Bitcoin plunged more than 8 percent today after a Tokyo-based exchange halted withdrawals of the digital currency, citing technical malfunction.
Mt. Gox, a popular exchange for dollar-based trades, said in a blog post it needed to “temporarily pause on all withdrawal requests to obtain a clear technical view of the currency processes.” It promised an “update” -- not a reopening -- on Monday, Feb. 10, Japan time.
Yesterday, the Russian prosecutor general said in a statement on its website that after a meeting with the central bank, the Federal Security Service and Interior Ministry, it had concluded Bitcoin and other digital currencies are illegal under current law.
“Russia’s official currency is the ruble,” according to the statement. “The introduction of other currencies and the issue of money surrogates are banned.”
Calls to the Russian prosecutor’s press office in Moscow after hours went unanswered.
The report gained wider circulation on Twitter Inc.’s service today after RT.com, a Russian state broadcaster, published an English-language article on the action.
The price of Bitcoin was down more than 6.5 percent to $732.40 at 3:09 p.m. New York time, according to the CoinDesk Bitcoin Price Index, which averages prices from exchanges including Mt. Gox. The price had fallen more than 8 percent at 8:23 a.m. Market Making
SecondMarket Inc., which runs a Bitcoin investment fund for accredited investors, announced it would buy Bitcoins, partly in response to the Mt. Gox closing. Barry Silbert, the New York-based company’s chief executive officer, said in a message on Twitter that its trading team would “make a market on a pilot basis,” for orders of at least 25 Bitcoins.
Silbert, whose company brokered trades of shares in closely held companies such as Facebook Inc. (FB) before they were publicly traded, said the trouble at Mt. Gox demonstrates “a clear need for a U.S.-based, regulated, compliant and trustworthy Bitcoin exchange.”
“This could be the first step in that direction,” Silbert said in an e-mail.
U.S.-based exchanges have either closed at the behest of law enforcement or had difficulties obtaining business bank accounts because of regulatory uncertainty. State regulators are currently considering how to license digital currency exchanges as money transmitters.
Bitcoin prices have generally traded at higher dollar prices on Mt. Gox because customers have had difficulties getting the U.S. currency out of the exchange. U.S. authorities twice seized, most recently in August, Mt. Gox bank accounts in the U.S. worth a total of $5 million after the company failed to register as a money transmitter. Premium ‘Collapsed’
In the past few days, Mt. Gox customers have also encountered delays in withdrawing Bitcoins, said Greg Schvey, head of research at the Genesis Block, a New York-based digital-currency analysis firm. As a result, the premium to other exchanges has “collapsed,” Schvey said in an e-mail.
Mt. Gox has fallen to about 25 percent of global Bitcoin-dollar trades from about 80 percent last April, Schvey said, with other exchanges such as London-based Bitstamp picking up the volume. Around the time the Tokyo firm’s bank accounts were seized, the company cited rising withdrawals as the reason why customers couldn’t get dollars out of the exchange.
“Their messaging historically has not necessarily represented the full reality,” Schvey wrote.
To contact the reporter on this story: Carter Dougherty in Washington at cdougherty6@bloomberg.net
To contact the editor responsible for this story: Maura Reynolds at mreynolds34@bloomberg.net
Bitcoin plunged more than 8 percent today after a Tokyo-based exchange halted withdrawals of the digital currency, citing technical malfunction.
Mt. Gox, a popular exchange for dollar-based trades, said in a blog post it needed to “temporarily pause on all withdrawal requests to obtain a clear technical view of the currency processes.” It promised an “update” -- not a reopening -- on Monday, Feb. 10, Japan time.
Yesterday, the Russian prosecutor general said in a statement on its website that after a meeting with the central bank, the Federal Security Service and Interior Ministry, it had concluded Bitcoin and other digital currencies are illegal under current law.
“Russia’s official currency is the ruble,” according to the statement. “The introduction of other currencies and the issue of money surrogates are banned.”
Calls to the Russian prosecutor’s press office in Moscow after hours went unanswered.
The report gained wider circulation on Twitter Inc.’s service today after RT.com, a Russian state broadcaster, published an English-language article on the action.
The price of Bitcoin was down more than 6.5 percent to $732.40 at 3:09 p.m. New York time, according to the CoinDesk Bitcoin Price Index, which averages prices from exchanges including Mt. Gox. The price had fallen more than 8 percent at 8:23 a.m. Market Making
SecondMarket Inc., which runs a Bitcoin investment fund for accredited investors, announced it would buy Bitcoins, partly in response to the Mt. Gox closing. Barry Silbert, the New York-based company’s chief executive officer, said in a message on Twitter that its trading team would “make a market on a pilot basis,” for orders of at least 25 Bitcoins.
