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Bitcoinica Breach Nets Hackers $87,000 In Bitcoins

Soulskill posted more than 2 years ago | from the stealing-your-imaginary-money dept.

Bitcoin 196

dynamo52 sends this quote from Ars about a breach involving a Bitcoin exchange: "More than $87,000 worth of the virtual currency known as Bitcoin was stolen after online bandits penetrated servers belonging to Bitcoinica, prompting its operators to temporarily shutter the trading platform to contain the damage. Friday's theft came after hackers accessed Bitcoinica's production servers and depleted its online wallet of 18,547 BTC, as individual Bitcoin units are called, company officials said in a blog post published on Friday. It said the heist affected only a small fraction of Bitcoinica's overall bitcoin deposits and that all withdrawal requests will be honored once the platform reopens." Reader linhares points out a forum post discussing how the attacker(s) hinted at a 'mass leak' in the near future. This attack comes shortly after a leak of a different sort — an FBI document (PDF) about Bitcoin found it way onto the internet. It seems they're worried about the virtual currency's potential use in criminal activities.

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And nothing of value was lost. (-1, Troll)

Anonymous Coward | more than 2 years ago | (#39981369)

Another Bitcoin story, another opportunity to learn about pyramid schemes and how they never work out for most people...

Re:And nothing of value was lost. (4, Informative)

Xtifr (1323) | more than 2 years ago | (#39981509)

Another Bitcoin story, another opportunity to learn about pyramid schemes and how they never work out for most people...

"It is completely incorrect to describe Bitcoin as a 'pyramid scheme.' Technically, it’s a 'pump-and-dump.'"

From: http://newstechnica.com/2011/06/18/bitcoin-to-revolutionise-the-economy/ [newstechnica.com]

Re:And nothing of value was lost. (4, Informative)

Statecraftsman (718862) | more than 2 years ago | (#39981587)

If Bitcoin were a pump and dump don't you think it would have disappeared after the initial bubble? The fact that it continues to grow in transaction volume and in price stability doesn't count for anything?

Re:And nothing of value was lost. (2)

TheRaven64 (641858) | more than 2 years ago | (#39981713)

If Bitcoin were a pump and dump don't you think it would have disappeared after the initial bubble?

Nope. I tracked a few stocks that I got spam about for a while. The scammers used the same things a few times. They pumped, dumped, sold, and then once the price collapsed they bought and repeated.

Re:And nothing of value was lost. (4, Interesting)

Anonymous Coward | more than 2 years ago | (#39982027)

I continue to operate my bitcoin business selling stickers, shirts, and things of interest to bitcoiners. Now it has been a year and it is still growing each month. I sell stuff for bitcoin and buy other things I need or simply cash out via local trade (for USD). I have about 1/3 the fees of PayPal and far less risk. This allows me to sell to people overseas much more safely and as it turns out about half my sales are overseas.

Bitcoin works for me.

Re:And nothing of value was lost. (4, Insightful)

History's Coming To (1059484) | more than 2 years ago | (#39982685)

So why post anonymously? I never heard a better post for justifying a link to your shop.

Re:And nothing of value was lost. (0)

Anonymous Coward | more than 2 years ago | (#39982131)

Isn't that the way ALL stocks work? Buy low, sell high, buy more when low again....

Re:And nothing of value was lost. (0, Flamebait)

Xtifr (1323) | more than 2 years ago | (#39981801)

If Bitcoin were a pump and dump don't you think it would have disappeared after the initial bubble?

No way. Why shut down a scam that's still working? Plus, it does bear some resemblance to a pyramid scheme in that the pumping isn't limited to the original schemers. Anyone can get in, pump for a while, then do some dumping. You can do it over and over. It's a scammer's dream, and it'll continue to work as long as people are willing to pay good money for the useless activity called "mining".

Re:And nothing of value was lost. (1)

icebraining (1313345) | more than 2 years ago | (#39981973)

No. A pump-and-dump requires sellers to intentionally lie or mislead the buyers into thinking there's money to be made. While some might, most miners and the bitcoin developers promise no profits. Buyers only have themselves to blame for making a shitty investment.

Re:And nothing of value was lost. (3, Informative)

Xtifr (1323) | more than 2 years ago | (#39982695)

Geeze, did you even see the headline here on Slashdot? It explicitly refers to "$87,000 in Bitcoins", which pretty strongly suggests that there is a non-zero value to a bitcoin.

In any case, if you don't like the line I quoted, go bitch at the guy who wrote the NewsTechnica article, not me. Though I might try investing in a sense of humor first, so the joke doesn't go over your head again. :)

Re:And nothing of value was lost. (0)

Anonymous Coward | more than 2 years ago | (#39981855)

The fact that it continues to grow in transaction volume and in price stability doesn't count for anything?

Do people really believe that Bitcoin has price stability and is a growing trend? Didn't it crash more than 90 percent just six months ago?

