> About a year and a half ago, we were alerted in the early AM of a reduction in our safe/cold wallet balances of Bitcoin and Litecoin
If this happened, it means what were thought of as "cold wallets" were not implemented properly. When handling millions of dollars of coins, as Cryptsy was, a deep cold wallet [1] should be used. Take an offline computer and an offline printer. Generate a bunch of (optionally multisig) addresses. Print the private keys. Copy the addresses to your server that processes transactions. Lock away the private keys (optionally in multiple places). Never connect the offline computer or printer to the internet. Send every X bitcoins to a new address from the cold wallet.
This takes a few hours and a few hundred bucks to implement. It requires human intervention to access the cold wallet (to replenish the internet-facing "hot" wallet), but that is what you want! It is a whole lot easier to manually move coins once a week than it is to check for bugs and backdoors in your whole stack. Worst case, customers suffer a delay in withdrawals and a hack causes you to lose X bitcoins.
Edit: Of course, it could also be an inside job. An "exit scam." Moving coins to a new address and then not spending them is pretty hard to get caught doing.
On the contrary, I think it's pretty neat you can implement a variety of security schemes depending on your risk tolerance and convienence requirements.
Some of the parameters you can pick from:online vs offline ("cold"), hosted vs not, SPV vs full node, multisig, dedicated hardware wallet, etc.
And you can combine them in various permutations: e.x. offline + multisig is just about the most secure thing you can imagine.
Lots of people lose money because of scams, cards getting stolen/scanned/photographed, etc. - in a lot of cases, the banks just cover the cost and can rollback transactions because everyone has agreed that's how the system works. It is not because people do not have money stolen from their bank accounts due to various breaches.
My understanding might be wrong, but I believe during the 2013 Cyprus bail-in, all Cypriot depositors had money missing from their bank accounts: they lost 9.9% of funds above the insurance ceiling, 6.75% of funds below the ceiling:
That's a serious problem. Controlling access to the vault, when it's being accessed frequently, is hard. It's even harder for Bitcoin, where the threat is someone copying the data. You can have your original data and not have the assets it represented.
Question to ask Bitcoin exchanges: are your people bonded, and who's the bonding company. If they answer "What?", they're clueless about vault operations.
>Generate a bunch of (optionally multisig) addresses. Print the private keys. Copy the addresses to your server that processes transactions. Lock away the private keys (optionally in multiple places). Never connect the offline computer or printer to the internet.
Only for millions of coins? What about the savings of the average person? A loss would be devastating. Do you recommend the same security measures? If the system is insecure, it's insecure.
The idea that Bitcoin is in any way ready for the mainstream is kind of funny.
I do this, minus the "dedicated computer and printer" part. Pretty simple, really. Another option is dedicated smartcards that hold the keys.
I'm genuinely curious. Can you envision any possible distributed internet currency that wouldn't require human interaction for the highest level of security? Keep in mind, the threat model here is someone gaining read access to a few kb of data. With an automated, internet-facing system, I see an airgap as the only reasonable defense against that threat.
If someone gains read access to, say, your bank session cookies, they could also feasibly clean you out. The only difference is the bank might be able to reverse the transaction (undesirable a decentralized currency) or cover your losses (not a bad idea).
Cash and debit cards are pretty funny, too. Anyone who grabs your cash, or gets away with a purchase on your debit card is laughing pretty hard at your expense. Maybe, if you're lucky, your bank will get around to reversing the fraudulent debit card charges, but the thief still gets away. There is nothing secure about any money system.
>Edit: Of course, it could also be an inside job. An "exit scam."
Has there ever been any real or serious evidence to demonstrate that any of these seemingly numerous Bitcoin 'hacks' have been legit and not inside jobs, which is exactly what they all look like?
There are so many 'exit hacks' it seems virtually standard practice in the Bitcoin world, perhaps because nobody seems to actually go to jail for it or even face any serious legal investigations into it.
If a bank announced a multi-million dollar 'hack' I'd expect the authorities would be heavily involved, immediately, and everyone with a position to have facilitated a theft would be under suspicion and investigated until ruled out.
