Tackling Bitcoin thefts

Jon Montroll, the founder of the Bitcoin exchange BitFunder has been arrested by US authorities for lying. He reportedly tried to avoid taking responsibility for a theft worth around $70 million. The theft had taken place in 2013 and hackers had reportedly exploited a weakness in BitFunder’s code in order to steal cryptocurrency.

Background

Bitcoin is a peer-to-peer electronic cash system. It is a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank. It was first created in 2008 by either an anonymous programmer or a group of programmers under a pseudonym, Satoshi Nakamoto. Speculation is rife over the real identity of the person who created the system. In 2009 “Nakamoto” released Bitcoin as an open source software. Given that it is a decentralized electronic currency, it cannot be controlled by any government. It is one of the most popular cryptocurrencies in the world. Litecoin, Peercoin, Namecoin and Ripple are among the other cryptocurrencies available.

Bitcoin is a community-run system, often referred to as the first “start-up currency”. By the beginning of 2015, there were 100,000 merchants and vendors who accepted Bitcoins as payment. Bitcoins have been used in illegal trade online as well. Critics argue that digital cash systems are volatile and speculative in nature and come with a number of inherent risks.

In 2017, the value of Bitcoins began to exponentially rise in the markets. The cryptocurrency reached $3,451.86 (£2,651) per coin during trade on August 7, 2017 and has continued to grow since. By the end of the year the tokens were valued at well over $10,000. In the first month of 2018, they surpassed $20,000 in value before slumping in the markets. Currently, they are valued at around $10,000. In comparison, in January 2017, Bitcoin was still valued at $1,000. There have been high profile thefts of Bitcoins valued at millions of dollars in countries like South Korea.

Analysis

The founder of BitFunder, a bitcoin-denominated stock exchange that is now defunct, has been arrested by the US government. The US Justice Department has accused, Jon Montroll, for lying to U.S. securities regulators in a bid to absolve himself from responsibility regarding a theft.

The theft had taken place in 2013 and hackers had reportedly exploited a weakness in BitFunder’s code in order to steal cryptocurrency now worth $70,000. "As alleged, the defendant repeatedly lied during sworn testimony and misled SEC staff to avoid taking personal responsibility for the loss of thousands of his customers' bitcoins," Manhattan U.S. Attorney Geoffrey Berman said in a statement.

In late 2013, BitFunder was shuttered and acted as a kind of companion service to cryptocurrency exchange WeExchange. Authorities have noted that in November 2013, during a sworn testimony, Montroll had submitted a balance statement which reflected "the total number of bitcoins available to BitFunder users in the WeExchange Wallet as of October 13, 2013" that amounted to roughly 6,700 BTC.

"While [Montroll] admitted that the Balance Statement was the product of his manual intervention in the WeExchange system, he claimed to have discovered the success of the Exploit only after the SEC had asked him about it during his first day of testimony and to have no knowledge of the chat with Person-1," the Department added.

Assessment

Our assessment is that even though Bitcoins and other cryptocurrencies have proven themselves to be a credible form of transactions, they are still highly vulnerable to being hacked. Bitcoins and other cryptocurrency tokens worth millions of dollars have been stolen as a result. Governments around the world must work to try and regulate this market in order to protect assets.