Re:And nothing of value was lost. (3, Interesting)

mikael_j (106439) | more than 2 years ago | (#39981983)

May I suggest you check out this graph [bitcoincharts.com] ?

Re:And nothing of value was lost. (5, Insightful)

bonch (38532) | more than 2 years ago | (#39981525)

Ironically, Bitcoin serves as a pretty good argument that there should be substantial regulation of financial service providers since people that don't know computers keep losing hundreds of thousands of dollars.

Re:And nothing of value was lost. (0)

Gothmolly (148874) | more than 2 years ago | (#39981561)

All you have to do is not use their service. Presto, instant regulation.

Re:And nothing of value was lost. (0)

Anonymous Coward | more than 2 years ago | (#39981621)

A currency whose only recourse for victims of theft is to shut up and stop using it. Where do I sign up?

Re:And nothing of value was lost. (5, Funny)

Anonymous Coward | more than 2 years ago | (#39981665)

Re:And nothing of value was lost. (0)

Anonymous Coward | more than 2 years ago | (#39981703)

So wish I had kept my last mod point for this.

Re:And nothing of value was lost. (2)

bonch (38532) | more than 2 years ago | (#39981657)

So you think a victim down $87,000 worth of Internet Fun Bucks should be satisfied with some libertarian reply about the free market correcting itself?

Re:And nothing of value was lost. (4, Interesting)

ceoyoyo (59147) | more than 2 years ago | (#39982115)

When the Internet Fun Bucks are specifically made to be a libertarian free market ideal of untraceable cash, yes.

they're not untraceable (4, Informative)

YesIAmAScript (886271) | more than 2 years ago | (#39982301)

And they're not designed to be untraceable.

Re:they're not untraceable (1)

ceoyoyo (59147) | more than 2 years ago | (#39982461)

All right, anonymous. Which, when you add a money launderer, is the same thing.

Re:And nothing of value was lost. (0)

Anonymous Coward | more than 2 years ago | (#39981929)

One of the functions of government is to forbid and punish fraud, right?

Re:And nothing of value was lost. (1)

selven (1556643) | more than 2 years ago | (#39981687)

Except that it's the financial service provider taking the hit. Sounds like the world is regulating itself to me.

Except... (2)

deesine (722173) | more than 2 years ago | (#39981771)

I'm not sure you could categorize bitcoin users as "people that don't know computers". Your argument could be used to shut down Vegas. Maybe Gambling Permits are in order?

--

Re:Except... (1)

Anonymous Coward | more than 2 years ago | (#39981925)

We're talking about people who know enough computer science to understand why Bitcoin is robust, but who still leave their money in an unencrypted text file on a Windows box.

Re:And nothing of value was lost. (4, Informative)

makomk (752139) | more than 2 years ago | (#39982333)

Not just financial service providers either. Apparently the #1 seller on Silk Road, the anonymous drugs marketplace, recently did a runner with the Bitcoins he was paid over the 4/20 rush [bitcointalk.org] and didn't actually fulfill any of his orders. Turns out that anonymous reputation systems aren't sufficient to protect against scammers. Whoever would have guessed?

Re:And nothing of value was lost. (0)

Anonymous Coward | more than 2 years ago | (#39982423)

Regulation: Violently suppress voluntary exchange between peaceful people. Accept bribes by regulated industry to block everyone else but the politically connected. Entrench the corporation with state in a revolving door. Give people the illusion of security when in fact it is less secure than before. Distort economic incentives that twist market conditions to unsustainable behaviors. etc.

Solution: Educate people on the risks of their actions and let them pursue their ends as they see fit. Work on more stable and secure transaction tools to offer traders. Provide an insurance service(a genuine one, not fascistic like we have today) against losses. 3rd party consumer watch dog services warning of bad businesses. Create investigation agency to recover stolen property. etc.

This is why I cannot take the 'solution' of regulation seriously. In every industry, in every period of history I've studied, regulation is the absence of peoples preferences determining the industry, and in its place is an institution that at best mimics our own influence, but more often encourages the least productive practices to flourish.

Re:And nothing of value was lost. (1)

Anonymous Coward | more than 2 years ago | (#39981893)

It's as much a pyramid scheme as stocks are.

Most of the stolen coin were counterfeit (1, Funny)

Anonymous Coward | more than 2 years ago | (#39981397)

They look like real Bitcoin, but if you observe them under an electon microscope to emit cesium-137 waves instead of cesium-133.

how many bit coins do the slashdot mods own? (0, Offtopic)

Megor1 (621918) | more than 2 years ago | (#39981405)

It would be interesting to know how many bit coins the mods own as they keep posting bit coin stories.

Re:how many bit coins do the slashdot mods own? (2)

TarMil (1623915) | more than 2 years ago | (#39981419)

Oh please, stop the whining. It's been months since I last saw a bitcoin story.

Re:how many bit coins do the slashdot mods own? (1)

readandburn (825014) | more than 2 years ago | (#39981455)

Re:how many bit coins do the slashdot mods own? (1)

Anonymous Coward | more than 2 years ago | (#39982153)

And exactly how many stories have there been in the same time period about, say, Apple??