One the one hand Bitcoin is a supposedly serious, game changing currency and has billions of dollars tied up in it; on the other, it's treated as little more than internet karma points, and if people have it stolen from a wallet or someone announces yet another million dollar 'hack' at some comical 'exchange' any old clown/scammer can throw up, it seems to be simply 'tough shit' and nothing to see here.
This may be the non-regulated world the fanatics want, but it's a major reason why sane people (currently almost everyone on Earth) will continue to avoid Bitcoin like the plague.
They hacked Linode's customer service portal, and compromised 8 Linode customers. So I guess it could be an inside job of a Linode employee instead of one of the bitcoin exchange's employees.
>There are so many 'exit hacks' it seems virtually standard practice in the Bitcoin world, perhaps because nobody seems to actually go to jail for it or even face any serious legal investigations into it.
And yet you have wealthy Silicon Valley Venture Capitalists actively promoting this crap, and no one is calling for heads.
Your mode of thought, trying to divide the world into 'fanatics' and 'sane people', is not a helpful way to analyze these issues.
>Has there ever been any real or serious evidence to demonstrate that any of these seemingly numerous Bitcoin 'hacks' have been legit and not inside jobs, which is exactly what they all look like?
You're asking people to prove a negative[1]. It's a common logical fallacy.
>nobody seems to actually go to jail for it or even face any serious legal investigations into it.
Really? This claim is trivially disprovable. Numerous people have been arrested, including Mark Karpeles of Mt Gox. You've never heard of that case? $500 million allegedly stolen
> You're asking people to prove a negative[1]. It's a common logical fallacy.
No, he's asking for proof that there has been a non-internal Bitcoin hack. That's a simple existence proof.
If he were asking one to prove a negative, he'd have to ask something like "prove that there have been no internal Bitcoin hacks" (which is likely easily refuted but beside the point).
(He may be implicitly claiming a negative proof, by implying that there isn't any evidence that these are non-internal hacks, and therefore they must be inside jobs. But that's merely asking others to disprove a negative, which is trivial with evidence.)
"Blame the Hacker" is a tried and true way of deflecting attention from internal issues to the outside. It's akin to claiming an act of god in old times, as soon as you cross that line you're supposedly in the clear because, after all, it wasn't you that was the problem.
I suspect several of the higher profile data leaks and acts of vandalism that were blamed on outsiders but where subsequent follow up was never shown to actually prove that this was the case were in fact inside jobs, especially in those cases where the company did not file the issue with the authorities.
I think that if a company claims 'a hacker did this' that they should provide conclusive evidence and absent that we should simply assume that it really was an inside job.
>he's asking for proof that there has been a non-internal Bitcoin hack. That's a simple existence proof.
In reality it's not simple. How would you prove it?
However you define this, a very serious problem with the OPs request for proof is the pseudonymous nature of Bitcoin, combined with the difficulty of definitively connecting a real life identity to an online action.
The Cryptsy 'hack' is a neat example of this. The money was moved once, 18 months ago, and for observers, that transfer of money did not appear suspicious at the time. It looked just the same as an internal movement of funds for security or accounting purposes. The money even remains where it was moved.
But now Cryptsy's owner has announced that the money was not moved by him.
How can we prove or disprove his claim?
We can say that he dishonestly hid the theft, but it seems impossible to prove that he stole it. Even if his ISP is ordered by a court to release logs that show his home IP address did the theft, he could claim that his computer was hacked. But for someone doing an inside job, anyway there are so many ways to hide their identity and IP address.
Edit: So, should anyone offer evidence of a non-internal Bitcoin hack, the OP can simply make these arguments, to plausibly suggest that it may really have been an internal hack, disguised as an external hack
Such deception is not that easy, to do this consistently after the fact is going to be an extremely dangerous thing to pull off. You not only will be facing a charge for the initial theft but another one for obstruction of justice and tampering with evidence and possibly a whole pile of others.
