The Journal Gazette
Wednesday, March 16, 2016 5:39 pm

Exchange's move a blow to Bitcoin

Andrea Peterson Washington Post

Last year was not kind to bitcoin. And 2015 already looks as if it could be just as tough for the digital currency: Bitcoin exchange Bitstamp went offline last week as it investigated a multimillion- dollar security breach, and bitcoin prices fell from about $320 to $270 in the first week of the year.

The news about Bitstamp is particularly alarming. The company, based in Slovenia and Britain, is the third-largest bitcoin exchange by volume.

A statement on Bitstamp’s website says the company has "reason to believe" that one of its "operational wallets" – a place connected to the Internet where some bitcoins being processed were stored – was compromised Jan. 4.

The message also said that Bitstamp maintained "more than enough" offline reserves to cover the funds in the operational wallet. A later update said the lapse resulted in the loss of 19,000 BTC, worth more than $5 million at current exchange rates.

The incident harkens back to the collapse of Mt. Gox, the once-popular Tokyo exchange that imploded spectacularly last spring. The company announced in February that it was filing for bankruptcy, saying it had lost the equivalent of nearly a half-billion bitcoins.

Just this month, Japanese authorities told a local newspaper that only a tiny fraction of the missing bitcoins could be attributed to hacks from outside the company, according to CoinDesk, a news site for digital currencies.

Last January, bitcoin prices pushed above $900 a pop, but by the end of the year they hovered at a little more than a third of that price.

Bitcoin has continued to struggle with its association with online black markets, as well as regulators’ efforts to oversee it.

The Bitcoin Foundation, a nonprofit group formed to promote the cryptocurrency that counted Mt. Gox chief executive Mark Karpeles as a founding member, lost another founder to bitcoin’s black market ties: Former vice chairman Charlie Shrem resigned after being arrested on charges of supporting an illicit bitcoin exchange for Silk Road, the notorious digital black market. (He later pleaded guilty to a count of aiding and abetting the operation of an unlicensed money-transmitting business.)

Which government laws apply to bitcoin also remain murky – although financial regulators in New York state are working on hammering out some requirements for bitcoin and other virtual currencies.

The proposed rules would apply only to companies that transmit funds from one place to another, and not to retailers that simply accept bitcoin or private individuals who invest in the digital currency.

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