Re:how many bit coins do the slashdot mods own? (2)

Statecraftsman (718862) | more than 2 years ago | (#39981503)

Nature of the beast. To be fair though, one could ask the same of USD or Paypal or any other tech company's stock. You sort of have to assume that some of the techies you know own Bitcoin. I own some but I like to think that doesn't bias me any more than necessary as to the system's benefits and drawbacks.

Re:how many bit coins do the slashdot mods own? (2, Insightful)

Anonymous Coward | more than 2 years ago | (#39981597)

I wonder how many Apple shares the mods own because they keep posting Apple stories. I wonder how many Microsoft shares the mods own because they keep posting Windows stories. I wonder how many Cisco shares the mods own because they keep posting networking stories. I wonder how many Red Hat shares the mods own because they keep posting Linux stories.

Etc etc. You're a retard.

Re:how many bit coins do the slashdot mods own? (1)

jjohnson (62583) | more than 2 years ago | (#39981889)

Given the frequency with which the stories are about the pratfalls of the bitcoin community that repeatedly damage its credibility as a replacement currency, I'd guess zero.

The root cause of this problem is an email server (5, Interesting)

TheSunborn (68004) | more than 2 years ago | (#39981413)

From https://bitcointalk.org/index.php?PHPSESSID=a5fdf1db75465f52e9f1ebb06e67b70e&topic=81045.380 [bitcointalk.org] :

"The root cause of this problem is an email server compromise. The email server belongs to one of our team members."

Really? Does their server really send (unencrypted) emails with root passwords to their entire system? Or did the email server just happend to have root access? I don't even know what possibility is worst.

Re:The root cause of this problem is an email serv (0)

Anonymous Coward | more than 2 years ago | (#39981487)

I think that in this context they meant root as in core problem.

Re:The root cause of this problem is an email serv (2, Interesting)

Anonymous Coward | more than 2 years ago | (#39982313)

Both, actually.

Apparently Bitcoinica was hosted on a VPS, and the admin control panel used the email addy's of four (five?) principals.

A pretty amateurish setup, frankly - especially when you stop to think that Bitcoinica was responsible for the majority (i.e., over 50%) of volume on MtGox.

Bitcoin itself is sound (I own some), and of an unhackable nature by design. The bitcoin infrastructure however, is... ummm... "coming along".

Re:The root cause of this problem is an email serv (1)

Whippen (2018202) | more than 2 years ago | (#39981551)

Ahh, plenty of ways to escalate access from an email server comprise...

You could:
Send an email to another admin, asking them to reset your password
Look through old emails for a "reset password" email
Use your new shell access to exploit a local (not network facing) vulnerability
etc, etc...

The root cause of this problem is the *admins* (4, Insightful)

Michalson (638911) | more than 2 years ago | (#39981577)

"The root cause of this problem is an email server compromise. The email server belongs to one of our team members."

A poorly secured email server is not the failure in this statement.

The failure is what was a non-essential piece of software, what sounds like someone's personal software, doing on this server or even on the same firewalled subnet?

Re:The root cause of this problem is an email serv (0)

Anonymous Coward | more than 2 years ago | (#39981593)

If either of these is the case, I think someone's going to need to dust off their resume.

Re:The root cause of this problem is an email serv (5, Funny)

girlintraining (1395911) | more than 2 years ago | (#39981639)

Hey there, while you're on the topic of security, couldja not include your session ID in a URL you post? Makes you look sorta stupid. Try this [bitcointalk.org] instead, guys.

Re:The root cause of this problem is an email serv (1)

Anonymous Coward | more than 2 years ago | (#39982289)

No, it makes the site that still adds the session ID to urls look stupid.

Re:The root cause of this problem is an email serv (0)

Anonymous Coward | more than 2 years ago | (#39982531)

Wow, that's a surprise: a bitcoin site with awful security practices.

I think it's kind a cool... (5, Insightful)

Razgorov Prikazka (1699498) | more than 2 years ago | (#39981473)

...That the concept of Bitcoins, nor the encryption behind it, nor anything like that is being breached.
It's always some kind of security breach that allows malicious folk to get the coins themselves. Or people that get their coins stolen from a leaky windhose box. Something like that.
So that is cudo`s for Bitcoin huh? I mean, I never heard some story like "hackers have found a way to create Bitcoins without all the hassle (and made it into a nice gui-ed program)" Enter the amount you wish, hit 'generate' and within 2 seconds your bitcoins are ready to be used.
It is a solid piece of work isn't it?

Re:I think it's kind a cool... (1)

X0563511 (793323) | more than 2 years ago | (#39981759)

Unless we just don't hear about it, or they always go for those low hanging fruits figuring it's easier.