Personally I'd be already more inclined to believe it was an outsider if they filed this breach with the authorities and if they turned over all their evidence. You'd have to be fairly cocky to do that if you were the one that made off with the loot (not that it wouldn't happen, but it would happen a lot less frequently).
Yes, to create a convincing fake hack is not simple. In common crimes, managing a complex fake story is dangerous. The criminal can be revealed because they can't keep every detail consistent. They get tangled up in their own lies.
But in the cryptocurrency space, judicial authorities lack expertise, geographic jurisdiction can be unclear, and invesigators may not be able to unearth the truth. The Bitcoinica thefts are an example of that, Mt Gox may be another. Every time, it would be easy to prove negligence, but definite proof of criminality is hard.
It is true that if Cryptsy had reported the crime at the time, the story would have been more plausible, but even then there still would have been much doubt and a genuine possibility that it was fraud. At least the possible evidence, logs and whatnot, would have been fresh.
> It is true that if Cryptsy had reported the crime at the time, the story would have been more plausible
To me this is an extremely important aspect and it moves the needle from 'could be fraud' to 'definitely fraud'. Nobody taking a hit like that would try to hide it from both their end users and the authorities if they weren't involved, no possible gain could come from trying to cover this up other than to see if they could do it again.
Covering up a breach of this magnitude (which is simply the end for the company, assuming the funds won't be recovered, and which should be the end of the company even if the funds are recovered) is a much higher risk than being frank about it for the simple reason that the trail will be cold by the time the truth eventually comes out.
> no possible gain could come from trying to cover this up
Unfortunately, there is a possible gain, at least from the viewpoint of the owner: Simply keeping the business, and his normal life, running --- presumably hoping that a magical solution will appear from the clouds. (or to be try to be more charitable to him, maybe he hoped for a foolish new investor, or a dramatic change in bitcoin price)
If that's what happened, it was irresponsible, very stupid, and certainly fraudulent, but many people have done similarly stupid things in similar situations.
No matter what happened, that ridiculously long delay in reporting the theft is a most serious red flag, like you said.
>How would that weigh up against the possibility of recovering the funds?
Maybe you're asking a rhetorical question, but historical precedent suggests the chance of recovering the funds in this sort of crime is really small. There have been tens of relatively big cryptocurrency heists like this, and but only in perhaps three or four cases that I know were funds recovered from the thief
But, to again imagine the Cryptsy site owner's viewpoint, statistics and probability are no match for pure human desperation, so, if we believe the 'hack' story, then a desperate plan based on the ill-advised belief that the funds could be recovered from the thief is not totally unbelievable. Though it sounds even more unlikely because the owner only announced a public bounty yesterday, not 18 months ago when the money was stolen.
A 35% chance to recover your customers funds would seem to me to be a chance worth taking, but maybe you're right and that was what drove this decision. Seems terribly incompetent and I'd say they deserve to be personally liable for the loss if that's how it went down.
After months of no activity on those wallets, someone put some dust in them yesterday. What can that mean? If they found silk road coins, they can find cryptsy coins maybe, right?
Whats wrong with proving a negative? There is no fallacy in that first comment you quoted. datapat isn't claiming that what he's saying is true, he's asking for a proof.
The nature of this sort of conspiracy theory makes it impossible to disprove.
For example an identified backdoor and logs pointing to an external hack is exactly what you'd expect to see planted if this were a halfway clever inside job, right? So how do you possibly rule that out?
Well, at a minimum they should file a complaint with the authorities, hand over evidence that they did find, and so on. Too many times these 'hacks' have a weird smell and the companies for some reason do not want to get the authorities involved.
Imagine how strange it would be if you had a breach at your home, a very large amount of value would be stolen and you'd not make any effort to alert the authorities and if the only thing that would prove that it was an outsider was your say-so. Of course, you could make it look like a burglary when it really was you but the various agencies would most likely be able to tell the difference, or in fact may be able to conclusively prove that you were the one doing it in the first place.
Lots of real-life fraudsters get caught this way, I don't see why on-line fraudsters should get a free pass on having to at least meet the same level of proof before they are believed.
