How Does The Bitcoin Attack Affect Online Currency?
Bitcoin falls victim to cybercrime, but how will this event change our everyday online transactions?
This month, the security of our online information has been in the spotlight like never before following a series of high-profile security breaches. The beginning of August brought Yahoo’s cut-price takeover by American telecom company, Verizon, but was overshadowed by the announcement that 200 million Yahoo customer accounts were for sale on the dark web. The very next day, Bitcoin experienced a collapse in value after digital currency exchange, Bitfinex, admitted to suffering a major hack.
Unpleasant Surprise
Bitcoin represents the more shocking of these two cybercrime stories, since a key argument in favor of this digital currency has been its supposed resilience against malicious activity. Because every transaction is recorded anonymously in a digital ledger known as the Blockchain, it was considered extremely difficult to corrupt the online currency. When Reuters reported that almost 120,000 bitcoin with a value of almost $65 million had been stolen, there was a run on the currency and its value plummeted. This is not the first time an event like this has happened, following the bankruptcy of a Tokyo-based trading exchange in 2014 when bitcoin worth hundreds of millions of dollars was stolen by online criminals.
While Bitcoin brokers attempted to shore up their ailing currency by declaring that the Blockchain remains intact, this latest theft further undermined confidence in a currency whose value increased by almost 50% in the first half of this year before losing 30% of its total worth within a single weekend. Modest climbs over the following days still left Bitcoin’s value far below June’s peak of $768, as traders and consumers speculated whether the currency’s days might be numbered.
Counting The Loss
The news that anyone with Bitfinex holdings would automatically lose 36% of their deposits to compensate victims of August’s theft reinforced a growing sense among many observers that online currencies are simply too risky to trade in. The problem doesn’t concern the Blockchain itself, but rather vulnerabilities in the online wallets used to store Bitcoin and the exchanges where it’s traded. From Apple repeatedly approving fake wallets in their App store to Bitfinex executives’ alleged links to Ponzi schemes, a lack of accountability and public scrutiny may persuade existing Bitcoin holders to sell their stock and move on.
Simultaneously, it is hard to imagine new customers deciding to convert existing currency into Bitcoin as the situation stands. One of the few countries retaining its support for Bitcoin is China, since trading in digital currencies enables investors to bypass state controls on monetary outflows. Even the Chinese might be inclined to reduce their involvement given recent events, particularly since reductions in the Blockchain grant (paid to people who enter transaction details into the Blockchain) will further dampen enthusiasm among insiders.
What Does It All Mean?
It should be noted that Bitcoin has survived previous scandals and bad publicity, quite apart from its historic associations with the deep web’s less wholesome corners. It remains a truly global currency that’s ideal for regular travellers and privacy-minded individuals, especially at a time when credit and debit card fraud in the UK climbed by 18% last year and reached an all-time high worldwide. Bitcoin is not the only method of payment under attack from technologically savvy criminals, as PayPal account holders and victims of bank fraud will ruefully acknowledge. Nonetheless, the latest bitcoin theft casts further doubt on whether modern cyber currency is strong enough to survive in the face of modern cybercrime.