are made by the user. As EFF's Rainey Reitman succinctly explained:
People or businesses who don't want their every monetary move tracked by a financial middleman (such as a bank) and/or don't care to do business with financial institutions that make political decisions. The EFF points out:
Well, illegal drugs for one — but we don't endorse that, we just want to keep your attention (and we're not making this up). Silk Road, the underground website accessible via Tor, reportedly offers such contraband as LSD, ecstasy, marijuana and heroin for the price of this untraceable digital currency.
According to the Bitcoin wiki, you can also purchase online products such as games, graphic design and porn (of course), as well as material products such as clothes and electronics. And some nonprofits accept Bitcoin credits as donations (though not the EFF, not anymore).
So what's Bitcoin worth as "real money?
You can trade Bitcoin for real-world money at Bitcoin exchanges such as the hacked Mt. Gox, but as mentioned earlier, it's not as worth much right now. Value varies at the handful exchanges currently available.
How the heck do you steal "virtual" money?
Last week Symantec identified malware that targeted Bitcoin wallets where credits are stored. "The Trojan is Infostealer.Coinbit and it has one motive: to locate your Bitcoin wallet.dat file and email it to the attacker," wrote Symante's Stehen Doherty. "It is is not surprising considering the potential values in a Bitcoin wallet. We have also discovered source code on underground forums which locates the wallet and, using FTP, uploads it to the attacker's servers."
It is possible to encrypt your Bitcoin wallet, Doherty added, "and we recommend that you choose a strong password for this in the event that an attacker is attempting to brute-force your wallet open."
The attack on the Mt. Gox Bitcoin Exchanged involved an attempt convert 400,000 Bitcoin credits to $9 million "real money" (the exchange value at the time). That suspiciously large transaction caused Mt. Gox to take itself offline to investigate, and the resulting panic caused Bitcoin's real money value dramatically.
Any more problems I should know about?
EFF, which never endorsed Bitcoin, but did accept Bitcoins as a donation, and offered a link to donate to the project (until things got hinky) put it this way:
Bitcoin, "the first decentralized digital currency," suffered a personal data breach at the largest Bitcoin-to-real-money exchange, Mt. Gox, that caused values to drop from $17 to $0.01 per Bitcoin credit. The news was coupled with the Electronic Frontier Foundation's decision to stop accepting donations using the virtual currency, partially because, "We don't fully understand the complex legal issues involved with creating a new currency system."
If Bitcoin is a virtual currency, how and why can it have value — let alone lose value — and be stolen? And why should you — let alone anyone — care? If censorship, illegal drugs and hacker heists pique your interest, here's what you need to know.
Is this whole virtual currency thing new?
Hardly. Bitcoin — both the virtual money and the open source software it requires — came out in 2009. But virtual currency has long been used (in one for or another) in massively multiplayer online role-playing games (MMORPGs) such as World of Warcraft to simple social network games like FarmVille.
Bitcoin has real currency value outside the virtual environment, and on occasion, has a value several times higher than the U.S. dollar, the British pound, and the Euro.
So, how is Bitcoin virtual money "made?"
BitCoin credits are made by the user. As EFF's Rainey Reitman succinctly explained:
Anyone can go online and start generating Bitcoins. The computer creates a coin by dedicating CPU power to solving a mathematical problem; every time the problem is solved, a Bitcoin is generated and another problem is offered up.OK, but who wants virtual currency now that you can just bank online?
People or businesses who don't want their every monetary move tracked by a financial middleman (such as a bank) and/or don't care to do business with financial institutions that make political decisions. The EFF points out:
Current money systems now increasingly come with monitoring of financial transactions and blocking of financial anonymity. A peer-to-peer currency could theoretically offer an alternative to the bank practices that increasingly include sharing information on their customers who don't actively opt-out, and who may even then be able to share data with affiliates and joint marketers. Bitcoin is particularly interesting in the wake of recent events that demonstrated how financial institutions can make political decisions in whom they service, showcased by the decisions of PayPal, Visa, Mastercard and Bank of Americato cut off services to Wikileaks. Bitcoin, if it were to live up to the dreams of its creators, might offer the kind of anonymity and freedom in the digital environment we associate with cash used in the offline world.What can I buy with Bitcoin?
Well, illegal drugs for one — but we don't endorse that, we just want to keep your attention (and we're not making this up). Silk Road, the underground website accessible via Tor, reportedly offers such contraband as LSD, ecstasy, marijuana and heroin for the price of this untraceable digital currency.
According to the Bitcoin wiki, you can also purchase online products such as games, graphic design and porn (of course), as well as material products such as clothes and electronics. And some nonprofits accept Bitcoin credits as donations (though not the EFF, not anymore).
So what's Bitcoin worth as "real money?
You can trade Bitcoin for real-world money at Bitcoin exchanges such as the hacked Mt. Gox, but as mentioned earlier, it's not as worth much right now. Value varies at the handful exchanges currently available.
How the heck do you steal "virtual" money?
Last week Symantec identified malware that targeted Bitcoin wallets where credits are stored. "The Trojan is Infostealer.Coinbit and it has one motive: to locate your Bitcoin wallet.dat file and email it to the attacker," wrote Symante's Stehen Doherty. "It is is not surprising considering the potential values in a Bitcoin wallet. We have also discovered source code on underground forums which locates the wallet and, using FTP, uploads it to the attacker's servers."
It is possible to encrypt your Bitcoin wallet, Doherty added, "and we recommend that you choose a strong password for this in the event that an attacker is attempting to brute-force your wallet open."
The attack on the Mt. Gox Bitcoin Exchanged involved an attempt convert 400,000 Bitcoin credits to $9 million "real money" (the exchange value at the time). That suspiciously large transaction caused Mt. Gox to take itself offline to investigate, and the resulting panic caused Bitcoin's real money value dramatically.
Any more problems I should know about?
EFF, which never endorsed Bitcoin, but did accept Bitcoins as a donation, and offered a link to donate to the project (until things got hinky) put it this way:
Bitcoin raises untested legal concerns related to securities law, the Stamp Payments Act, tax evasion, consumer protection and money laundering, among others. And that’s just in the U.S. While EFF is often the defender of people ensnared in legal issues arising from new technologies, we try very hard to keep EFF from becoming the actual subject of those fights or issues. Since there is no caselaw on this topic, and the legal implications are still very unclear, we worry that our acceptance of Bitcoins may move us into the possible subject role.Overall, Bitcoin and the idea of virtual currency is risky, but interesting all the same and worth watching even if you don't invest.
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