Fools And Their Bitcoins Can Be Quickly Separated
Can bitcoin ever reach a stage of legitimacy? It’s obvious that an unregulated, decentralized currency is a needed instrument in today’s constantly changing global financial markets. The fact that bitcoin has worth, that it keeps being a topic of financial discussion, is proof of concept. But bitcoin, as well as other distributed systems of payments, is also quite disruptive.
The National Cyber Crime Unit predicted that emails would hit tens of millions of UK customers, and that they were targeting small to medium-sized businesses in particular. “This spamming event is assessed as a significant risk,” it said.
Discovered last month, CryptoLocker is distributed by email. It includes a ZIP file attachment that infects a victim’s computer, encrypting their files, and them demanding a ransom of 2 bitcoins. That will see people paying almost £500 to get their files back. It’s likely, however, that victims at this point will choose to pay in fiat currency, which is also an option. Reports indicate that this costs $300.
CryptoLocker has become more sophisticated over the last few weeks. The perpetrators have created a Tor-shielded web site that enables victims to redownload the private keys necessary to unlock their files, rather than sending bitcoin or MoneyPak payments. It also offers a ‘second chance’ option to download their files. The software originally warned that files would be unrecoverable after 72 hours. Now, the site simply increases the ransom to 10 BTC, and the option to pay with fiat via MoneyPak is removed.
That will be of scant comfort to the poor old lady who one Bitcointalk.org contributor says he found hanging around Vancouver, BC’s bitcoin ATM on Monday. She was putting money into the bitcoin ATM and couldn’t understand why no bitcoins were coming out. The woman, who didn’t understand how a paper-based private key worked, had apparently been targeted by CryptoLocker and was trying to get her files back.
CryptoLocker, combined with Tor, provides a low risk/opportunity ratio for crooks, pointed out Mike Hearn in his post about marked coins, which was publicised on Reddit yesterday. He cited the ransomware explicitly as an example of how marked coins could be useful.
It is unclear how many people are paying with bitcoins as opposed to fiat currency to get their files back, but reports suggest that either way, they are able to unlock their files afterwards. And at least one Chamber of Commerce is advising victims to pay. With bitcoin prices over $400, it looks like a win for the criminals, and a lose for thousands of victims, at this point.
The exchange Bitfloor was one of the first to feel the wrath of the US banking industry’s fears of bitcoin. In April, that exchange had to shut its doors after its bank account was permanently closed. It began refunding users in July, but this proved that banks did not yet want to cooperate with bitcoin.
There’s been too much risk involved in virtual currencies, something bankers despise. But it’s clear that the government wants to provide some guidance for the US banking industry and others, so that’s a step forward. The main reason is because government agencies want to be able to track criminal activities such as money laundering.
Bitfloor was an example of what might happen if you get tangled with banks, which want to comply with government agencies like the FBI. This shutdown event happened after 24,000 BTC was stolen from Bitfloor previously, in September 2012. Back then, those bitcoins were worth $250,000. Today, they are worth over $8m.
Imagine if the bank you did business with just disappeared one day. Wake up, and all of your money is completely gone. It isn’t a scenario that happens in banks residing within countries that have a lot of financial regulation. But with bitcoin, it happens. Hong Kong-based exchange GBL is an example of this.
After being in business since May of 2013, the site shut down near the end of October, taking $4.1m in investor money with it. In the Chinese bitcoin market, where BTC China has the number one global bitcoin exchange ranking, regulation is not even on the horizon. The lack of regulation makes these types of things more common, begging the question why there isn’t more security.
“This is happening frequently, and I think this is not good for the bitcoin ecosystem,” says Ankur Nadwani, the developer behind payment project BitMonet. “Cases like these show that there is a market for companies in the bitcoin space that focus on security.”
On 23rd October, hackers were able to compromise the supposed high-security bitcoin wallet inputs.io, which like most wallets is hosted by a third party. The estimated value of those bitcoins was over $1.2m, which has, in a very short amount of time, become much more valuable due to the increase in BTC prices.
The developer, who has gone by the name of Tradefortress on bitcoin forums, said he does not plan to contact the police since bitcoins are untraceable, which is not entirely true. Tradefortress has already had a history of truth aversion, as he has claimed he once worked as a developer on Blockchain.info, which that site has denied.
There Is Some Good Out There
Probably one of the worst things about bitcoin scams is there is not much an investor can do if BTC or any other decentralized currency is stolen. Reporting it to the FBI makes sense, but it doesn’t mean that there will be any retribution.
“The individual investors are unfortunately the ones who bear the brunt of these scams, and often times there is no recourse, particularly if the exchange was a victim as well,” says Andrew Beal, corporate attorney at Los Angeles-based firm Crowley Strategy who works primarily with startup technology companies.
Yet it’s already clear there are a number of companies who are putting time and money into making virtual currencies viable for the mainstream. ItBit, as a recent example, is an exchange using NASDAQ technology looking to attract accredited and then retail investors, and has secured over $5.5m in total funding to build something reliable for bitcoin.
Life’s not fair, and things can become really unruly if one decides to place all of their chips on a bitcoin bet. This was evident once again with a Czech exchange called Bitcash.cz, which has had 4,000 customer wallets emptied by thieves. Expect this to continue, with only the strongest bitcoin companies surviving and thriving.
“The most important thing an investor can do is be selective in deciding where to put their money,” says Beal, the attorney. “There are a lot of honest, reputable companies in this space who are committed to providing safe trading environments.”
That’s why it is always important for investors in any market perform their due diligence before making any investing decisions. Virtual currencies possess major growth potential, but also could become completely worthless due to a number of factors.
Ultimately, the bottom line is this: Don’t invest any money you cannot afford to lose.
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