Bitcoin Exchange Lock Out After Security Breach

Currency experts believe the sudden closure of a leading British Bitcoin exchange is the beginning of the end for the virtual currency.

Beset by scandal and fraud, Bitcoin has struggled to lead the way as the world’s first major online currency.

The strengths appear to be the very weaknesses pulling the currency under.

Supporters claimed Bitcoin heralded a new world financial order as the currency was not pegged to any currency, central bank or government, so offered true independence of the global financial system.

But with a limited number of places to spend Bitcoin, most investors had to convert their holdings into pounds, dollars or yuan at some time.

Bitcoin value plunges

And the value of Bitcoin has steadily plunged in the past 14 months. In November 2013, the value hit $979. Today that same holding is worth $268 and confidence that the price will hold that high is falling.

The latest glitch is the suspension of Bitstamp services. Bitstamp was one of the biggest Bitcoin exchanges.

The service stopped accepting deposits, announcing security was compromised and old deposit accounts were no longer active.

Speculation in the cryptocurrency world is rife that more exchanges will follow suit as they cannot spread the risk or expect financial support from a central bank.

“These exchanges earn money from trading and holding Bitcoin and the value is falling fast,” said one expert.

“They can’t spread the risk and leak cash as the Bitcoin declines in value. No one knows where it will stop. The price has been in free fall for months and there’s no sign that it will hit the bottom any time soon.”

Hack attacks

Bitcoin is generated by users solving complex software equations.

However, hackers have allegedly breached Bitcoin servers several times. Generally, they deposit fake Bitcoins and then cash them in, siphoning cash from exchanges.

Last year, Asian Bitcoin exchange Mt Gox went out of business after discovering 200,000 false Bitcoins in an electronic security vault. Hackers had already cashed them in.

“We trying to work out what has gone wrong,” said a Bitstamp spokesman. “Most of our coins are swept and placed in cold storage regularly, so this shouldn’t be a major issue.

“Nevertheless, we still need to know what our exposure is and have closed the old accounts so the problem does not worsen. We believe this is a server issue and not a security compromise, but we are still investigating”