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Bitcoin and Instawallet Hacked: Price Shows Bubble Behavior Thursday, Recovers on Friday

21st Century Wire says…

Virtual currency Bitcoin has caught the attention of the mainstream media recently, with many detractors calling it a fiat fad while proponents claim it’s the answer to our paper fiat woes.

CNBC reported just before the weekend that Bicoin was hacked due to a distributed denial-of-service attack (DDoS), which caused its value to drop from a high at $147, down to $115, then up to $132 over that trading day. Friday reporting indicates that the price quickly recovered back up to $142. This incident show how Bitcoins market behaviour can also be influenced by news prompting moves in and out of  Bitcoin’s virtual currency pool.

Some experts believe this recent incident provides evidence as to the level of volatility present in Bitcoin’s fixed circulation and how resilient it can be to news-driven fluctuation. It’s success depends on its holders’ trust in the currency – a fundamental tenet for any money in circulation. The question still remains, however, down the road, if for whatever reason, the internet is turned off in your region, then how valuable are Bitcoins? 

Worth keeping an eye on…

Bitcoin Hacked: Price Stumbles After Buying Frenzy


Online currency bitcoin had 20 percent knocked off its price overnight on Thursday as one of its major exchanges became the victim of a hacking attack leading to a sell-off in the virtual currency after reaching an all-time high.

Uncertainty over other currencies, turmoil in Cyprus and media interest are just some of the reasons commentators are citing for the 360 percent rise in bitcoin prices over the last month. The frenzied interest in bitcoins piled over onto the social media site Twitter and led to a spike in Google searches on the topic.

But by Thursday morning bitcoin prices had fallen to $132 from Wednesday’s record price of $147.

The most popular bitcoin exchange, Tokyo-based Mt.Gox announced overnight that it had been the victim of a hacking attack after experiencing a severe lag with its systems.

The complications meant the price quickly sank to below $115 before regaining ground to $130 by 6.00 a.m. London time on Thursday, according to Bitcoincharts.com.

(Read MoreBitcoin Bubble: How ‘Geeks’ Sent Prices Parabolic)

“There are many who will try to take advantage of the system. The past few days were a reminder of this sad truth,” it said in a press release on its Facebook site.

The exchange blamed a type of hacking attack called a distributed denial-of-service attack (DDoS).

More than 80 percent of all bitcoin-USD trades and more than 70 percent of all bitcoin currency trades are done on Mt.Gox’s servers, according to the company, making it is a major target for anyone wanting to take down bitcoin trading.

(Read MoreBitcoin Showing ‘Aggressive Bubble’ Behavior: SocGen)

“Attackers wait until the price of bitcoins reaches a certain value, sell, destabilize the exchange, wait for everybody to panic-sell their bitcoins, wait for the price to drop to a certain amount, then stop the attack and start buying as much as they can. Repeat this two or three times like we saw over the past few days and they profit,” Mt.Gox said.

“There is pretty much nothing that can be done. Large companies are frequently victims of these kinds of attacks. Even though we are using one of the best companies to help us fight against these DDoS attacks, we are still being affected.”

Bitcoin is a virtual currency allowing users to exchange online credits for goods and services. There are currently nearly 11 million bitcoins in circulation but the currency is capped at 21 million coins. While there is no central bank that issues them, new bitcoins can be created online by using a computer to complete difficult tasks, a process known as mining.

(Read MoreBitcoin Boom? An ATM for Virtual Currency in the Works)

The total value of all bitcoins has now surpassed $1.4 billion. But these latest revelations may go some way to reinforce criticisms of its instability and price volatility. Mt. Gox had to temporarily suspend deposits on March 12 as a newly mined block of bitcoin went unrecognized by the system which caused a short sell-off.

Another bitcoin associated company Instawallet – an online storage service – was hacked earlier this week and its service was suspended indefinitely.

“Our database was fraudulently accessed, due to the very nature of Instawallet it is impossible to reopen the service as-is,” it said on its website.

By CNBC.com’s Matt Clinch

RELATED: Is Sky News trying to scare people away from using Bitcoins?

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21wire

We are a North American and European-based, grass-roots, independent blog offering geopolitical news and media analysis, working with an array of volunteer contributors who write and help to analyse news and opinion from around the world.
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