Bitcoin crashes after hacking on Hong Kong exchange

Experts say if this remains one-off, no worries, other suggest insuring Bitcoin

The price of the world’s most popular crypto-currency Bitcoin crashed this morning after one of the largest exchanges halted trading because hackers stole about $65 million of the digital currency. Globally prices fell from around $620 two days ago to around $535 per Bitcoin.

Bitcoin is mined using cryptography and its prices are based on the cost of mining. In 2009 it was trading for a few cents but as more coins are mined is cost rises as more high-end computers and continuous power are needed.

Bloomberg reported the Hong Kong-based exchange Bitfinex said Tuesday it had halted trading, withdrawals and deposits after discovering the security breach. The exchange said it was investigating details and cooperating with law enforcement, but acknowledged Bitcoins were stolen from its users’ accounts. The theft is estimated at $65 million worth of Bitcoins.

Bitfinex is the largest exchange where Bitcoins are traded in dollar terms and where a large part of Bitcoin trading takes place in yuan.

Bitcoins can be kept in a wallet with the exchange but if transferred from a wallet to another exchange or another wallet, it is registered in a public ledger.  Bitcoin works on blockchain technology that has several safety features not easy to hack.

On Zebpay, one of the largest Bitcoin trading exchanges in India, the price fell from Rs 43,000 per Bitcoin to around Rs 39,000 and sellers were quoting Rs 36,000. The lowest price traded was Rs 38,000 in early morning. Other Bitcoin trading exchanges in the country are Unocoin and Coinsecure.

Sandeep Goenka, co-founder of Zebpay, said, “These things have happened in the past and may happen in the future. Definitely this is serious, but the Bitcoin network is as robust as ever.”

Vaibhav Parikh, partner,  Nishith Desai Associates  said, “Such things can happen and there is a risk. Any such hacking will reduce the value (of crypto currency). The impact it will not be permanent if the community can provide comfort that this is a rare situation and it is not easy to hack and steal bitcoins. If hacking like this becomes frequent, people will start losing trust in Bitcoins.”

Raja Raman, vice-president, Sapient Global Markets, said, “With each bug found, Bitcoin will improve its implementation. An isolated incident of this magnitude is not a serious threat to the currency in the medium term.” “Breaches like this need to be taken seriously. Until there is insurance or other forms of protection, investors will run into the risk of technical hitches devaluing Bitcoins in a short period,” he added. Goenka said insurance products for Bitcoins were available in the US but in India, “we are talking to the regulator to allow insurance”.

Central banks in general have refrained from accepting Bitcoins but their importance is being acknowledged.

The Europe Union (EU) is working on defining them to stop Bitcoins from being used to launder money.