Bitcoin Silk Road Hacked Millions Lost

Bitcoin

The Bitcoin community suffered another shock on Thursday morning when it was revealed  that the Silk Road 2.0 had been hacked, and that all 4,474 Bitcoins – roughly valued $2.7 Million at the time of the attack – had been stolen. This heist, as some people have been calling it, was caused by a flaw in the Bitcoin protocol itself called “Transaction Malleability.”  The Silk Road 2.0 was not the only one affected by this flaw – earlier this month on February 5 MtGox, the biggest market trading market for Bitcoin, along with two other Bitcoin markets ceased withdrawals of Bitcoins from their servers, also blaming “Transaction Malleability.”

Bitcoin is a decentralized digital currency, meaning that it is not controlled or regulated by any particular person, group, or government. Because of this, people can send Bitcoins to one another around the world without any transaction fees, and can be sent without interference from any third party. This anonymity is what made Bitcoin ideal for online black markets, like the Silk Road, which allows users to trade in Bitcoins for illicit jobs or goods (e.g. drugs, forged documents, etc.). Earlier this year in October, the FBI shut down the Silk Road, arresting its alleged owner Ross Ulbricht, and seized over 144,000 BTC (Bitcoins) valued at over $28 million at the time. This led to the creation of  Silk Road 2.0 in November, which was virtually identical to the first. Bitcoin has been blamed for helping to fuel and fund illegal markets like the Silk Road.

Although the 4,474 Bitcoins which were stolen on Thursday does not come close to the 144,000 that were seized by the FBI, this may be yet another setback for illegal marketplaces like the Silk Road and possibly for image of Bitcoin as a whole. On Thursday, Bitcoin hit two month low of $604.11 , although this may be a result of a combination of many different things, like the announcement of the Silk Road 2.0 theft, or MtGox halting withdrawals. While some are happy that the Silk Road 2.0 has essentially been killed, further legitimizing bitcoin, others believe that the creation of Bitcoin fueled black markets will not stop. The announcement of the Silk Road 2.0 being hacked follows a string of recent negative events over the past week which has put Bitcoin in the spotlight.

Bitcoin
Bitcoin hit a record high of $1132.01 earlier in December, while the recent events over the past week have dropped the price to $604.11

Earlier this month, however, Bitcoin took another step closer towards being seen as a legitimate currency when Overstock.com announced that they would be allowing its customers to use Bitcoin in order to pay for their purchases. Within the first 22 hours of accepting Bitcoin, Overstock.com announced that they had over 800 orders paid for by Bitcoin, worth over $126,000. Overstock, an online retailer like Amazon, was the first to accept Bitcoin as a payment for their products. Bitcoin also hit a notable benchmark last year when each Bitcoin was valued at $1,132.01, a new record high.

While Bitcoin gains widespread notoriety and attention for illegal sites like the Silk Road, Bitcoin has the potential to become  a globally used currency. During the Cyprus banking crisis in 2013, many people in emptied their banking accounts and put their money into Bitcoin where the government and banks could not touch it. In December 2013 Chinese banks banned Bitcoin from being used in their banks, however, some people still believe that China will be the next country where Bitcoins will flourish. With the recent negative headlines like the loss of millions in the hacking of the Silk Road 2.0, and more positive benchmarks like Overstock accepting Bitcoin, the future of the digital currency is still unpredictable.

By Tyler Shibata

Sources:

DeepDotWeb

Bitstamp

The Verge

Wired

Mt.Gox Press Release

11 Responses to "Bitcoin Silk Road Hacked Millions Lost"

  1. Valentine   February 15, 2014 at 8:32 pm

    Bitcoins, the dotcoms of the 2010s. Some day soon, people are going to realize that they have no value, and their trade rate will drop to pennies.

    Reply
    • Dunning Kruger   February 16, 2014 at 12:46 pm

      Where to begin? Did ALL dotcoms go bust in the 2000s? What gives your dollars value that Bitcoin doesn’t? It’s faith isn’t it? Faith in a government who print money for fun. Do you know how much it costs to ‘make’ a dollar? About 0.001% of the cost of ‘making’ a Bitcoin. Do you actually understand this or are you simply parroting what you’ve read in the media? The mainstream financial media has in the last year largely performed a turnaround and come to admit that yes, there is a revolution in personal money happening.

      If you have a real point to make and the knowledge to back it up I bow to your insight. Otherwise how about sticking to what you know?

      Reply
  2. Robert Uomini   February 15, 2014 at 7:37 pm

    Why hasn’t anyone raised the possibility that some government planned and executed the thefts in order to shutdown the currency? Seems to make sense: governments hate unregulated money leading to anonymous transfers.

