Bitstamp Theft: Trusting Bitcoin Exchanges

Since Bitstamp’s theft of 5.1$ million of bitcoin (~16,000 bitcoin), their shutdown response, and anticipated reopening, the bitcoin community, even the mainstream media couldn’t resist speculating on the future of currency, bitcoin. The bitcoin which was stolen, was immediately recognized on blockchain.info and labelled at this address. It’s strange how the timing of this theft came during Bitcoin’s seemingly endless price drop. This comes more than 8 months after the announcement of venture capital funding for the company. Although nobody could predict these moments, it’s easy to realize how people would react; and react, they did. The community, both proponents and opponents alike, enjoyed developing theories for the death of bitcoin, the problems of centralized exchanges, and conspiracies about government hacks. All this happening while bitcoin trading volume is at a high.

BitStamp Theft Begins, Bitstamp.net Shut Down

The great bitstamp exchange bitcoin theft, as it will become to be known as, started to become noticed on January 4th as redditors began to complain about bitcoin deposited into bitstamp disappearing. This was unprecedented, as bitstamp became recognized as the standard price for most people, as well as the most reputable and secure exchange in the world. The company released a tweet after shutting down the website while they worked around the clock to restore service, and make it more secure than ever.

Bitstamp’s services are temporarily suspended. We apologize for the inconvenience. Details: https://t.co/ykn68Wi2wX

— Bitstamp (@Bitstamp) January 5, 2015

Some are conspiring that the Bitstamp Bitcoin theft was an inside job, there’s even a bitcoin talk thread about the topic. Cryptocrooks could believe this but as bad things happen people try to make sense of them in the easiest way possible, passing blame to others. It would be easy to think that it was an inside job, but it probably wasn’t. The hacker that stole the $5.1 million even tried to make off with more (Coindesk reports). It could be said that Bitstamp had prevented this with the shutdown or the new security measures it has introduced, but it is unknown at this point.

It may seem unbelievable that someone could steal that much bitcoin without being traced, as the bitcoin are labelled on the blockchain as “bitstamp hack”. It may even be further unbelievable that they will probably never be identified, which torubles certain people. If someone robs a bank, they typically get caught at some point or another. But where will the funds be, has the hacker already sold them? Did he use a mixer to try to disperse the bitcoin amongst several addresses? We may never know.

Has the Bitstamp Bitcoin Theft Affected Bitcoin Price?

Since the reopening of bitstamp, on an unrrelated note, bitcoin has dropped 30% since new year, 25% since bitstamp crash, although the price has recovered to $230. This recent uptrend is surprising the nonbelievers as they were hoping for the price to drop further. Cause and correlation is unacceptable for economic analysis, as things do not correlate. One cannot blame an exchange shutdown with the bitcoin drop.

Theories about the future

We are pleased to confirm that customers have resumed normal bitcoin transaction activity on http://t.co/4J0wH6JrRG — Bitstamp (@Bitstamp) January 9, 2015

Bitstamp still proves to be one of the most reliable bitcoin exchanges on the planet, at least on the surface. It is amazing how bitcoin exchanges can manage to recover as such, without major losses for the clients holding onto them. Considering that bitstamp had received $5 million in venture capital funding last march, they have a bigger sense of duty to their clients. The future lies in third party exchanges, but how will they operate, who will profit from them, and how will they be secure? It seems that we are currently in a “wild west” with bitcoin as everybody is still fair game to those who choose to take rather than make. The government has never been more interested with bitcoin, even going to the extent of seizing assets where they believe necessary. Government would never bail out a bitcoin exchange and that’s the incredible difference about banks. These exchanges are securing your funds while you’re trading them. Even though bitcoin makes you are the bank, that gives a higher sense of responsibility for the owner. Be sure to secure your bitcoin today (see our article on creating your own paper wallet article here). The most incredible thing is that bitstamp has an even higher reputation it did before the theft, and will probably maintain it. That is, until something else happens… again.