History of Bitcoin Exchange Hacks and Issues

Over the years, bitcoin exchanges have been a target for hackers because an exchange typically stores more funds than an individual user. This means that a potential payoff for attackers is higher when trying to hack an exchange versus attacking individual users.

One of the most well-known hacks in the bitcoin world was the hack of Mt. Gox.

 

Mt. Gox

Mt. Gox was a Japanese bitcoin exchange. Its headquarters were in Tokyo, Japan. The exchange was launched in 2010. By 2014, it became the largest bitcoin exchange in the world and was processing over 70% of all bitcoin transactions on the bitcoin network.

In February of 2014, Mt. Gox stopped trading, took down its website and filed for bankruptcy claiming that it could not may its customers after over 800,000 bitcoins went missing. Evidence presented in 2015 suggests that most of the coins were stolen by hackers right out of the hot wallet of Mt. Gox. The attackers had access to the hot wallet starting from 2011.

Over the years, Mt. Gox had a history of other incidents, too. In June of 2011, one of the hackers used credentials of one of Mt. Gox’s auditors to transfer a large number of bitcoins to himself, which led to the price of bitcoin fraudulently dropping to one penny on the exchange. The price went back to the market value within minutes, but the drop had an effect on a number of accounts that held an equivalent of over $8 million in bitcoins. In October of 2011, over twenty transactions appeared in the bitcoin blockchain block #150951 that have transferred money to an address with no private key. Over 2,500 bitcoins were lost during the transaction.

In May 2013, North American partner of Mt. Gox filed a lawsuit against the company. The partner, CoinLab, wanted $75 million from Mt. Gox for not transferring existing Mt. Gox customers from the United States and Canada to CoinLab per the agreement between the companies.

Mt. Gox stopped paying its customers in United States dollars in June of 2013 because its bank forced the company to close the account. In August of 2013, Mt. Gox announced that it lost significant amounts of money because it was crediting deposits before the deposits have cleared. In November of 2013, Wired published an article in which it claims for Mt. Gox to be almost entirely frozen from the US financial system due to the conflicts with regulators.

The company stopped processing withdrawals from its users on February 7, 2014. Because of this, during February and March 2014, the value of bitcoin declined by more than 30%.

Japanese authorities arrested the CEO of Mt. Gox, Mark Karpeles, in August of 2015. They charged him with fraud and embezzlement linking the charges to the disappearance of 650,000 bitcoins from Mt. Gox wallets. My 2016, creditors of Mt. Gox claimed that they have lost over $2 trillion because of the website. The Japanese trustees overseeing the liquidation of assets said that they were able to track only $91 worth of assets even though prior to the bankruptcy Mt. Gox claimed to have over $500 million in assets.

 

Bitcoinica and BitFloor

Bitcoinica was very popular in 2012. The reputation of this bitcoin exchange took a hit in March of 2012 when the company couldn’t account for over 40,000 thousand of bitcoins that belonged to its customers because of a security breach. The exchange promised to pay the customers from its own pocket, but it suffered another attack on May 11, 2012. Many of the customers have never been repaid.

BitFloor was a bitcoin exchange located in the state of New York. It began its operations in 2011. By 2013, it has become the fourth-largest bitcoin exchange in the world. The website has closed its doors in April of 2013 after announcing that its bank scheduled a closure of its US bank accounts.

 

All these hacks and issues prove that if you want to store your coins safely, you are better off by storing them in your own wallet. If you are looking for additional security, consider investing in a hardware wallet that you will be able to keep offline when not using your coins. This will ensure that your coins are safe from hackers and that no breach will happen to them.

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