Bitcoins can be stolen, just like real cash

Reports that $500,000 worth of Bitcoin currency was stolen from one user’s computer this week has highlighted the poor security of the digital cash and the systems available for managing it…

… In a forum post this week, a bitcoin user whose screen name was “allinvain” claimed that a remote attacker gained access to his or her wallet file and stole over 25,000 bitcoins. The value of a single bitcoin at the time of writing (just over $19) makes the alleged heist worth nearly $500,000, although in practice converting such a large number of bitcoins at once would be tricky. It is impossible for the alleged victim to know who stole the money because the cryptographic architecture of Bitcoin is designed to preserve the anonymity of people transferring the currency.

I blogged about Bitcoin the other day. This security hole shouldn’t real exist, although in a decentralised system like Bitcoin users may still need to literally ‘backup’ their wealth under a mattress to avoid a disaster.

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What is Bitcoin?

Bitcoin is a digital currency that doesn’t have a central issuing authority. Instead, it uses peer-to-peer technology to both create the supply of Bitcoin and manage transactions.

Bitcoin is an actual currency, rather than a simple electronic wallet or payment system. I suggest you go and read the background information to understand how this works.

As you would imagine, the authorities are getting concerned about the fact it is unregulated and is being used for criminal activity as an alternative to old fashioned cash. Others are just worried this is a scam. I’ll let you judge for yourself.

UPDATE:

The SMH describes Bitcoin as:

an unstable virtual currency championed by hackers and other cyberpunks and available through several online exchanges.