The Bitcoin cryptocurrency has been facing a serious problem in recent years that threatens the core basis of the digital currency.
There has been a series of major thefts involving bitcoin and the latest one involving Bitfinex seems to be having widespread outcomes.
This is despite the fact that this currency was advertised as “hack-proof” from its birth last in 2009.
Bitfinex is widely considered to be largest dollar-based exchange for bitcoin in the world.
A Bitfinex user from Cambridge, Massachusetts, filed an incident report in September claiming that $ 1.3 million in bitcoin had been stolen from his account.
This report is related to the Bitfinex hack that occurred in the early hours of August leading to the loss of US$ 72 million in bitcoin.
According to reports, the FBI is currently investigating this incident.
It is important to note that this is not the only user affected by the hack.
Currently, there is limited information available on the exact details of the FBI investigation.
As such, it is difficult to tell if this anonymous user lost the most amount of money.
Bitfinex representatives had assured users that they were closely working with the FBI to determine how the bitcoins were stolen and try to recover the money.
THE BITFINEX HACK AND ITS CONSEQUENCES
This report by the unnamed user is part of a long list of after effects following the August Bitfinex hack.
The infraction rocked the bitcoin world and was the second largest theft involving the digital currency.
The hackers stole nearly 120,000 bitcoin currently worth about US$ 72 million.
The largest robbery involving bitcoin was the 2014 violation of Mt.Gox, an exchange based in Japan.
In that incident, nearly 750,000 bitcoins worth an estimated US$ 350 million were stolen over a two-year period.
This infamous breach ultimately caused Mt.Gox to end its operations. Bitfinex seems to be set on a similar path.
EFFECT ON BITFINEX USERS
At the moment, the full extent of customer lost has taken on an individual basis and it is not clear.
The Cambridge Police report is the first related clear case of a certain individual loss figure in bitcoin.
The anonymous Bitfinex user had a total of $ 3.4 million in their holdings.
However, the $ 1.3 million initial figure was cut to $ 720,000 after the consideration of Bitfinex issued IOU (I Owe You) tokens following recovery efforts.
After the news of the broke out, many Bitfinex users went to social media platforms, including Twitter and Reddit claiming that their accounts had been drained.
After the hack was executed, Bitfinex stopped all trading operations of the exchange, including digital token deposits to and withdrawals from Bitfinex.
The site was later brought back online to allow its users to check if they had been affected by the hack. Bitfinex also advised all its users to change their passwords and two-factor authentication.
It is still unclear how the hack was possible given Bitfinex’s adoption of the multi-signature technology.
The exchange has come under intense fire with users placing the blame on Bitfinex itself and the BitGo security model.
The exchange had possession of two of three private keys needed to facilitate bitcoin transactions.
IMPLICATIONS FOR THE BITCOIN
At the time of the hack, there was an ongoing forming theory that this incident would affect the reputation of this cryptocurrency.
The initial impact was widely felt with bitcoin prices falling sharply by almost 20 % to as low as US$ 480.
However, it has since recovered and those unaffected by the loss have carried on like nothing happened.
This shows that despite the security concerns, the demand for bitcoin is still high and on demand.
Part of the reason why the bitcoin seems to quickly recover following such incidence is because ofits nature of transferring authority.
This incidence looks like an isolated case rather than a systemic one and Bitfinex and its users will have to deal with.
Nonetheless, it does raise very important questions about application security, and the integration of this digital currency into financial regulatory systems as it continues to have areal-world impact on everyday citizens.
At the moment, it is still unclear whether the anonymous user will be able to get back their $ 720,000. Bitfinex announced that the losses would be “socialized.”
This means that a generalized loss would be distributed equally among all users, regardless of whether they were affected by the hack or not.
Mandated sharing of loss proposed by Bitfinex would definitely lead to legal action and possible bankruptcy of the exchange.
These developments also raise more questions on the legal characterization of Bitcoin property rights and segregation of the users’ assets.