Bitcoin, the world’s first digital currency, first traded in 2008, reached a high of $260 or £169 per Bitcoin but has avalanched to less than $100 (£65) each. The currency started on slightly shaky, legally dubious ground to begin with but a series of recent hacks, shutdowns due to system overloads and a ‘Litecoin’ phishing scam have rocked the community and scared off potential customers.
Origins and dodgy dealings
The peer-to-peer electronic cash system had made a lot of headway, accepted by more and more retailers as a viable method of payment, although calling it a ‘mainstream’ currency would be a great exaggeration. Transferred wholly online without the co-sign of any financial institutions or regulatory body, the world of Bitcoin payments has been described as ‘The Wild Wild West’, a chancy method of trade, often used by drug dealers, illicit gamblers and mobsters due to the ease and anonymity enjoyed trading in the virtual currency. As it is not ‘backed’ by anything like gold, shares or actual money, the Bitcoin market value has always been volatile, as holders are learning all too well now.
System Overload, Hacks and Attacks
Recently, the main Bitcoin exchange was forced to cease operations for twelve hours to update hardware when it couldn’t cope with above average volumes. MTGox, where most trade occurs, has also been overwhelmed by large trading numbers which panicked Bitcoin investors with unavoidable downtime and ensuing technical difficulties. A Great Depression-style panic selling spree was the result, badly affecting the currency’s value. As soon as they were up and running, MTGox was attacked by malicious malware and went offline again to resolve the problem. The aftermath of the downtime and attacks resulted in a further diminished value of $90 (£58) on 12th April.
As the currency is based on digital signatures, with payments made to Bitcoin coded addresses, the “crypto-currency”, like everything else online is subject to hacks and illegal Bitcoin ‘mining’. Cyber gangs, advising Bitcoin owners to sell for an alternative currency called ‘Litecoins’ used a phishing scam to lure traders to a fake site where they emptied their wallets by installing malicious software. According to bbc.co.uk, “At least one trader was hit in the attack and lost 34 Bitcoins as a result.” And this was still a pretty penny at the time.
These are not the only incidents of Bitcoin attacks and with the price plummeting, early investors will be nervous, particularly those with high ownership values like the Winklevoss twins of Facebook fame who own around $11 million worth of Bitcoins. The price may not be right but there will be more rush Bitcoin sales in the near future.