Silbert, whose company brokered trades of shares in closely held companies such as Facebook Inc. (FB) before they were publicly traded, said the trouble at Mt. Gox demonstrates “a clear need for a U.S.-based, regulated, compliant and trustworthy Bitcoin exchange.”
“This could be the first step in that direction,” Silbert said in an e-mail.
U.S.-based exchanges have either closed at the behest of law enforcement or had difficulties obtaining business bank accounts because of regulatory uncertainty. State regulators are currently considering how to license digital currency exchanges as money transmitters.
Bitcoin prices have generally traded at higher dollar prices on Mt. Gox because customers have had difficulties getting the U.S. currency out of the exchange. U.S. authorities twice seized, most recently in August, Mt. Gox bank accounts in the U.S. worth a total of $5 million after the company failed to register as a money transmitter. Premium ‘Collapsed’
In the past few days, Mt. Gox customers have also encountered delays in withdrawing Bitcoins, said Greg Schvey, head of research at the Genesis Block, a New York-based digital-currency analysis firm. As a result, the premium to other exchanges has “collapsed,” Schvey said in an e-mail.
Mt. Gox has fallen to about 25 percent of global Bitcoin-dollar trades from about 80 percent last April, Schvey said, with other exchanges such as London-based Bitstamp picking up the volume. Around the time the Tokyo firm’s bank accounts were seized, the company cited rising withdrawals as the reason why customers couldn’t get dollars out of the exchange.
“Their messaging historically has not necessarily represented the full reality,” Schvey wrote.
To contact the reporter on this story: Carter Dougherty in Washington at cdougherty6@bloomberg.net
To contact the editor responsible for this story: Maura Reynolds at mreynolds34@bloomberg.net
The revived online black market Silk Road says hackers took advantage of an ongoing Bitcoin glitch to steal $2.7 million from its customers.
The underground website's anonymous administrator told users Thursday evening that attackers had made off with all of the funds it held in escrow. Silk Road serves as a middleman between buyers and sellers, temporarily holding on to funds in its own accounts during a deal. Buyers put their money into Silk Road's accounts, and sellers withdraw it.
At the time of the attack, here were about 4,440 bitcoins in Silk Road's escrow account, according to computer security researcher Nicholas Weaver.
The news has shaken confidence in Bitcoin. Prices dropped sharply overnight, though they've since bounced back to about $660.
Related story: What is Bitcoin?
Silk Road can only be accessed on the deep Web using Tor, a special program that hides your physical location. The FBI shut down Silk Road and arrested its alleged founder in October, but shortly thereafter, tech-savvy outlaws started Silk Road 2.0 in its place.
It is primarily used to buy and sell drugs. Bitcoins are the only kind of currency accepted on the site, because they are traded electronically and are difficult to trace to individuals. But Bitcoin accounts also lack protections that most bank accounts have, including government-backed insurance.
That means the bitcoins stolen from the Silk Road users are gone forever.
The new site's administrator, a faceless persona known only as Defcon, posted a nerve-racking message Thursday night that began with, "I am sweating as I write this."
He said hackers took advantage of the same flaw in Bitcoin that knocked major exchanges Bitstamp and Mt.Gox offline over the past two weeks. That glitch allowed Silk Road hackers to repeatedly withdraw bitcoins from the site's accounts until they were empty.
In detailing the alleged hack, Defcon listed the online identities of the three supposed attackers and shared records of the transactions. And in an example of the kind of dark, dangerous world of illegal drug trade, Defcon called on the public to "stop at nothing to bring this person to your own definition of justice."
"I failed you as a leader and am completely devastated by today's discoveries," Defcon wrote, adding that the website should have followed the approach of other major Bitcoin exchanges and halted withdrawals due to the Bitcoin system flaw. Silk Road has since temporarily shut down.
Many have accused the site's administrators of faking the hack and stealing the money themselves. But in a world where drugs are outright illegal -- and there's little to no regulation of Bitcoin transactions -- it's difficult to prove anything.
It's just his kind of bad news that smears Bitcoin's credibility and keeps the currency from going mainstream.
Computer developers around the world have been working on software updates that allow exchanges to make up for the security hole in Bitcoin. The largest exchange, the Slovenia-based Bitstamp, said it was implementing a fix as early as Friday.