    Reply
  3. Tony   February 15, 2014 at 6:54 pm

    Tyler if you check out the latest information on the SR2 forums you’ll learn that SR was not hacked it was an inside job and the Bitcoins were stolen.

    Reply
  4. Jason Browne   February 15, 2014 at 5:52 pm

    This is a silly article for at least two reasons: First, most Bitcoin users don’t use Silk Road 2.0, which is a black market used primarily for illegal drugs. Second, there is no flaw in Bitcoin itself. The flaws have been in the custom implementations used by some Bitcoin exchangers (and, if we are to believe the individual representing Silk Road 2.0, their business as well). I guess journalists these days don’t bother to vet any of the information they come across or present other sides to the story that might not agree with their agendas or those of their employers?

    Reply
    • Tyler Shibata   February 15, 2014 at 6:08 pm

      I agree Jason, the Silk Road 2.0 is only a small facet which opponents like to cite in order to “show” how bitcoins are bad. However, my intention of this article was to explain what had happened, and how the recent problems with transaction malleability have affected exchanges in the past week. I myself invested in bitcoins two years ago before it became popular. Being this type of article, however, I had to only report facts, leaving my bias and opinions out of it. I know that there is concern about whether or not it is even possible to steal bitcoins from a website like Silk Road 2.0 using Transaction Malleability, however I could not find sufficient proof or evidence that would help me report it in an unbiased way. Although mainly negative events surrounding bitcoins are reported by mainstream media, many positive things have happened recently that haven’t been reported (like overstock accepting Bitcoin, or California lawmakers trying to pass a bill making Bitcoin a legal currency in the state).

      Thanks for commenting,

      Tyler Shibata

      Reply
  5. haaggus   February 15, 2014 at 5:51 pm

    Once again Bitcoin shows incredible resilience to withstand attacks. Bitcoin gets stronger every time.

    Reply
  6. MissedAppleUpAndDown   February 15, 2014 at 5:30 pm

    Tyler, would you please add a note to the article defining the term “transaction malleability”?

    Reply
    • Tyler Shibata   February 15, 2014 at 5:59 pm

      Sure. Because I can’t directly edit the article, I will put the definition here in the comment section if anyone else is curious about what “Transaction Malleability” is exactly.

      “Transaction Malleability” is bug that was built into the Bitcoin protocol itself – in fact some people acknowledged the flaw back in 2011, although this is the first time in the past week that it has been exploited on this type of scale.

      When a bitcoin is sent from one person to another, a unique transaction ID is created showing who sent the bitcoin, who received the bitcoin, how much, and when. This makes it so that each transaction can be identified and referenced to ensure that no bitcoin has been spent twice. This unique code is generated completely randomly – so there is no way that you can predict what the code will be even if you are given the information about the transaction beforehand.

      “Transaction Malleability” is when the unique ID of a transaction is slightly changed before it is confirmed with the rest of the network. Although the bitcoins will get from the original sender to their intended receiver, the lack of the correct unique ID allows someone to pretend that a transaction didn’t happen.

      This really affected the Bitcoin exchanges like Mt.Gox and Bitstamp, because someone can withdraw their bitcoins from the exchange, quickly alter the code using “Transaction Malleability”, and claim that they never got their coins. Mt.Gox stopped allowing users from withdrawing coins from their exchange because they couldn’t confirm whether people had received their coins or not, due to the bug.

      The Silk Road 2.0 also blamed “Transaction Malleability” for the loss of the bitcoins on their system, however some people claim that it is not possible to steal bitcoins like using this type of problem (although I would have to do more research in order to comment any further on that).

      Many programmers and developers are working on a fix for this bug, so that the exchanges don’t have to worry about it. I will link some more articles if you are interested in learning more about “Transaction Malleability” and how people are trying to fix it.

      Hope this helps,

      Tyler Shibata

      http://www.coindesk.com/bitcoin-bug-guide-transaction-malleability/
      http://www.coindesk.com/price-drops-mt-gox-blames-bitcoin-flaw-withdrawal-delays/

      Reply
  7. Tyler Shibata   February 15, 2014 at 3:55 pm

    Although the amount lost form the hack is minor compared the amount of assets seized by the FBI, I believe that it’s important to look at both the positive achievements and negative events that happen to Bitcoin as it develops as a currency.

    Reply
  8. Richie McGoo   February 15, 2014 at 3:50 pm

    “OH HEAVENS!!! Less than 3 million of a 13 billion dollar industry was compromised. THE END IS NEAR!!!!!”

    -Every mainstream media outlet owned by people who need to see bit coin fail

    Reply

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