Monday, June 20, 2011

Bitcoin Hacked

Amazing. The dollar is crashing. The Euro is crashing. And now also the Bitcoin is crashing. But the crashes are for different reasons, and the causes the resulted in the Bitcoin crash are easier to fix. Read this article on the events of this month in Bitcoins entitled "Inside the Mega-Hack of Bitcoin: The Inside Story".

What we learn from these events are:
  • Bitcoin like any other currency is affected by human emotions and speculations. It goes up and down. Its value rises or drops on rumors, politic events and so forth. To this degree the currency does not reflect value but perceptions. Nothing new about this but the drastic rise in value over the last weeks and the following drop has demonstrated it.
  • Bitcoin as a currency is still very young and not yet mature. The key issue currently is that some 90% of all exchange operations are traded on a single exchange. The currency is distributed by design, but currently its exchange is nearly centralized through this near-monopoly of the exchange named Mt. Gox. More companies must come forward and build exchanges so we have a more decentralized and less monopolized exchange infrastructure. This heavily used exchange Mt. Gox was compromised and user login, password and wallet data stolen, misused and later published openly. This is equivalent to a master heist in which a major bank is hacked, online bank account data such as account numbers, user names, and passwords stolen to be used later to login and transfer money. Clearly the exchange Mt. Gox is to blame. They had a poor security set-up.

Let's give it some more time to mature.

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