I agree, but I don't think failing to do so necessarily means there's more to the story. The simple explanation of greed and incompetence seems pretty plausible.
>You're asking people to prove a negative[1]. It's a common logical fallacy.
No, I'm asking for examples of investigations where authorities have concluded that so-called 'hacks' at Bitcoin exchanges were indeed hacks and not simply thefts by scammers running the services.
>Really? This claim is trivially disprovable. Numerous people have been arrested, including Mark Karpeles of Mt Gox. You've never heard of that case? $500 million allegedly stolen
Karpeles has not been arrested over "$500 million allegedly stolen", which is perhaps why you linked to a story about something else, behind a paywall.
As for Moolah guy, if you have 'proof' that he was arrested over the hacked Mintpal coins that amounts to more than Chinese whispers on Bitcoin forums/blogs, let's see it. All your link does is link to another site that claims he was arrested, almost a year ago, and doesn't even state why.
Even if we assume he might be one day charged with the theft of the coins, that's one person involved in a Bitcoin inside job facing prosecution over it.
I'm sure I can find more than one person involved in an inside job at a bank (involving dollar amounts considerably smaller than we're talking about with Bitcoin 'hacks') doing actual time for it.
"Some may ask why we didn’t report this to the authorities when this occurred, and the answer is that we just didn’t know what happened, didn’t want to cause panic, and were unsure who exactly we should be contacting."
This happened back in July 2014. $5M stolen and you didn't call the cops. They continued to do business and accept deposits even though insolvent. Only when a class action was filed because they were not paying out timely withdrawals did they disclose this theft.
That just screams "inside job".
(Yesterday I made the comment on another thread that Bitcoin exchanges seemed to be doing better; no major exchange had collapsed in 2015. Here we go again.)
Southern Florida, the scam capital of the United States. Or they were. From the class action complaint: "CRYPTSY has vacated its Delray Beach, Florida physical office space without any indication where it would be relocating."
Also, Paul Vern, the CEO, seems to be missing. One site claims he's in China, based on an IP address seen.
Name: PAUL VERNON
Organization: CRYPTSY INTERNATIONAL LTD
Street: 5 CALLE AL MAR
City: BELIZE CITY
State/Province: BELIZE
Postal Code: 00000
Country: BZ
Phone: +1.8889639935
which is a "virtual office" space in Belize.[1]
Cryptsy is not in Dun and Bradstreet or the Florida Department of Corporations database. But they have another corporate name,
"Project Investors Inc." It has a BBB rating of F, with 17 complaints.[2]
That business is registered with the state of Florida.[3] Those records include the CEO's home address, which is in Boynton Beach, FL.
If this was a UK company, they were actively trading while insolvent are up for jail time. In Florida? Who the hell knows, but I imagine trading while insolvent is still illegal. It's a very old bit of corporate law the US probably took from the UK when it was formed.
Bitcoiners have an interesting understanding of the word "insolvent." Insolvency simply means more liabilities than assets. That is a natural state for many businesses; debt is a thing which exists and can be used responsibly. (Imagine a SaaS company which takes out a loan for $100k to acquire customers and has $10k in bank at any time. That company is insolvent. This is perfectly compatible with normal operation -- assuming no cash flow issues they happily service the loan, operate the business, and make payroll.)
The wrinkle is when you're insolvent and also a financial institution, which has been a critical failure mode since the Medicis.
You may know this, but that's really not how accounting law or bankruptcy law works, at least in the US.
> Imagine a SaaS company which takes out a loan for $100k to acquire customers and has $10k in bank at any time. That company is insolvent.
That's simply wrong. Many companies have more assets than liabilities; Revlon, for example has around $2 billion in assets and $2.5 billion in liabilities last I looked, but they're not insolvent or in any particular danger of becoming so; the market values them as being worth around $1.5 billion.
At least in the US, insolvency is a question of cash flow. Your example SaaS company is able to service its debts and make payroll, thus it is solvent. The fact that it might have negative shareholder equity is quirk of accounting that nobody really worries about.
