Chaos, Hackers Still Rife in Wild West of Exchanges
While Bitcoin exchanges have come a long way, they are still full of unprecedented dangers
Cryptocurrencies came with the promise of rock solid cryptography that would make them safe and secure; the immutable ledger of the Blockchain is unhackable, and there is no central authority to be compromised.
However, there are still many perils that have been dogging cryptocurrencies, especially on the exchange front where chaos reigns and hackers abound.
While there have been no cases of any cryptocurrency ledger being compromised, it’s where the coins are kept that are easy targets. Exchanges have been shown to be weak links, as some have collapsed and disappeared, some have been hacked - often - and are under a lot of regulatory scrutiny.
The story of Moolah
Many have felt the sting of things going bad with Bitcoin exchanges. There are stories of people playing the market badly and being burnt, but that is largely their own fault. But there are also stories of innocent victims.
Moolah, an exchange that was one of the 45 percent that end up collapsing, has seen people get burned.
Dan Wasyluk was using Moolah when it collapsed, taking with it 750 of his Bitcoins. Wasyluk says he doubts that he will see than money again, which was worth almost $4 mln.
A history of hacking
Bitcoin’s most famous hack was that of Mt. Gox which had such a profound effect on the Bitcoin ecosystem that it turned the market bearish for a prolonged period. Many people lost millions of dollars, and because of the decentralized nature of it, there was not much to be done.
Many of those who suffered from the hack put in claims for their money, and those same people are still waiting. There is not much hope for many of their claims.
Mt. Gox’s head, Mark Karpeles, is facing the music in a criminal trial, but he won't be paying back everyone any time soon.
Mt Gox was not the end of the hacking saga, there are reports almost weekly of other exchanges being hacked, leaving many in the lurch when it comes to getting their stolen money back.
Regulators and lawmakers are trying to protect citizens, but it is a difficult thing.
In July, a US federal judge in Florida ordered Paul Vernon, the operator of a collapsed US exchange called Cryptsy, to pay $8.2 mln to customers after he failed to respond to a class-action lawsuit. The judge ruled that 11,325 Bitcoins had been stolen but did not identify the thief.
David C. Silver, one of the plaintiffs' attorneys, said:
"This is no different than bank robbers in the Old West. Cryptocurrency is just a new front."
Regulators crack down
Because cryptocurrencies are indeed the latest frontier, there is still a lot of loopholes in the law and a lot of policing going on. Lawmakers are slow to catch up.
China was the latest country to crack down on exchanges when it declared that cryptocurrency exchanges would no longer be allowed to operate.
Some of the Chinese exchanges implored their users to get their coins out of exchanges as quickly as possible due to the changing regulations in the country.