When hackers penetrated a secure authentication system at a bitcoin exchange called Bitfinex earlier this month, they stole about $70 million worth of the virtual currency.
The cyber theft — the second largest by an exchange since hackers took roughly $350 million in bitcoins at Tokyo’s MtGox exchange in early 2014 — is hardly a rare occurrence in the emerging world of crypto-currencies.
New data disclosed to Reuters shows a third of bitcoin trading platforms have been hacked, and nearly half have closed in the half dozen years since they burst on the scene.
This rising risk for bitcoin holders is compounded by the fact there is no depositor’s insurance to absorb the loss, even though many exchanges act like virtual banks.
Not only does that approach cast the cyber security risk in stark relief, but it also exposes the fact that bitcoin investors have little choice but to do business with under-capitalized exchanges that may not have the capital buffer to absorb these losses the way a traditional and regulated bank or exchange would.
“There is a general sense in the bitcoin community that any centralized repository is at risk,” said a U.S.-based professional trader who lost about $1,000 in bitcoins when Bitfinex was hacked. He declined to be named for this article. – READ MORE