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Bitcoinia hacked. Goes Offline

The FBI Gives Out Tips for More Anonymity with Bitcoin

A leaked report from the FBI about Bitcoin gives good advice on how users can improve their anonymity while using Bitcoin.

The document can be found here.

It is entitled “Bitcoin Virtual Currency: Unique Features Present Distinct Challenges for Deterring Illicit Activity”

– Create and use a new Bitcoin address for each incoming payment
– Route all Bitcoin traffic through an anonymizer
– Combine the balance of old Bitcoin addresses into a new address to make new payments.
– Use a specialized money laundering service
– Use a third-party eWallet service to consolidate addresses.
– Individuals can create Bitcoin clients to seamlessly increase anonymity (such as allowing a user to choose which Bitcoin addresses to make payments from)

Canadian Mint Launches Bitcoin Competitor??? Digital Currencies

The Royal Canadian Mint has launched an electronic currency called MintChip.  Unlike Bitcoin, it is tied to the Canadian dollar.

 

Showing an unprecedented level of government innovation, the Mint has launched a competition for app developers to create apps that use the digital currency.  The competition, called the <a href=”http://mintchipchallenge.com/”>Mint Chip Challenge (mintchipchallenge.com)</a> offers a prize of $50,000 for the best app that uses MintChip.  The prize is paid in gold bullion!  (e-gold fans should rejoice!).

 

I am really impressed with this innovation from the Canadian Mint.  I do find it ironic, and somewhat conspiritorial, that Canada pressured Paxum to stop processing Bitcoin transactions less than 60 days before launching their own Canadian dollar-backed currency.

 

Tradehill Bitcoin Exchange Sues Payments Startup Dwolla

I met Tradehill CEO Jered Kenna at a San Francisco area bitcoin meetup last year. He shared that payments startup Dwolla had reversed aover $90,000 of supposedly confirmed transactions, and was holding $70,000 of other funds. This was impactful to the bitcoin startup exchange, as it was operating without venture funding. The instroduction of chargebacks was apparently in violation of Dwolla’s previously published terms of service.

Basically fraudsters were using Dwolla to buy bitcoins, and then charging back Dwolla, or were using fraudulently acquired bank accounts (probably phished or keylogged consumer bank accounts) to fund Dwolla, and buy bitcoins from Tradehill.

Last month Tradehill shut down operations due to a combination of the shutdown of bitcoin relationships with processor Paxum, the expenses needed to acquire a money transfer agent license, and the Dwolla chargebacks.

Tradehill is fighting back. This week they filed a $2M lawsuit against Dwolla. Dwolla recently made the rookie startup mistake of announcing a $5M venture funding round.

Good luck to Tradehill in this dispute!

BitCoin Exchange TradeHill Shuts Down In Wake of Paxum Lockout And Regulatory Pressure

San Francisco based TradeHill announced on Monday 2/13/2012 that they were halting all BitCoin trading immediately, and would return customers’ deposits via check payments. The news comes just days after Quebec-based Paxum cut off payment services for all BitCoin related businesses, including TradeHill. This severely limited TradeHill customers’ ability to “cash out” their bitcoins into US dollars.

TradeHill CEO Jared Kenna said on his blog yesterday “Effective immediately TradeHill will be shutting down trading / deposits and returning all client funds.
Due to increasing regulation TradeHill can not operate in it’s current capacity without proper money transmission licensing. Combined with multiple bank account closures and Paxum’s decision to close all Bitcoin business accounts, we have deemed the best course of action is to halt trading and pursue licensing while raising funds. SEPA transfers for our Euro customers have been enabled.”

I spoke with Jared a couple of months ago at a BitCoin meetup at Google in Mountain View, CA. We discussed the need for his business to have a money transfer license, and the expense and complexity of applying for one. It seems like this ongoing burden, combined with a previous loss of $100,000 from a payment processor who arbitrarily withdrew funds citing chargebacks, plus the lockout by Paxum were just too much.

Canadian Banks Put Pressure On The BitCoin Economy – Paxum Halts BitCoin Relationships

It has been a tough week for BitCoin.

Canadian payment processor Paxum abruptly terminated service for all BitCoin exchanges on Friday 2/10/2012. They say that their banking partners forced them to terminate all services for BitCoin businesses because the currency was too “risky”.

Quebec-based Paxum is primarily a payments processor and peer-to-peer payment provider for adult website businesses. They started working with a number of BitCoin exchanges last year, and were processors for both MtGox and TradeHill.

