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Be wary of Bitcoin: a sad story

bitcoinBitcoin – an online currency – has been getting a lot of media exposure recently – and not much of it has been good. Despite the benefits that a universal, digital-only currency can bring, there have been some big security setbacks in the past few months regarding Bitcoin’s biggest exchange.

What is a Bitcoin exchange?

A Bitcoin exchange translates your money from physical currencies – like the dollar or the euro – into Bitcoins. Essentially, you “buy” the Bitcoins from an exchange like Mt. Gox, just as you would any foreign currency from a money exchange or travel agent.

The process works both ways, and Mt. Gox will also buy back your Bitcoins. This could make you a profit or loss, depending on whether the value of a Bitcoin has increased or decreased since your purchase.

Because Bitcoin and other “online cryptocurrencies” are a relatively new phenomenon, the price of Bitcoins has increased massively in the last 12 months, jumping from around $50 in 2013 to highs of over $1000.

This dramatic increase meant that Bitcoins were suddenly worth a lot of money – and this caught the attention of criminals. Malware spread around the internet, infecting users and searching for any information on victims’ computers regarding their Bitcoin wallets.

These wallets stored vital information needed to access your Bitcoin supply, and if they were found by malware, could easily be stolen from. If this happened, it was much worse than if your normal bank account was hacked.

Banks typically have an anti-fraud policy thatwill repay you for any money lost through the unauthorised access of your account over the internet. As an unregulated company, however, Mt. Gox and many other Bitcoin exchanges have no such responsibility. If your account was attacked, your lost money was gone forever.

Even worse news at Mt Gox

While this may sound bad, it’s not the worse thing that has happened to Bitcoin users. Users of Mt. Gox – the biggest Bitcoin exchange in the world – may have lost everything.

According to various reports, the company has lost 744,408 Bitcoins to thefts, which were undetected for years. Taking each Bitcoin to be worth $1,000, it means that the Japanese firm lost over $744,408,000 of its users’ money – all without the users’ knowledge.

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