> Imagine a SaaS company which takes out a loan for $100k to acquire customers and has $10k in bank at any time. That company is insolvent.
I don't think that is right. Yes, they have more in liabilities than assets but insolvency would mean that you can't service your currently due debt. If you took out a loan with a $5000/mo payment, you would not be insolvent until you cannot make that payment.
In the case of an exchange, that liability doesn't have a future due date - so they would be insolvent once they do not have the assets to cover their liabilities.
The other really suspicious thing about this is the timing 48 hours after a class action lawsuit was filed against the company in FL by angry customers who can't withdraw money. Seemingly to telegraph the signal there is no money here to go after. On the other hand they are also outright admitting to fraud by saying they knew about this for over a year and continued to let customers deposit new funds.
So, basically, someone re-released a new, modified codebase for an abadoned coin, and they ran it on their servers without proper isolation, so the backdoor could access their other wallets?
That is what it sounds like, yes. It also sounds like this is a new and innovative definition of "cold storage," where the wallet lives on a network-connected computer.
The lack of isolation between the various coins reminds me of Allcrypt, the exchange that ran their Bitcoin-trading software on the same database with the same password as their WordPress website. In their explanation they managed to absolve themselves of all responsibility and blame their marketing person whose account was stolen, when in fact the marketing person was the only responsible one in the whole company, alerting the technical folks about the unexpected password reset email: https://archive.is/2UY7e
> Q: You morons! You had a WordPress site that allowed uploading of new files?!?!
> A: It was the marketing director’s account. Beings that he was constantly updating files, it was necessary for his account to have the ability to upload new files.
The real question, of course, being "You morons! You had a WordPress site on the same server as critical financial services?!?!"
edit: Also:
> Q: Your security sucks!
> A: I see you running an exchange successfully, I’ll take your advice.
I spent almost 4 years working at a PCI level 1 compliant company that handled subscriptions.
It's really a joke the lack of security these bitcoin "banks" have around their vaults. Our PCI auditor wouldn't pass us if he audited our firewall and noticed the crypto servers that stored the credit cards had outbound access to anything other then the 1 vlan that acted as a API layer from those servers and the banks.
These companies should really just follow PCI and start there.
Not in payment industry, but side project requires heavy security, any good guides to PCI auditing, I see lots of fluff when I search and the auditors I've run into in the past have been at best a bit of a joke :)
The US government et al should really classify these as banks and force them to address the same privacy, disclosure, fraud prevention etc regulations.
The potential of Bitcoin as something your grandparents could one day use is constantly being undermined by these cowboy operators.
1) Nothing is stopping you from refusing to deal with any Bitcoin exchange that is not audited to adhere to PCI 1 standards as adapted to deal with Bitcoins. If no such exchange exists, nothing is starting you from starting one.
2) I think far more damage is being done to Bitcoin by the political fighting and poor technical decisions of the core developers. Bitcoin weathered Mt Gox, it can weather Cryptsy.
How could you estimate the rate of theft for US currency? It depends on how you define 'stolen'. Was the 2008 global financial crash a huge case of theft? It also depends on how you define 'currency', as there are various measures of money supply, not just physical currency.
One case, Bernie Madoff: $65 billion stolen
Though that 1 in 14 number which you cited is barely even a guesstimate, for bitcoin it is easier to estimate the rate of theft, because at least you know exactly how many bitcoins exist now, or will exist in future, unlike the USD.
A few other points for us to consider..
* About 75%-80% of banknotes in developed countries have traces of illegal drugs. One study suggested about 4% were involved in illegal activity such as purchasing, selling or using drugs[1]. Other crimes do not leave obvious chemical traces of course.
* The further back into history you look, into colonial times and earlier, the more true becomes the statement "All wealth is stolen"
This is the stuff that scares me about Bitcoin. People tout it as being safe from regulation, free, quasi-anonymous... But if you have your savings stolen you want it back.