This looks to me like the banks (and perhaps their regulators) are afraid of money laundering through BitCoin. In an interview with BetaBeat, Paxum spokewoman Ruth Blair said “The main fears had to do with the fact that it’s a decentralized currency and as such there isn’t much control over it. In the end, it is converted to a legal tender (generally USD), but it is unclear to them how this currency is supported and who pours actual money into it, and more importantly, why.”

Update December 14, 2011 – Correlation of Bitcoin price drops to security breaches

I recently created a chart that maps the value of bitcoins over the last 6 months and compares them to known major security breaches at Bitcoin sites including Mt. Gox, mybitcoin.com and bitcoin7.

It appears that all major price drops in the value of a bitcoin are correlated to security breaches and major fraud at these sites.

It seems to me that Bitcoin has had a crisis of confidence this year, and that security breaches are the cause of this.

We appear to be going through what industry analyst Gartner calls the “trough of disillusionment” in their famous Hype-Cyle model for emerging technologies. As Bitcoin gets more mature and more secure, we will emerge through the “slope of enlightenment” and Bitcoin and related virtual currencies will achieve mainstream use and productivity.

Update Nov 1, 2011 Malware, Phishing, Cybercrime Against Bitcoin

I’ve spent 9 years tracking internet cyber crime, and am involved with numerous banks, security companies and industry working groups to track and prevent it. It’s no surprise that as the Bitcoin virtual currency expands in adoption and value, that criminals begin to attack it and those who use it.

Here is my summary of recent criminal activities against Bitcoin, Bitcoin businesses, and Bitcoin users:
– Oct 6, 2011. Bitcoin7 attacked, resulting in a permanent shut down of the service.
– Sept 16, 2011. Namecoin (a derivative of Bitcoin) was planned to be attacked at block #19200. A few days before, “ethical hackers” called off the attack.
– Sept 14, 2011. Bitcoin GPU mining trojan distributed over twitter retweets
– Sept 13, 2011. More Mt.Gox phishing
– Sept 12, 2011. User says Mt.Gox account hacked and funds sent to the Ukraine
– Sept 10, 2011. Bitcointalk.org forum hacked by Cosbycoin
– Sept 09, 2011. 35 trojans targeting Bitcoin detected by Kaspersky Labs
– Aug 30, 2011. Mt. Gox Phishing attacks
– Aug 8, 2011. Mybitcoin.com hacked. Goes bankrupt. Refunds only 49% of funds to customers
– June 20, 2011. MT. Gox exchange hacked, causing massive crash of Bitcoin value. Deeper analysis is here.

Update Sept 14, 2011: Malware, Crimeware, Trojans and Phishing in the Bitcoin Economy

I’ve spend 8 years tracking internet cyber crime, and am involved with numerous banks, security companies and industry working groups to track and prevent it. It’s no surprise that as the Bitcoin virtual currency expands in adoption and value, that criminals begin to attack it and those who use it.

Here is my summary of recent criminal activities against Bitcoin, Bitcoin businesses, and Bitcoin users:
– Sept 14, 2011. Bitcoin GPU mining trojan distributed over twitter retweets
– Sept 13, 2011. More Mt.Gox phishing
– Sept 12, 2011. User says Mt.Gox account hacked and funds sent to the Ukraine
– Sept 10, 2011. Bitcointalk.org forum hacked by Cosbycoin
– Sept 09, 2011. 35 trojans targeting Bitcoin detected by Kaspersky Labs
– Aug 30, 2011. Mt. Gox Phishing attacks
– Aug 8, 2011. Mybitcoin.com hacked. Goes bankrupt. Refunds only 49% of funds to customers
– June 20, 2011. MT. Gox exchange hacked, causing massive crash of Bitcoin value. Deeper analysis is here.

NEWS: proposed new attack on Namecoin, a fork of the Bitcoin technology:
– Coming on Sept 16, 2011. Namecoin to be attacked at block #19200

Microsoft Pushes Reserve Bank of Australia on Virtual Cash Currencies

Microsoft executives are lobbying the Reserve Bank of Australia (RBA) to consider adopting virtual currencies such as Bitcoin.

Microsoft representatives say “While these systems are generally closed at this point of time, it is foreseeable that consumers may desire in the future to exchange value between the various schemes and that they could well become more widespread and prevalent within online retail environments.”

I believe that there is a need for an interoperable virtual currency that can work between systems. For example, earn credits in an online card game, and then transfer them and spend them in an online RPG game or online Scrabble. Bitcoin or its derivatives could be the currency to make this a reality.