Bitcoin Value Plummets Following Hack

The Japan-based Mt. Gox exchange for digital currency Bitcoin has said it is aiming to return to service “very soon” following a security incident over the weekend that caused the value of Bitcoins to plunge.

The incident stemmed from a hack on an individual who had access to the exchange’s system, according to Mark Karpeles, who operates the exchange.

$1000 theft sparks falling value

While only about $1,000 worth of Bitcoins were stolen, the irregular trading that resulted from the incident caused the value of the Bitcoin currency to plunge from around $17.50 (£11) on Sunday to a fraction of that, Karpeles said.

He said all trades since the incident will be rolled back when the exchange reopens, and that as a result the currency should reopen at about $17.50.

The Mt. Gox exchange itself was not directly hacked, Karpeles said in a Monday note.

“It appears that someone who performs audits on our system and had read-only access to our database had their computer compromised,” he wrote in a note on Monday. “This allowed for someone to pull our database. The site was not compromised with a SQL injection as many are reporting, so in effect the site was not hacked.”

Only one account was affected, according to Karpeles.

“One account with a lot of coins was compromised and whoever stole it (using a HK based IP to login) first sold all the coins in there, to buy those again just after, and then tried to withdraw the coins,” he wrote. “The $1000/day withdraw limit was active for this account and the hacker could only get out with $1000 worth of coins.”

Bitcoin was created in 2009 by a Japanese developer as a decentralised alternative to existing currencies. It uses a distributed database spread across nodes of a peer-to-peer network to track transactions, and uses technology such as digital signatures to provide security functions.

Scrutiny

The currency has gained in value in recent months, but has also come under fire by two US senators, who noted that it was being used in an online marketplace for illegal drugs called Silk Road.

“After purchasing Bitcoins through an exchange, a user can create an account on Silk Road and start purchasing illegal drugs from individuals around the world and have them delivered to their homes within days,” wrote Democratic Senators Charles Schumer of New York and Joe Manchin of West Virginia in an open letter to the Drug Enforcement Administration (DEA) earlier this month.

Some Bitcoin exchanges, such as Britcoin in the UK, are applying for government regulation in order to boost confidence in the system.