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.
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