14 DAY TRIAL // An early adopter of the Bitcoin virtual currency claims he was robbed of 25,000 bitcoins as a result of malware infection amounting to a loss of $500,000.
Bitcoins are a form of virtual cash that has made news headlines in recent months due to its unique characteristics and possible uses.
Bitcoins are stored in electronic wallets and can be exchanged directly by users without the need of a bank or payment provider. This eliminates many fees.
The currency also offers increased anonymity compared to other transactions. This doesn't mean that bitcoin transactions are completely untraceable, just that it's a lot harder to link them to a real individual.
One of the first questions people ask when hearing about bitcoins is "what happens if you someone breaks into your computer and steals them from your wallet?"
Unfortunately, the answer is "you lose them" and no one is more familiar with this than an early bitcoin adopter who was recently robbed of 25,000 bitcoins, according to his own account.
The incident happened on Monday, when according to Mt. Gox, the largest bitcoin exchange service, the currency was trading at around $20 per bitcoin. This puts the loss at a whooping $500,000.
"I feel like killing myself now. [...] If only the wallet file was encrypted on the HD. I do feel like this is my fault somehow for not moving that money to a separate non windows computer," the victim wrote.
"I backed up my wallet.dat file religiously and encrypted it but that does not do me much good when someone or some trojan or something has direct access to my computer somehow," he added.
In a similar way in which, let’s say, a real wallet would burn down along with a house, a virtual bitcoin wallet could be destroyed by hardware failure or other accidents. Because of this, it's critically important to back it up.
However, backups don't help if a cyber thief obtains access to the computer via malware or by other means, and transfers the virtual coins to a wallet under their control. This is because once validated, bitcoin transactions cannot be reversed.
This is the price paid for not having to deal with a central authority or bank that. While such organizations earn transaction fees, they can absorb the cost of fraud or reverse a fraudulent transfer if notified fast enough.
Bitcoin owners are advised to only keep a small amount of bitcoins in their daily-use wallet. They can keep the rest spread across several wallets stored on external devices and only used when needed or in a wallet on a non-Windows operating system, preferably running on a separate computer.