The criminal case against Ross W. Ulbricht, the man who federal prosecutors contend is the mastermind behind the notorious Silk Road online marketplace for illegal drugs and hacked credit card numbers, began quietly with an indictment filed in a Maryland courthouse against an unidentified individual five months before the authorities made an arrest.
Last May, federal prosecutors in Maryland indicted a man known only at the time by his Silk Road pseudonym, Dread Pirate Roberts, in a suspected murder-for-hire plot. Prosecutors charged that the Silk Road owner hired an undercover federal agent posing as a seller of drugs on the website to kill an employee.
The “John Doe” indictment was sealed by a United States magistrate judge because prosecutors were worried that the operator of the Silk Road website would destroy evidence or flee if he became aware of the pending criminal charges against him. Prosecutors asked the judge to keep the indictment secret until the man known as Dread Pirate Roberts was arrested and no longer at large.
That original three-count indictment was unsealed recently by the United States attorney for Maryland, Rod Rosenstein, whose office filed a superseding indictment against Mr. Ulbricht that identified him by name on Oct. 1, the day the F.B.I. arrested him at a library in San Francisco. The court filing fills in some of the gaps in the timeline of the federal government’s undercover investigation, which lasted more than a year. F.B.I. agents tracked the computer servers that ran Silk Road’s website to locations in Iceland and a small town in eastern Pennsylvania.
The unsealed indictment reveals that while federal prosecutors did not know Mr. Ulbricht’s identity, they did know the name of the Silk Road employee they say he wanted dead — Curtis Clark Green, who reached a plea bargain with Maryland prosecutors in September and is cooperating with the investigation. In the court filing, Mr. Curtis, who apparently did not know the identity of his boss, was identified by his initials “CCG” and described as a resident of Spanish Fork, Utah.
The unsuccessful murder-for-hire plot is one of the half-dozen criminal charges against Mr. Ulbricht, 29, whom prosecutors in New York have also indicted on charges of money laundering and narcotics trafficking. Mr. Ulbricht, who has pleaded not guilty and is scheduled to go on trial in November in New York, is being held in custody without bail.
Mr. Ulbricht’s case has garnered more attention than the average drug-trafficking case, not only because of the sensational nature of the murder-for-hire plot but also because Silk Road accepted only Bitcoin as payment and operated in the hidden corners of the Internet accessible only through a special software system. Mr. Ulbricht’s lawyer, Joshua Dratel, has insisted his client is not Dread Pirate Roberts.
Some Bitcoin proponents are following Mr. Ulbricht’s case closely out of fear that it will taint the digital currency as primarily a vehicle for criminals to engage in illegal activity on the Internet with a high degree of anonymity.
Five months after Mr. Ulbricht’s arrest, it remains a mystery just how the F.B.I. and other law enforcement officials working on the investigation were able to unmask him as Dread Pirate Roberts, a name taken from “The Princess Bride,” a novel a later a movie.
What is known is that in May, a few days after Maryland prosecutors indicted Dread Pirate Roberts, agents with the F.B.l. reached out to law enforcement officials in Iceland to try to track down one of Silk Road’s servers. Gunnar Runar Sveinbjornsson, an official with the police department in Reykjavik, said in an emailed statement that “the Icelandic police started assisting the F.B.I. with this matter during middle of May last year.” The federal authorities, in court filings, have not identified the country where the server was found but said the country’s authorities gave the F.B.I. an image of its contents in July.
Also in July, agents with the Department of Homeland Security visited Mr. Ulbricht at the San Francisco apartment he was in living in at the time after the government intercepted a package addressed to him that contained several fake ID documents that were purchased on Silk Road. The agents questioned him about the items, but he was not arrested.
The information on the server in Iceland, meanwhile, would lead authorities to seize information contained on a backup server operated by a company called JTAN.com, which is owned by a staff member in the electrical engineering department at Lafayette College in Easton, Pa. In September, a few weeks before Mr. Ulbricht’s arrest, federal authorities served a search warrant on JTAN, seeking access to all of Silk Road’s records.
The federal authorities said the servers provided a wealth of information about Mr. Ulbricht and the customers of Silk Road, which generated about $1.2 billion in sales during its two-year run and about $80 million in commissions for its owner and his team.
Still, the unsealed indictment does not disclose how the F.B.I. managed to find the first server in Iceland used by Silk Road, which employed an encrypted Internet network called Tor to remain hidden from general viewing. Perhaps that part of the story will come out in the next few weeks as prosecutors turn over to Mr. Dratel and Mr. Ulbricht the information they retrieved during the investigation.
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