FYI, its "kudos"

Re:I think it's kind a cool... (4, Insightful)

jjohnson (62583) | more than 2 years ago | (#39981921)

It's not kudos for bitcoin even if the design itself is proven perfect, because bitcoins are useless without practical implementations and real markets, and if those real-world applications continually fail for external reasons, the bitcoin economy will never take off.

Put a little differently, it doesn't matter how perfect bitcoin is on paper. If it can't be made to work in real life, it's useless. And if the computing infrastructure on which bitcoin transactions occur is fundamentally un-securable, then it can't be made to work in real life. It's like deploying an uncrackable ATM in a crime-ridden neighbourhood. It doesn't matter that you can't break into the ATM if you just have to wait for someone to withdraw cash and then rob them.

Re:I think it's kind a cool... (3, Insightful)

Statecraftsman (718862) | more than 2 years ago | (#39982357)

What you're seeing with Bitcoin is sort of like raw access to the Visa network and I'm surprised more theft doesn't occur. As you pointed out it's nontrivial to have a secure computer nowadays.

As the infrastructure evolves we are likely to see payment processors that use things like multi-sig transactions and stronger security measures to insulate the user from such concerns. Even then, you'll still have the freedom to operate independently.

Freedom(tm) - A (previously?) core value of the /. community.

Re:I think it's kind a cool... (2)

Razgorov Prikazka (1699498) | more than 2 years ago | (#39982555)

If someone creates a little program that is a beauty in its language, simplicity and does not have a single bad aspect, but no one will use it because it is useless...
It is still a beauty in its language, simplicity and does not have a single bad aspect. There, that is what I meant.
The concept and the technicalities are just good. Kudo/cudo's (whatever is preferred) for that.

And quite the opposite for anyone who have a lot of bitcoins on a disk on a system that is on-line and that is open for all to rob!

Re:I think it's kind a cool... (0)

Anonymous Coward | more than 2 years ago | (#39982647)

Put a little differently, it doesn't matter how perfect bitcoin is on paper. If it can't be made to work in real life, it's useless.

Yeah. Unfortunately, it sounds like Bitcoin might be written in Haskell.

Re:I think it's kind a cool... (0)

Anonymous Coward | more than 2 years ago | (#39981951)

The mathematics is robust, so Internet libertarians and engineers think that's the whole problem solved, because they don't understand people, e.g. scammers and incompetents.

The unparalleled transparency of Bitcoin (3, Interesting)

Statecraftsman (718862) | more than 2 years ago | (#39981519)

In the world of Bitcoin, startups are held to a higher standard when it comes to transparency. How many $87k thefts do you think occur on a daily basis with other companies? How many of those do you think you would hear about if they did happen? Usually when we hear of technology it's always in the multi-millions either of dollars or of records compromised.

Re:The unparalleled transparency of Bitcoin (1)

ceoyoyo (59147) | more than 2 years ago | (#39982133)

Taken as fractions of the entire relevant markets, this theft must rank among the biggest of all time.

Re:The unparalleled transparency of Bitcoin (0)

Anonymous Coward | more than 2 years ago | (#39982351)

Bitcoin has a market cap of about $45 million USD.

This theft would represent a bit less than two one-hundredths of one percent.

"...this theft must rank among the biggest of all time."

Seems doubtful.

No not really (1)

Sycraft-fu (314770) | more than 2 years ago | (#39982247)

Any time any institution I've banked with has been hit in a way that could affect me, I've been informed promptly. What you mean is that you only pay attention to news on places like Slashdot and ti is all Slashdot reports. They don't report every credit card theft out there.

Also a big difference is with real banks and such the money is tracked, so you get it back. At one time I noticed a charge on my CC that wasn't mine. I called the bank, and had it all taken care of in about 10 minutes. Nothing lost, they reversed the transaction, nulled the card, and sent me a new one. I caught it fast enough that the company hadn't shipped the goods so the thieves got nothing.

Re:No not really (1)

Statecraftsman (718862) | more than 2 years ago | (#39982273)

As far as you know. And you know as well as anyone that data copied need not be used immediately. I won't say that every Bitcoin business has been or will be above board but the fact that there is a public transaction log makes certain activities very hard to hide or explain away. As for reclaiming stolen funds, the largest thefts occur at the top. MF Global for example is missing $1.2-1.6 billion. That is an amount of money that can affect millions of people in ways they would feel.

Re:The unparalleled transparency of Bitcoin (3, Interesting)

makomk (752139) | more than 2 years ago | (#39982315)

Actually there's good reason to suspect that the big daddy of all Bitcoin organisations - MtGox - has been less than honest about its own losses to fraud and theft. Their main payment provider suffered massive fraud targetted at Bitcoin exchanges and clawed back all the fraudulent deposits, and Mt Gox's claim not to have been hit by this seemed really unlikely. As you pointed out when talking about bank theft, we only know about the ones we actually get to hear about and not the thefts that are hushed up sucessfully.

ha (-1)

Anonymous Coward | more than 2 years ago | (#39981529)

ha. ha. ha. ha. ha. ha. ha. ha. ha. ha. ha. ha. ha. ha. ha. ha. ha. ha. ha. ha. ha. ha. ha. ha. ha.

