Hackers Stole 87-Grand From Bitcoinica Exchange In Yet Another Bitcoin Server Heist – Is This The End Of Bitcoin?

Hackers have yet again broken into another Bitcoin Exchange to rape and pillage with impunity. As we all know Bitcoin is the anonymous p2p currency that is all the rage in underground circles online.

Bitcoins are a hot item because they allow you to buy things and services online without fear of being traced. The items and services range from hashing and decrypting to paying off mob hits and buying cocaine or other drugs.

According to the Bitcoinica Blog on Friday, they stated that they had been pwned to the degree of 18,547 BTC being stolen from their wallet, which translates to roughly $87k being looted from the servers.

I am sure we all remember the attack from back in March when Linode was compromised, and paid the noob-tax of $120k for failing to secure their asses assets.

How did the attackers do this? Bitcoinica developer Zhou Tong, in comments he left in a forum post, explains the attackers were able to break into a webserver hosted by Rackspace after they had reset a password most likely through email, which drew many flames from forum users who were dumbfounded that there was no two-factor-authentication in place for something so important, amongst others who flamed them for having things of such value online, rather than offline and encrypted.

He offered this to counter the flames:

“The sum of margin balance is the absolute minimum of funds we have to keep (so that we can honor every withdrawal request),” Tong explained. “Since the system is down at the moment, we don’t have the knowledge of open positions. We’re pretty sure that margin balance can be covered with our off-site reserves, but we are unable to determine value of unpaid unrealized profits and the unpaid swaps.”

Subsequently, Zhou Tong has also stated that he is leaving bitcoin entirely saying this in his final message:

I’m leaving Bitcoin
May 13, 2012, 01:02:13 PM
#1
No, this isn’t related to the Bitcoinica hack. The hack just makes the choices obvious and straightforward.

I, Zhou Tong (Zhou is my surname), will discontinue all involvement in Bitcoin-related projects after the Bitcoinica incident has been fully resolved until further notice.

I always believe in Bitcoin, or simply anything that brings people financial liberty. I have heavily invested in Bitcoin (I purchased one 1,000 BTC gold coin from Casascius and will keep it for as long as I can). And I have enjoyed what I have done for the Bitcoin community.

Really, thank you for all the wonderful support. It feels great to have an experimental project become the “best thing since sliced bread”, and run one of the most profitable businesses in a new economy. Bitcoinica has a total historical revenue equivalent to about 0.67% of the whole Bitcoin economy. Not even Apple can match this record in the real world economies.

The first time I read about Bitcoin was in late 2010. My first reaction was “these coins are cheap, maybe it just doesn’t work”. I learned about Bitcoin again in mid 2011, when the first bubble started. I bought my first Bitcoin when it fell to $8. I told all my close friends and classmates about Bitcoin, simply because I think it’s a cool idea. The idea of a margin trading platform quickly went into my mind, and I started working on Bitcoinica.

I lied about the time it took to build Bitcoinica. (I said I spent one week on it.) I started on September 4, 2011 and launched on September 9, 2011. Just four and half days. In a week, trading volume passed one million dollars. I started making profits like crazy.

In November, an investor approached me to acquire Bitcoinica. Due to regulatory concerns, I agreed to the deal and signed the agreement. Bitcoinica was sold for a good price. However, since the investor is unable to arrange for a replacement team, I continued to become the sole operator until Team Intersango took over two weeks ago. The investor let me keep all profits until late January, the official handover time. After handover, he continued to offer generous salary and performance bonus every month. The investor demands his identity to be protected so I won’t share more information on this.

I left school in Singapore and decided to continue my education in Australia. I made the decision because of the Internet industry, and the hacker culture. I’m a web developer and I want to become a really good one. I want to work with smart hackers and wonderful designers to change the world. Singapore isn’t particularly good at this. (Obviously, US West Coast should be a better choice, but for some other reasons I didn’t consider US.)

I have started working on another project (not Bitcoin-related) that is going to make a little difference on the Internet. So far I have achieved great progress and I’m pretty confident about this new venture.

My life hasn’t changed much except that I became more confident after Bitcoinica’s success. I realized that I have the power to make something profitable. Such kind of confidence is extremely hard to get, until you really experience a significant success. I worked on several projects before, and all of them failed eventually. I thought I was confident because I kept building new stuff and improving myself. But the real confidence comes from the success itself.

I failed at one thing though, that is generating value for the society. Bitcoinica did create a place for people to trade more efficiently and provide liquidity to the market. However, speculation is a zero-sum game (or negative-sum, strictly saying). I know there can be many justifications for Bitcoinica’s value, but all of them are against my intuition and values.

With the confidence and the innate intuition to build wonderful things for a better world, I decided to move on. I didn’t quit Bitcoinica because it’s the only source of income that I currently have.

I know that my time is valuable and industry establishment is really important. I don’t want my name to be remembered by only Bitcoiners. It’s true that I believe in Bitcoin’s potential, but not everyone believes. If I’m a influential person I wouldn’t have to do this, but the best way to be known in the Internet industry is to build products that save people time, money and headaches.

I’m going to be a young entrepreneur that solves problems for everyone. I leave Bitcoin only because it doesn’t help address my real needs. Making money isn’t that important after all.

I’ll be a Bitcoin lover forever, and I will come back to this forum regularly to discuss about the future that’s in our own hands! I will keep the 1,000 BTC gold coin as a lifetime investment and I’m pretty confident that it’ll be the best investment ever in my life.

Bitcoin FTW!

Let me know what you think about the future of bitcoins in the comments below!