BitFloor hacker steals the equivalent of US$250,000 in virtual currency

5 Sep 2012

Almost US$250,000 in virtual currency Bitcoin has been stolen from BitFloor, which has shut down operations while it investigates the attack and figures out how to keep the business going.

What is Bitcoin?

For those of you that may not be familiar with the concept, Bitcoin is a peer-to-peer digital currency that came into being in 2009. Bitcoins can be used to make transactions online and users can convert a government-issued currency to bitcoins using a Bitcoin exchange.

The premise of Bitcoin is that it is a currency that operates without a centralised banking institution or authority. Transactions are made using cryptographic technologies on the Bitcoin network. Users create wallet files which are stored on a network or computer and, though every transaction is public, real-life identities of those involved are difficult to discern, which has made the cryptocurrency popular in the purchase of illegal products online.

Though some online organisations and retailers accept bitcoins, users are encouraged to treat it as experimental software and not to invest too heavily in it. The network has been plagued by attacks and CNET reports that more than 290,000 BTC has been lost in 10 heists since June 2011.

Virtual robbery

Which brings us to the latest Bitcoin theft at BitFloor, the fourth-largest Bitcoin exchange, where a hacker (or hackers) made off with 24,000 BTC. At the current exchange rate, this equates to about US$249,600, and most of the currency BitFloor was holding. Being unable to cover all account balances, BitFloor founder Roman Shtylman decided that the responsible thing would be to shut down the site for the time being.

In a post on the Bitcoin Forum, Shtylman explained that some servers were compromised, which gave the hacker access to an unencrypted back-up of wallet keys. Using these keys, the hacker was able to transfer hoards of bitcoins.

Shtylman has also posted details of the attack on the Bitcoin Forum in the hope that the Bitcoin community will be able to help track the thief.

The next steps for BitFloor

BitFloor makes money by taking 0.3pc of each exchange. Before the shut-down, this earned the site about 210 BTC per month so, to cover the recent losses, it would take close to five years at the current rate.

However, with some users demanding they be able to withdraw funds now, Shtylman has entertained the idea of securing investment to cover them in the immediate term. While he sees shutting down the company and repaying all funds as a last resort, he has still assured users that logs for accounts, trades and transfers were unaffected by the breach and, if it comes to it, repayments will be made in full.

Elaine Burke is the editor of Silicon Republic