/oh god I cannot stop laughing.

Re:ha (0)

Anonymous Coward | more than 2 years ago | (#39981693)

And yet you did.

Boy, do they need a better mattress (1)

macraig (621737) | more than 2 years ago | (#39981533)

I think I'll stick with shoving my "coin" under the mattress. It works fine for me because it's obscure; someone would have to first break into my house to discover that the mattress have a secondary purpose, and my house isn't a conspicuous target. Too bad these Bitcoinica folks have a very conspicuous house. I suppose they need Fork Knox and not a mattress.

Re:Boy, do they need a better mattress (2)

PolygamousRanchKid (1290638) | more than 2 years ago | (#39981805)

I keep my valuable currency of Beanie Babies and Pez Dispensers under my mattress. And, boy, do I sleep terrible.

That's what economists are talking about when they mention "hard" and "soft" currencies. It is measured by how it feels when you stuff it under your mattress:

  • Gold, canned food, ammunition: hard.
  • Cash, stock certificates, anything else printed on paper: soft.
  • Bitcoins: "Stop squeezing the Charmen, Mr. Whipple!"

Re:Boy, do they need a better mattress (0)

Anonymous Coward | more than 2 years ago | (#39981935)

I suppose they need Fork Knox

Knox is open source?

There's a typo in the title... (0)

Anonymous Coward | more than 2 years ago | (#39981539)

It says Bitcoins are worth something.

Re:There's a typo in the title... (1)

X0563511 (793323) | more than 2 years ago | (#39981775)

Newsflash: things are worth what people are willing to pay.

Dog shit would be worth $100/kg if people would buy it.

Other virtual currencies (1, Funny)

El_Muerte_TDS (592157) | more than 2 years ago | (#39981547)

Only $87k, it's nothing compared to other virtual insurances like the US Dollar or the Euro.

Re:Other virtual currencies (1)

X0563511 (793323) | more than 2 years ago | (#39981785)

... as opposed to what? The Yen? Ruble? Yuan? Peso?

Re:Other virtual currencies (1)

timeOday (582209) | more than 2 years ago | (#39982519)

Oh, please, now you are just begging for somebody to start yet another argument about gold.

Re:Other virtual currencies (1)

X0563511 (793323) | more than 2 years ago | (#39982711)

The "value" of gold is just as arbitrary.

FBI: technophobia betrays their backwardness (2, Insightful)

yoctology (2622527) | more than 2 years ago | (#39981557)

Bitcoins are the tender of the future. The FUTURE. As far as FBI's worry about their use for criminal activity--too late! The things I've seen on an Onion router off the shoulder of Orion. Hell, people earn real goods and services for grinding in a game. Some of those goods and services may well be ILLEGAL. Maybe we should ban grinding to prevent this nefarious use of virtual technology? Some people collect bottles at the roadside for money. Some of this money buys meth and pot. Should be now ban.... and so on.

Bitcoins traceable? Maybe we can clear answer now (0)

Anonymous Coward | more than 2 years ago | (#39981567)

I will admit that I know little beyond the vague concept of Bitcoins, but in the various /. comments I've skimmed through, I've seen numerous claims of how Bitcoin spending is fully anonymous. But as often as not there has been some reply that says that isn't true.

Seems like with 87k on the line, we all might get a solid answer to that question, unless I don't understand how any of this works (which is entirely possible).

Re:Bitcoins traceable? Maybe we can clear answer n (2)

Statecraftsman (718862) | more than 2 years ago | (#39981613)

https://en.bitcoin.it/wiki/Anonymity [bitcoin.it] tl;dr Bitcoin transactions are not anonymous without substantial care in their execution. That being said it's unlikely the theif will be found unless they make a major slip-up.

Re:Bitcoins traceable? Maybe we can clear answer n (1)

nurb432 (527695) | more than 2 years ago | (#39982773)

I don't see how they can be 100% anonymous, if you are going to use them for actual goods.

That last bit there in the summary... (3, Insightful)

bmo (77928) | more than 2 years ago | (#39981585)

"an FBI document (PDF) about Bitcoin found it way onto the internet. It seems they're worried about the virtual currency's potential use in criminal activities."

During the televised SOPA hearings with the House Judiciary Committee, Jared Polis - after introducing the song "The Internet is for Porn" into the Congressional Record - waxed poetic on the underground economy, Bitcoin, drugs, TOR and Silk Road.

Those watching on /g/ were aghast. "OH GOD HE KNOWS!" was the reaction.

Yes, folks, they've known for a while.

Bitcoin, when it's not a scam, is a method of money laundering.

--
BMO

Re:That last bit there in the summary... (1)

Statecraftsman (718862) | more than 2 years ago | (#39981627)

Do you have any references to Bitcoin being used in money laundering? Having a hard time finding a concrete story...

