Bitcoin freefall: the market plummets as large amounts of bitcoins are sold off at rock-bottom prices - bigger circles correspond to larger transactions (Image: Mt. Gox)
Following reports of theft last week, the Bitcoin community suffered another major loss of confidence yesterday when its largest exchange, Mt. Gox, was compromised, causing Bitcoin's value to fall from around $17.5 to just a few cents.
Although the online peer-to-peer currency has no central authority, Mt. Gox has become one of the most important Bitcoin players by allowing people to convert bitcoins to US dollars and back. As Mt. Gox's owner Mark Karpeles explains, the site itself was not hacked, but someone gained access to a computer used by one of Mt. Gox's auditors and stole a read-only copy of its database containing details of over 60,000 accounts.
The attacker then attempted to sell coins from one large account, but was prevented from emptying the account by a $1000 per day withdrawal limit. Even so, the sale caused the value of Bitcoin against the dollar to completely collapse.
Karpeles says that no other accounts were compromised and all trades will be rolled back to before the time of the hack, restoring Bitcoin's value to $17.5. Mt. Gox will also require every user to go through an authentication process to verify ownership of their account, since the leaked database contained encrypted user passwords that if cracked could allow access to other accounts.
While these measures should go some way to restoring faith in Mt. Gox and Bitcoin in general, they are a far cry from Bitcoin's promise of complete decentralisation. Some comments on the Mt. Gox forum are protesting the roll back, but it seems that even digital currency enthusiasts want some form of protection when large amounts of money are at stake. The principles behind the currency itself remain sound, but without a secure way to exchange bitcoins for real-life money, many Bitcoin holders will be looking to cash out.
Source New Scientist
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