I think the exchanges as we know them today, they could change to where there's no 3rd party holding your coins. Maybe some kind of "escrow coin" runs on a "proof of trade" concept where the escrow coin miner gets a small percentage of the trade value when buy and sell orders match up, the fee would discourage fake trades and make the escrow coin worth mining. I had the idea a few nights ago. Would a "proof of trade" escrow coin work? Not sure. But I think it could work to where there's no tempting "cryptsy jar" to reach into.
It's actually possible to do this without even requiring a 3rd party for escrow. Two parties can perform a "cross-chain atomic swap", where special transactions are created that move both of the funds on both chains at once, requiring zero trust. This of course requires a custom client to create these special transactions.
I've been working on this exact thing for a while: https://github.com/mappum/mercury However, I'm still waiting for the altcoins to adopt BIP65, a Bitcoin patch that adds a new script opcode, which is necessary for cross-chain atomic swaps. Bitcoin recently adopted this change, so the altcoins should follow in the near future.
it could work to where there's no tempting "cryptsy jar" to reach into
Something, perhaps your idea, needs to be done, before Bitcoin can have long-term success. Because you're exactly right. It's just too tempting. This isn't the first time something like this has happened. Not the second time. Not the third time!!!
Nobody will ever recommend that you put your savings into the account on a bitcoin exchange. Use a wallet and addresses you control yourself for your savings.
Whenever bit coins are lost or stolen, there's always someone who pops up to say that the losers made a mistake and they really shouldn't have done what they did. Congratulations on being that someone!
... in the United States, where real banks are FDIC-insured.
If this crap had happened to an institution that was audited, protected, and enumerated in US dollars, this whole fiasco would be only a bad day for the Cryptsy owners, not the depositors also.
But you get what you get when you go with a non-fiat currency. It's interesting to me to watch people in the BTC space re-learn the lessons learned by financial systems since the dawn of currencies; at least they're learning them faster in the digital age.
You can store bitcoins on paper. I've done it for years. With multisig, the paper can even be split between, say, your safe, your safe deposit box, and your wallet, with 2-of-3 required.
Using bitaddress.org, an "Open Source JavaScript Client-Side Bitcoin Wallet Generator". Makes use of Shamir's. https://bitaddress.org (save the page locally and run it while disconnected)
There is one nice thing about bitcoin multisig as opposed to running ssss on a private key. With multisig, you can generate three keypairs on three computers, then combine their public keys into a (say) 2-of-3 multisig. I'm pretty sure that using ssss would require the full-authority key to exist on a single computer at creation time, and it would be split afterwards, which is less secure.
Shamir's secret isn't safe because it requires you to have both parts of the key and put them together on the same server. Standard bitcoin multisig does not use Shamir's secret, it does a pay to script hash transaction which is safer. You can try it out yourself here https://bitcore.io/api/lib/transaction
I keep saying similar things. Unfortunately, everyone is enamored with Bitcoin. But what they really want is a lower friction way of electronic money transfer. What they don't want is for their savings to be easily stolen.
"You know what's cooler than a million dollars? Virtual currency backed by nothing and nobody."
Considering that Bitcoin is comprised of people who are very good at math, people who are active investors, and people who are currency enthusiasts, shows that you have no idea what you're talking about.
Bitcoin people aren't investors, they're speculators. Big difference.
Bitcoin resembles tulipmania much more than investing. At least I can pay my taxes with the fiat currency that is the US dollar. The only thing I can do with Bitcoin is pass it on to a greater fool or to someone who will use it as an intermediate "currency" which he will immediately convert to something more tangible.
Bitcoin is very useful as a short term medium of exchange. It's not an investment and it's not a store of value.
... and with the current technological limitations in finalizing transactions, it's arguable how much utility it has as a short-term medium of exchange.
Most "short term" media I use, I don't expect transaction finalization in scales of hours.
Price fluctuations make bitcoin a non-starter as a savings account anyway.
It would be better to store savings in an interest bearing account with a bank or other investments, some of which might include bitcoin and some of it's possible successors.
For me at least, the compelling thing about cryptocurrencies is the possibility of cheap transactions, but bitcoin itself doesn't really seem to fit the bill as it stands, so it seems like a high risk investment.