Re:That last bit there in the summary... (0)

Anonymous Coward | more than 2 years ago | (#39981647)

It's useless for money laundering - someone keeps on stealing it!

Re:That last bit there in the summary... (1)

bmo (77928) | more than 2 years ago | (#39981709)

When you convert dollars to bitcoins, buy drugs with bitcoins on SilkRoad, and then those bitcoins are converted back to cash by your dealer, that is money laundering.

>dirty money
>black box (bitcoin)
>"clean" money out

Any time you obfuscate the source of money in a transaction to hide illegality or "synthesize" transactions after the fact to hide illegality, that is money laundering. You may argue about the finer points, but that is the overall definition and rule of thumb.

And the penalties for money laundering, if caught, are steep, especially these days with "truth in sentencing" legislation requiring you to serve 85 percent of a federal sentence at a minimum.

--
BMO

Re:That last bit there in the summary... (5, Interesting)

Sycraft-fu (314770) | more than 2 years ago | (#39981743)

Geeks have trouble with this concept, they get all overly literal about shit and think that if something is ok to do under any condition, it is ok to do under all conditions.

That is, of course, not the case. In the law, intent quite often matters. Also what you actually do with it matters as well. If you actually go and buy drugs with the alternate currency you bought then yes, that can be used as evidence of money laundering.

The other part of the problem is that geeks seem to have trouble with the concept of "reasonable doubt" at times. They think if they can cook up any alternate explanation for an action, no matter how far fetched, a jury should have to accept it and they'd get off. Again, not how it works. It isn't beyond any doubt, just beyond a reasonable one.

So yes, if you buy bitcoins for the purpose of buying drugs, they could nail you for money laundering and likely make it stick.

Re:That last bit there in the summary... (3, Informative)

bmo (77928) | more than 2 years ago | (#39981829)

Indeed.

There was a jeweller in town who is in prison for the rest of his life and a few hundred years after that because he did conversion of cash to gold and back to cash for the mob.

Exchanging cash for gold is not illegal
Exchanging gold for cash is not illegal
Exchanging cash -> gold -> cash in order to help someone hide where his cash came from is so illegal it is more illegal than most crimes of violence and more illegal than the original crimes of drug dealing, numbers running, bookmaking, etc.

--
BMO

Re:That last bit there in the summary... (2)

Statecraftsman (718862) | more than 2 years ago | (#39981767)

Using money to buy illegal things is not laundering in itself. Money laundering requires that bad money be mixed in with the good stream of what looks to be a legitimate business. Again, I must ask if you have a reference for such an occurrence.

Re:That last bit there in the summary... (1)

bmo (77928) | more than 2 years ago | (#39981849)

>Using money to buy illegal things is not laundering in itself.

It's the conversion that makes it money laundering. Conversion to bitcoin is "anonymizing" a money stream to hide the illegality of buying drugs, etc.

Whether you agree with this or not, this is how the feds are going to present it to a jury and that's how you will go to jail.

--
BMO

Re:That last bit there in the summary... (1)

Statecraftsman (718862) | more than 2 years ago | (#39982177)

The same could be said of converting a bank balance to cash. Your implication that using Bitcoin = jail time makes me wonder what your concern is against people being able to spend their money as they wish (something that is again still largely possible with cash).

Re:That last bit there in the summary... (1)

muon-catalyzed (2483394) | more than 2 years ago | (#39982111)

> any references to Bitcoin being used in money laundering?

Is Bitcoin something called a "legal tender" ?

Re:That last bit there in the summary... (1)

Statecraftsman (718862) | more than 2 years ago | (#39982209)

It is not classified as legal tender by the government but that doesn't mean it's illegal to use. Case in point, hundreds of local currencies in use around the country (Ithaca dollars, Disney dollars). What you can't do is refuse USD as payment for debt, the commonly quoted case being when you go to dinner and pay the bill after eating. There you are in debt and the restaurant must accept USD in the US.

Re:That last bit there in the summary... (2)

wrook (134116) | more than 2 years ago | (#39981859)

Bitcoin, when it's not a scam, is a method of money laundering.

This is certainly the tag line many people have used for Bitcoin. While there is definitely potential for this, I'm not sure it's *actually* being used that way. The last time Bitcoin was brought up here, someone made the assertion that the first X bitcoins (I won't rely on my crappy memory to say how many) that were created *have not ever been spent*. This is quite easy to verify, and I've been meaning to do it for a while, but haven't gotten around to it.

If that were true, why haven't they been spent? The price for BTC was up over $20 US for a while there. You would think there would be *some* profit taking. I invite you to take a look for yourself. The price has now stabalized at about $5 US. As the price dropped, there should have been panicing selloffs. But volume has been relatively stable for the last year or so (you can check the graphs on Mt.Gox). I see absolutely *no* evidence that this was used at a pump and dump scam in any large way (despite the potential for it).

