Bitcoin’s price has stabilized following this week’s massive hack and theft of $ 65 million in bitcoin from a Hong Kong exchange, as some traders seized on the lower price to strategically buy the dip.
Myriad questions about the hack itself remain unanswered, however.
On Tuesday, a trading site called Bitfinex was attacked by a hacker, who exploited the site’s security protocols and stole just under 200,000 bitcoins, at the time worth about $ 65 million, before being discovered. The site shut down all operations, and remains shut down two days later. In a message on its website today it said it was looking to restore “limited functionality” that would allow customers check their balances.
The price of bitcoin plunged more than 20% from Tuesday’s high to as low as $ 480 as word of the theft spread. On Thursday afternoon, bitcoin was trading around $ 563, up 18% from Tuesday’s low. So far this year bitcoin is up about 32%.
Bitcoin’s price spent most of 2016 in a fairly stable, non-volatile range around $ 400. In the past month, though, it’s looked more like its old self. The price shot up as high as $ 768 in June ahead of a technical change to the network called the “halving” (you can read about it here). It fell back from that level, but was still trading between $ 600-$ 700 until this week’s Bitfinex news.
Before the hack, Bitfinex, which catered more to professional traders than retail investors, was the largest exchange by volume trading the BTC-USD currency pair, with about 50% of the volume, according to data from data site CryptoCompare. There are naturally questions now about its solvency and what happens next. Charles Hayter, the CEO of CryptoCompare, said it is unclear what Bitfinex’s capital buffers are, but thinks it’s reasonable to “speculate” that 20% of its funds disappeared in the hack.
Bitfinex representatives weren’t available for comment.
The bigger issue, he said, is what Bitfinex’s travails mean for bitcoin’s reputation. Bitfinex relied on a kind of security called “Multi-Sig,” which it used through a partnership with Palo Alto, Calif.-based BitGo, a security company that provides the system. Multi-Sig is short for multiple signatures, a system in which an account can be accessed only after more than one “key” is used to unlock it. In other words, a customer can’t just employ their own password – there are two other “keys,” and at one other has to be used in conjunction.
The question now is how the hacker managed to compromise that system. “Multi-Sig” was held out as superior level of protection for users and ostensibly should’ve been resistant to hacking. BitGo said publicly its servers had not been comprised, but didn’t disclose any other details, and declined to comment to MoneyBeat.
“With users funds secured using multi-signature technology in partnership with BitGo – a lot more is at stake for the backbone of the bitcoin industry with its stalwarts and prided tech under fire,” Mr. Hayter said.
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