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Man says he lost $500,000 in virtual currency heist
Digital coins: As discreet as cash – and
just as more vulnerable
Leaders of the open-source virtual currency project known as Bitcoin say they have no way to verify one user's claim that hundreds of thousands of dollars worth of digital coins were plucked from his computer earlier this week.
Rumors of the heist have been swirling since Monday, when a Bitcoin user named Allinvain claimed 25,000 Bitcoins, technically valued at close to $500,000, had mysteriously been transferred to an unknown user's account. Allinvain speculated the thieves made off with the windfall after using malware to compromise his Windows-based computer.
"I just woke up to see a very large chunk of my bitcoin balance gone," the user wrote. "I feel like killing myself now."
More than 300 posts later, it's still not clear if the claims are part of an elaborate hoax. Because Bitcoin is built on a peer-to-peer foundation that completely bypasses any sort of centralized database, it's impossible for even the architects of the digital currency to verify if a theft took place.
"Bitcoins technical details are complex cryptography and there's no way for us (as developers) to figure whether there was a real theft or not," Nils Schneider, one of the project backers, wrote in an email to The Register.
Still, the claims highlight the darker side of a completely decentralized digital currency that's built from the ground up to be as anonymous as cash. Long considered the Holy Grail of futurist libertarians because it can't be traced by marketers or governments, the system has no mechanism to trace the types of digital heists that are becoming a common occurrence these days.
One can say many of the same things about cash, but there are a few caveats: It's typically not possible to store hundreds of thousands of dollars in a "wallet," digital or otherwise, and traditional wallets aren't protected by anything like the Windows operating system, which is notoriously susceptible to online criminals. Cash also can't be stolen remotely by someone who's physically located half-way around the world from the victim.
What's more, cash stored in bank accounts or paid using credit cards is often protected by guarantees from government agencies, such as the Federal Deposit Insurance Corporation, or card issuers, such as Visa. Those, of course, are the same boogeymen virtual cash-loving libertarians want to bypass in the first place.
Over the past few months, the exchange rate for Bitcoins has skyrocketed, reaching as high as $29 and hovering in the $18 to $19 range more recently. But Schneider said it's not realistic to value Allinvain's claimed loss at $500,000 because of another potential dark side in the virtual cash system.
"The market just couldn't handle the sale of 25,000 BTC at once," he explained. The true value of the loss "would be more like $300,000 and cause the price to drop to around $10. Also, at the time he acquired the coins they probably were worth only $1000 or less. So the loss is in terms of USD is more a theoretical value. It's not like he put $300,000+ into bitcoins and lost them." ®