As for money laundering, Bitcoin makes a poor money laundering system. Everything is easy to track. First, you need to *get* the bitcoints. Mining isn't going to get you enough volume to do anything worth while. This means you have to buy them with real currency. That transaction happens on a server which will almost certainly keep records (i.e. the information is available to law enforcement). It's also difficult to buy BTC with cash. You pretty much need to go through a bank account. After that, each transaction is traceable -- by everyone. You don't even need to be part of the system to track the transactions. Just download the blocks. Only stupid people would use this for money laundering. Using it for large scale illegal transactions would pretty much be like having a neon sign over your head saying, "Arrest Me"!"

What it is undoubtedly (and demonstrateably) being used for is in the trade of black market/and or illegal items including drugs. Personally, I think this is risky business, but probably due to the low monetary value of most transactions (you can track all the transactions on Bitcoin and verify for yourself that there are few large transactions), law enforcement haven't been bothered to really follow up on it. I suspect that will change someday.

For me the surpising thing about Bitcoin is that it actually seems to be working well as an exchange medium for these mail order goods (black market though they may be). The total volume of BTC traded every day is actually impressive and the system has scaled quite well. Not only that, but the only problems to date have been with people having Bitcoins stolen from poorly protected wallets. There have been no problems with Bitcoin itself, despite the fairly heft volume and the liquidity to US dollars. This is impressive, scam or not.

Re:That last bit there in the summary... (1)

bmo (77928) | more than 2 years ago | (#39981897)

law enforcement haven't been bothered to really follow up on it. I suspect that will change someday.

Just because the feds have not gotten 'round to actually arresting people yet does not make the acts themselves legal.

Only stupid people would use this for money laundering. Using it for large scale illegal transactions would pretty much be like having a neon sign over your head saying, "Arrest Me"!"

They are using the relative obscurity of bitcoin.

Also: the prisons are not exactly filled with geniuses.

It still doesn't make using bitcoin to buy/sell/trade contraband any less money laundering.

>your cheerleading for bitcoin

Bitcoin is useless for buying actual, legitimate, goods and services. Whatever its price is in the exchanges is purely fantasy, as they are traded in the vacuum of the brokerages without much contact with the outside world.

--
BMO

Re:That last bit there in the summary... (1)

bmo (77928) | more than 2 years ago | (#39981987)

I forgot to address this

>If that were true, why haven't they been spent?

Because bitcoins, by their virtue of being limited at a hard number, are deflationary. You are crazy to spend a currency that, over time, chases more goods as economies expand.

So you hoard, gambling that the future is going to give you a bounty.

This is why the first bitcoins are being hoarded. They were easy to generate in large quantities by the early adopters. Why spend them when they didn't cost much to generate and further suckers down the road will exchange them for ever increasing amounts of cash/goods/services, at least in theory?

--
BMO

Re:That last bit there in the summary... (1)

icebraining (1313345) | more than 2 years ago | (#39982107)

There are many stocks which are almost certainly going to be worth more tomorrow than they are today, yet they are still being traded by thousands of investors. Are they all 'crazy'?

There are plenty of reasons not to hoard, even if they are in fact expected to go up. For one, people sometimes actually want the money for something other than watching it grow. And 2033 - the year when the "hard number limit" will be reached - is still a long way from now.

Re:That last bit there in the summary... (1)

Kjella (173770) | more than 2 years ago | (#39982737)

As for money laundering, Bitcoin makes a poor money laundering system. Everything is easy to track. First, you need to *get* the bitcoints. Mining isn't going to get you enough volume to do anything worth while. This means you have to buy them with real currency. That transaction happens on a server which will almost certainly keep records (i.e. the information is available to law enforcement). It's also difficult to buy BTC with cash. You pretty much need to go through a bank account. After that, each transaction is traceable -- by everyone. You don't even need to be part of the system to track the transactions. Just download the blocks. Only stupid people would use this for money laundering. Using it for large scale illegal transactions would pretty much be like having a neon sign over your head saying, "Arrest Me"!"

Offer any sort of legal service anonymously for BitCoins? It could be anything that you can deliver digitally, whether it's code, artwork, translations, esseys, whatever that you can deliver via proxies and such. You now have anonymous bitcoins, sure they can trace the coins going into your wallet but all they'll find is an innocent guy who paid for something legal. If there's a challenge it's on the other side, after receiving money for something illegal they're now dirty and you need to launder them. For one you can sell it to some other anonymous service that won't care, but let's assume you want to cash out.

For one you have tumbler services, basically you give away BitCoin A with A's history and you get back BitCoin B with B's history. Combine that with a bunch of fake transactions between shell accounts and you'll have money that appear to come from everywhere and has been circulating for a while. Now create some sort of legal service that takes payment in BitCoins and has anonymous customers and have your shell accounts "pay" for service, then cash out. When the police comes, it's just "I don't know what you're talking about, I run a newsgroup service over TOR and these are all subscription payments. I don't know who these customers are or how they got their money, sorry."

I'm sure someone can come up with some better ideas too, but those are just off the top of my head.

