Bitcoin boom: The side effects
Bitcoin prices have been on a bull run but the higher it rises, higher are the risks and possibilities of your account getting hacked. Bitcoin has touched an intra-day high of $14,362 continuing its epic rally.
Its market cap is currently at $287.6 billion, on a volume of $22 billion in the past 24 hours - almost equivalent to that of the mCap of banking majors JP Morgan and Bank of America.
The cryptocurrency started the year at sub-$1,000 levels to grow by leaps and bounds, despite warnings of a dangerous bubble. In the past 24 hours, the currency has rallied more than $3,000 with demand for bitcoins exploding.
The rise seems addictive and, therefore, it is important to consider the big risks attached. The Bitcoin economy is still lightly regulated, and fraud is a constant danger. Over the years, it has been plagued by hacks, scams and abusive practices.
Allinvain (Twitter handle) loses $500,000 in bitcoin to hackers
Bitcoin wallet services offer to store bitcoins on users' behalf. One such service, MyBitcoin, disappeared from the Web, claiming the site was hacked. With no regulation in place, users could never verify where their money went.
Hackers steal at least 46,703 bitcoins, worth $200,000 then from online web host Linode. Most coins were stolen from Bitcoinica, an early Bitcoin exchange. It again suffered a second hack in May 2012 that cost the company another 18,000 bitcoins.
Bitcoinica didn't survive the hacks either. Several users sues the firm seeking the return of $460,000 in deposits.
The Bitcoin Savings and Trust was a classic Ponzi scheme, with a promise of high returns - 7% per week. The scheme shut down in August 2012, after its organiser Tendon Shavers was accused of raising more than 700,000 bitcoins from gullible customers.
In 2014, a judge ordered Shavers to repay victims more than $40 million.
Bitcoin exchange, Bitfloor, suffered a big loss after hackers stole 24,000 bitcoins. Bitfloor did not have $250,000 in reserves, so the theft effectively made the exchange insolvent.
Mt. Gox, the Bitcoin world's leading exchange, closed in 2014 after hackers stole 850,000 bitcoins, worth around $450 million that time. In July 2014, US law enforcement department arrested Alexander Vinnik, a Russian citizen, for accepting stolen bitcoins from Mt. Gox and money laundering.
Popular Bitcoin exchange Bitstamp lost around 19,000 bitcoins, then worth about $5 million. It remains a leading Bitcoin exchange even today.
Another Bitcoin exchange, Bitfinex, announced that hackers had stolen $77 million worth of bitcoins. The company asked its customers to take a 36% cut in the value of their deposits. The exchange still deals in Bitcoins.
December 7, 2017
Bitcoins worth $70 million were estimated to have been stolen from NiceHash, according to the Wall Street Journal. Hackers allegedly stole 4,736 bitcoins from a NiceHash digital wallet
Voices of caution
In at least three instances, the Reserve Bank of India has warned the investors regarding the potential bubble around such virtual currencies. The RBI had said that virtual currencies are risky as "they are stored in digital/electronic media that are called electronic wallets" and investors are "prone to losses arising out of hacking, loss of password, malware attack etc."
Earlier during the Monsoon session of parliament, the Finance Minister had informed that there are no regulations governing virtual currencies in India and the RBI has not given any licence to any entity/company to operate such currencies.