A friend of mine once opined that inflation is functionally the government's ability to tax savings accounts---waking up one day and finding out your money is worth 10% less because of government policy is pretty equivalent to waking up one day and finding out the government just took 10% of your savings account.
But you demonstrably don't escape price fluctuation by moving to a non-fiat currency; you just move the causes around.
Which is why our banks don't operate like they did in the 1800s. We've got better security, interbank electronic transfers, and a government backed insurance system which guarantees the safety of deposits up to a fairly large amount (in the US, at least).
If you're arguing that the state of Bitcoin is analogous to banks in the 1800s, that's fine as a perspective on the relative state of advance; to me, it's a wonderful way of saying I should keep my money as far away as I can from BTC.
The next question is whether Bitcoin exchanges will follow the same path of increasing security that banks did, or whether there are structural differences that will cause Bitcoin companies to remain a "market for lemons".
Computer security is actually fine; there's plenty of solutions in academia for lots of modern problems.
The issue is that the uptake of these solutions is slow, because of reasons like backward compatibility and poor software engineering and govt meddling.
So they lost something on the order of $10 million (if my math is right) and waited a year and a half before telling anyone? This is some Mt. Gox-level sleaze.
Tomorrow a new person will still pour his/her heart out to me on the virtues of bitcoin and how the world is blind and should adopt it, in its current state, as soon as possible.
Well, to be fair it wasn't a problem with bitcoin itself that caused this. Exchanges (companies) tanking don't concern me as much as if an actual vulnerability was found in bitcoin itself.
>"Hello,
Lucky7Coin is not maintained and I would like to take care of it. I have announced that on bitcointalk.org in Lucky7Coin thread. You’re the only exchange for this coin and I hope you will let me take care of it. I’m responsible. You don’t have to be afraid of errors or forks. I’m developing multipool and I know bitcoin internals and protocol."
That's the email they received, and did business with this company, while overseeing millions of dollars in other people's money. Then got ripped off. Who needs banks?
>If they are returned, then we will assume that no harm was meant and will not take any action to reveal who you are. If not, well, then I suppose the entire community will be looking for you.
Not the FBI? Oh, right, they don't care. By the way, the guy who stole the coins was part of "the community".
>2. Somebody else comes in to purchase and run Cryptsy while also making good on requested withdrawals.
I think exchanges need to take responsibility and notify user's straight away about a breach. Multiple exchange's have had large breaches and continue to accept new deposits.
My job is to evolve and secure a particular bitcoin platform.
Money directly stolen out of a platform wallet is an unneeded problem. It should never happen. It should not be possible for an attacker to give that instruction. The system should not even know where to send such instruction to. So, how could an attacker ever do that?
The real difficulty is to prevent an attacker to inject misleading/deceptive messages into the system that cause the system to pay out to the wrong address. This does happen, if only because of bugs in the system.
I love cryptocoins. But I think these high profile thefts will continue. And I think adoption/popularity will continue.
If so, I would wager global law enforcement organizations will want to step in and offer merchants and users a service which traces and blacklists the outputs from thefts like this (until/unless returned to the original owner). If so, it would create a big rift between the many who enjoy cryptocoins' fungibility and independence from the state and those who want to punish/deter thieves. Big merchants like Overstock would want to publicly align themselves with "bitcoin is legit" and "we don't want to profit from that theft" activity.
There'd be little that anyone could do to stop the law enforcement agencies from providing such a theft tracking service. And little anyone could do to stop merchants from integrating it into their services. It would be an interesting threat to the fungibility of bitcoin.
Some cryptocoins (monero, et al) use ring-signatures that mask their specific input/output address path. I suspect if these events came to pass, those coins would become much more popular.
https://99bitcoins.com/federal-investigations-of-cryptsy-und... alleges Cryptsy was the subject of a federal criminal investigation going back at least as far as October. Having lost all their customer's deposits a year and a half ago will certainly not help their case.