As someone who pumped and dumped... (5, Insightful)

Anonymous Coward | more than 2 years ago | (#39981649)

Bitcoin was an interesting experiment.

I was one of the lucky ones- I got in before Bitcoin hit prime time for its 15 minutes of fame. Back then mining actually got you something worthwhile when you could dedicate a couple of GPUs and one or two computers to it (back then FPGAs weren't even being discussed that much). It managed to pay for four separate computers, which I later overhauled and replaced the motherboards on so I could stuff three GPUs in each. A few months ago I decided to shut it down (after witnessing random things like the rollback of an entire market because someone sold too many BTCs and it pissed off the big guys who lost a lot of money because they didn't see it coming) and started to cash out. At the end of it all (after I sold my equipment- though that only accounted for ~10% of my total catch), I'd made enough to pay off my car and both me and my fiancee went on a nice trip to Maui for two weeks.

A friend recently "discovered" BTC and came to me for information on "how to get rich quick". It took me over two hours to convince him that it wasn't worth it anymore, that he could probably pump a good $10K into equipment and not even make back the money power would cost him to run it all. You'd have to invest ten times that into exotic FPGA hardware just to make any reasonable amount of income, and even then I doubt you'll ever pay for the hardware itself before the system completely crashes.

BTC is, ultimately, a failed experiment. Now that the system has gotten rolling there is little reason to use it for anything other then illegal goods, and nobody wants to be associated with a currency that is predominantly used to move dirty money or pay for black market items. I suppose things might be a bit better if we actually had reasonable exchanges running, but for the most part what is out there right now (including MtGox- which formerly stood for "Magic the Gathering Online eXchange") is just about as untrustworthy as the people using it.

If you're a potential miner, my advice is to stay away from BTC. If you weren't there when it started, then you're basically not going to make any money. Those few elites still making money off the system will soon leave as the entire thing becomes unprofitable for even them, and then when they cash out the entire system will crash hard- and any BTC you might own will be worth nothing.

-AC

Re:As someone who pumped and dumped... (3, Insightful)

Troed (102527) | more than 2 years ago | (#39981947)

I agree. Anyone who thinks Bitcoin is about "making money" should stay away. It's a monetary agent. It's as much for "making money" as using Western Union is, without anyone being able to say "no" to whom you want to send money.

I've used it to donate to Wikileaks, among other things (all legal, incredibly enough).

Re:As someone who pumped and dumped... (3, Informative)

Anonymous Coward | more than 2 years ago | (#39982135)

THIS.

So... Let me get this straight... The OP AC thinks BTC is "a failed experiment" because it can't be used to get free money anymore?

WTF?

Re:As someone who pumped and dumped... (2)

iroll (717924) | more than 2 years ago | (#39982573)

No, he thinks it's a failed experiment because it's a fragile ecosystem run by people who will pull the rug out from under it at the first opportunity.

The fact that he got free money out of it was just a happy benefit from being in the right place at the right time, and means that he probably has some perspective on the future utility of the system.

All withdrawal requests will be honored? (1)

AmiMoJo (196126) | more than 2 years ago | (#39981697)

They lost $87,000 worth of BitCoins. If everyone withdrew their money (not that unlikely now) they would need to find $87,000 of real money to honour those withdrawals. Are they insured or do they have the cash on hand?

Re:All withdrawal requests will be honored? (0)

Anonymous Coward | more than 2 years ago | (#39982095)

It's either lose $87 grand or lose their entire worth, not honering their withdrawals with put a seriously dent in bitcoins and would effectively reduce it's value meaning they lose even more money (though ironically, the theft value would also drop).

Re:All withdrawal requests will be honored? (3, Funny)

ceoyoyo (59147) | more than 2 years ago | (#39982181)

I think you'll find the insurance rates on anonymous Internet funny money to be rather high.

wtf is a (0)

Anonymous Coward | more than 2 years ago | (#39981815)

bitcoin and why should i give a romeo alpha?

ObSimpsons (0)

Anonymous Coward | more than 2 years ago | (#39981891)

Anybody remember the scene where Snake drains the electronic wallet, and you see a progress bar transferring the money?

Re:ObSimpsons (2)

Statecraftsman (718862) | more than 2 years ago | (#39982245)

Here there's no progress bar. Just a single packet broadcasted across a p2p network and subsequently locked into the blockchain by the processing power of the entire network. If you're any kind of geek at all, you should appreciate the beauty of the system even if you think it's going to ruin your way of life.

My Suggestion (0)

Anonymous Coward | more than 2 years ago | (#39982033)

Rather than "leaking" a document and getting a story on stooge central to promote bitcoin for illegal activity, perhaps it would be a more efficient use of taxpayer money if the FBI could take out 2 birds with one stone?

  1. 1. Use bitcoin to purchase another pair of underpants from the Yemen.
  2. 2. Use that to justify both expansive warrantless wiretapping and brand new body scanners
  3. 3. Profit! (at least for those hardware and security companies with senators on the payroll)
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