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The Great Bitcoin Heist

You’ve got to hand it to those bitcoin guys, they know how to take bad news in their stride. Last month’s revelation that hackers had stolen 850,000 bitcoins from the Mt Gox exchange in Japan – once the world’s foremost exchange for the super-currency of tomorrow – met with a kind of general sigh, and a commitment to get it right next time.

What’s impressive there is that the currency stolen represented 7% of the entire world stock of bitcoins. And that, as Mt Gox was forced to admit, the thefts had been going on for at least two years, and the thieves had got clean away. That’s the problem with a truly anonymous money system – the criminals are as faceless as the good guys.

So when Mt Gox’s CEO Mark Karpeles came out of hiding on 28th February to confirm publicly that Mt Gox was bust, and that he had lost 100,000 bitcoins of his own as well as the depositors’ 750,000, you had to assume that he was wearing a bullet-proof vest under his expensive suit. Unfortunately, bitcoins are favoured by all sorts of organised criminals, and their money was gone forever. Oops.

Buy One, Get One Free

850,000 missing bitcoins would have been worth around $480 million at end-February prices – although rather less than that in Mt Gox, where they’d already been downgraded by 80% in expectation of the impending default.  So what had gone wrong?

Well, it seemed that a failure by Mt Gox to tackle some well-known “bitcoin transaction malleability” issues had enabled online attackers to fool the system into handing out twice the number of bitcoins they should have dispensed. Mainly by tweaking some of the data exchanges and then asking for a ‘failed’ transaction to be repeated. Other bitcoin exchanges are loudly insistent that they wouldn’t have been so naïve. Well, let’s hope so.

Hold Tight

Actually, the Mt Gox bust wasn’t entirely to blame for the currency’s recent price instability. Long before Mt Gox had frozen its depositors’ accounts in January, the turbulence had been there – from $1,150 in early December down to $522 on 18th December, then back up to $951 on 6th January and $946 on 3rd February.  And so to just $558 on 2nd March. (Prices from www.coindesk.com.)

One other thing. We gather that the number of bitcoins available for issue is capped at 21 million. For ever. Which ought to ensure a gold-like scarcity value. Unless, of course, some enterprising hacker finds a way to bypass the algorithm? No, it couldn’t happen. Never. Perish the thought.

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