Bitcoin Bank Flexcoin Collapses After Hack Attack

Mar 5, 2014

On Tuesday, the bitcoin bank Flexcoin was forced to shut down after hackers stole approximately $600,000 worth of bitcoins.

The bank announced it lost all 896 units of the digital currency stored online, and will not be able to come back from the loss.

The theft comes in the wake of the closure of Mt. Gox, another bitcoin exchange, which filed for bankruptcy in Tokyo last week after losing 750,000 bitcoins in a hack attack.

NPR Technology Correspondent Steve Henn discusses these thefts and how they will influence the now tenuous future of digital currency.

Guest

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Transcript

JEREMY HOBSON, HOST:

This is HERE AND NOW from NPR and WBUR Boston. I'm Jeremy Hobson.

Bitcoin has had an interesting month. In early February, Mt. Gox, which was once the largest bitcoin exchange in the world, halted withdrawals. A few weeks later, it finally revealed it had been the victim of a slow-motion bank heist, losing almost a half a billion dollars of the cyber currency.

And over the weekend, there was another bitcoin bank robbery. Flexcoin in Alberta, Canada said hackers had made off with close to a half-million worth of bitcoins - a half million dollars worth - and Flexcoin shut its doors. But through it all, the value of bitcoin has actually gone up. Here now to try to explain what is going on in the world of crypto currencies is NPR's Steve Henn in Silicon Valley. Hi, Steve.

STEVE HENN, BYLINE: Hi.

HOBSON: Well, first of all, and I want to do this every time we do a story about bitcoin, just give me the 10-second version of what it is.

HENN: Well, as you said, it's a cyber currency. So it allows people to buy and sell things digitally. And what makes it interesting to lots of people is that it does this without a bank being involved. Normally, if you spend money online, you have to rely on a third party like a bank to keep track of what you've bought. Bitcoin allows you to buy something. The sort of - the ledger that you've bought it is shared across the entire bitcoin network, and it cuts out the middle man. It cuts out the bank or the credit card company.

HOBSON: So make the case. Tell me what the people are saying who say this currency is done because of all of these heists.

HENN: Well, you know, no currency works if people don't believe in it, right? And so there had been some fear and speculation that because of these security problems at some of the biggest bitcoin institutions, that there would be a run on bitcoin and people would abandon it. That really hasn't happened. There are still some very smart people making the case, though, that this is actually a bubble, a classic bubble - kind of like the tulip craze in Holland...

HOBSON: In the Netherlands.

HENN: Hundreds - in the Netherlands hundreds of years ago. And the reason they believe that - people like Robert Shiller, the Nobel Prize-winning economist, say that, look, there's nothing bitcoin does that conventional currencies don't do, that right now the value of bitcoin is just going up because people are speculating in it, and that actually undermines its use as a currency because if it's constantly increasing in value, people actually won't want to spend it. So what good is it?

HOBSON: OK. What about the people who are saying this is just overblown, everything is fine, bitcoin is still going to be the currency of the future, at least for many people?

HENN: Well, there are some very smart people on that side of the debate as well, including folks like Marc Andreessen, the venture capitalist. And these seasoned investors who think bitcoin has a future actually believe it's pretty revolutionary. And they're excited by it because, as I said, it's possible for two people to trade bitcoins electronically without banks getting in the middle and charging a fee. So bitcoin's biggest advocates think this could make electronic commerce much more efficient and really revolutionize how money moves around the globe.

HOBSON: And now federal regulators are looking into how this might be regulated going forward. Federal prosecutors in New York are investigating the Mt. Gox robbery. What has been the reaction in the bitcoin community to the fact that regulators are starting to move in now?

HENN: Well, it's been pretty interesting. You know, bitcoin was developed after the financial crisis. And in many ways it was sort of a critique of the modern financial system. You know, people were attracted to it because regulators weren't involved because the Fed couldn't print billions of new bitcoins. But some of the biggest institutional investors are actually welcoming regulators in.

They say for bitcoin to gain mass adoption, for it really to be used by you or me or our parents, you know, we have to trust it. And for that to happen, you know, a regulatory stamp of approval is really important. They'd like to see bitcoin's biggest banks and institutions based in the United States and run by professionals and completely legit.

But there's a lot of pushback because one of the real attractive things about it initially was that it allowed people to move money anonymously. And that could be going away.

HOBSON: NPR technology correspondent Steve Henn. Steve, thanks.

HENN: My pleasure. Transcript provided by NPR, Copyright NPR.