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World’s Largest Bitcoin Exchange Victim of Cyber-Attack

There was much frenzy that accompanied the digital, algorithmically produced currency Bitcoin on Wednesday as a single unit reached a record high dollar value of $142.Some of that excitement was
Michael Teague is a staff writer for Equities.com. His previous experience includes three years as the associate editor of Los Angeles-based Al Jadid Magazine, a bi-annual review of the arts & culture of the Middle East, where he contributed many articles on the region in the form of features and book & film reviews. His educational background includes a BA in French literature from the University of California, Irvine, where he developed a startling proclivity for anything having to do with the 19th century.
Michael Teague is a staff writer for Equities.com. His previous experience includes three years as the associate editor of Los Angeles-based Al Jadid Magazine, a bi-annual review of the arts & culture of the Middle East, where he contributed many articles on the region in the form of features and book & film reviews. His educational background includes a BA in French literature from the University of California, Irvine, where he developed a startling proclivity for anything having to do with the 19th century.

There was much frenzy that accompanied the digital, algorithmically produced currency Bitcoin on Wednesday as a single unit reached a record high dollar value of $142.

Some of that excitement was greatly deflated overnight, however, as the currency’s main exchange site mtgox.com in Tokyo, where 70 percent of all worldwide trading in Bitcoins takes place, was the target of a successful cyber-attack.

The Mt. Gox exchange fingered a distributed denial of service attack for the disturbance of its activities that caused a small panic among some Bitcoin “investors”, triggering a sell-off that saw the currency’s value drop to under $115, before making its way back up to about $128.  A DDoS attack is a rather basic maneuver used by hackers the world over to a variety of ends, involving the flooding of a network or a server in order to cause a disruptive overload.

The purpose of the attack, in this case, was explained by Mt. Gox themselves as follows:

“Abuse the system for profit.?Attackers wait until the price of Bitcoins reaches a certain value, sell, destabilize the exchange, wait for everybody to panic-sell their Bitcoins, wait for the price to drop to a certain amount, then stop the attack and start buying as much as they can. Repeat this two or three times like we saw over the past few days and they profit.”

The exchange also readily admits that “Believe it or not, there is pretty much nothing that can be done”, noting that large companies as well as major stock exchanges like NASDAQ and the NYSE are also vulnerable to the effects of time-lag.

With recent uncertainties arising primarily from the Cyprus bailout situation and the long-term implications of this for the stability of the Euro and other currencies, Bitcoin has become a minor stand-in for the move to gold that usually accompanies such crises.  The incident demonstrates that it may not be the foolproof guarantee against economic volatility that many seemed to be hoping for.