Why weren't they insured against theft? Why did people deposit money with an exchange that is not insured against theft? Theft is a fact of life. You cannot have a perfectly secure bank, and you cannot have a perfectly secure bitcoin exchange. If you don't want to be hurt by theft, get insurance.
Because the insurance would have been way too expensive, or would have demanded way better operational security and auditing. And because they were able to operate without one.
Update: "cryptsy.com" is down. Not even responding to pings. Their blog ("blog.cryptsy.com") is still up, but that's hosted by Tumblr. Other reports indicate that the company's offices are vacant.
It's time to get an arrest warrant out for the CEO, Paul Vernon.
Isn't every BTC transaction easily traceable? How can you prevent someone from examining the blockchain and following the stolen BTC until they are transferred to a known/public address?
You use standard laundering practices. Mix good money and bad money in one legitimate account, then pass it on from there minus a commission fee. It's impossible to track which money came from which account once it leaves the laundering operation.
Only thing that could save them would be a buyer. It's one thing to suffer a breach and try to make good on it. It's another thing entirely to cover it up for year and a half.
Question is what a buyer would be interested in: Their platform is suspect from a security standpoint - if they got this much wrong, then what else did they get wrong? Their brand is shot. The code is hardly going to be worth even a fraction of what it'll cost to make customers good.
And it's exceedingly ridiculous to get caught out in this way: No isolation of third party coin daemons, and a very creative interpretation of cold wallets (why in the world was it possible for someone to get the keys for the cold wallets via a network breach)
They've demonstrated they can't be trusted to be open about problems, and that they can't be trusted to get even basic security precautions right, so even if they got the funds back somehow, it's extremely unlikely that they'd manage to repair the damage to their trust.
So, yes, it's probably the end, whether or not they manage to recover some of the stolen coins.
BTC is funny, it is revolutionary, but it does not really have anything to offer over insured money in a real bank. Bitcoin, if it ever wants to have the every-man invest in this "currency" it needs to offer some sort of insurance, which usually requires identity. Digital cash that is anonymous can not offer this, so it is inherently flawed. To use it, quite simply puts yourself at risk.
So really the banks are correct in their assesment, the real value quite obviously is indeed in the blockchain technology.
I would imagine there is little stopping someone from forming an insurance company in the BTC space: pay them BTCn a month, and they will ensure you for losses due to fraud for up to BTCx. I believe in previous scandals, some talk was made of doing precisely this (basically constructing an FDIC-equivalent BTC holding structure). There's nothing really stopping someone from setting up an insurance backstop in a non-fiat currency; it's just harder to do than having a government declare "If the whole system tanks, we will magic up a trillion goon-dollars to cover everyone's losses."
Of course, that replaces the issue of technological fraud with insurance fraud (and the technological risk of compromise to the insurance holder itself, though "put all your eggs in one basket and make sure it's the BEST basket" is an old and trusted software engineering paradigm). It actually feels like a way big, stodgy institutions could get into the BTC space if they chose to.
It's interesting how people appreciate this link when a new exchange is in the news, but how people dislike this link when an exchange gets compromised!
If this happened, it means what were thought of as "cold wallets" were not implemented properly. When handling millions of dollars of coins, as Cryptsy was, a deep cold wallet [1] should be used. Take an offline computer and an offline printer. Generate a bunch of (optionally multisig) addresses. Print the private keys. Copy the addresses to your server that processes transactions. Lock away the private keys (optionally in multiple places). Never connect the offline computer or printer to the internet. Send every X bitcoins to a new address from the cold wallet.
This takes a few hours and a few hundred bucks to implement. It requires human intervention to access the cold wallet (to replenish the internet-facing "hot" wallet), but that is what you want! It is a whole lot easier to manually move coins once a week than it is to check for bugs and backdoors in your whole stack. Worst case, customers suffer a delay in withdrawals and a hack causes you to lose X bitcoins.
Edit: Of course, it could also be an inside job. An "exit scam." Moving coins to a new address and then not spending them is pretty hard to get caught doing.
[1] https://en.bitcoin.it/wiki/Cold_storage