Bitcoin user out of luck as $500,000 disappears from hard drive
User wails, but the open-source currency network has no way to verify the loss
Users and fans of the open-source, digital currency Bitcoin should feel a little less secure today, after leaders of the Bitcoin project confirmed to a British newspaper they have no way to confirm a user's claim that almost $500,000 worth of the digital currency disappeared from his hard drive overnight.
"I just woke up to see a very large chunk of my Bitcoin balance gone to the following address," a user tagged Allinvain wrote June 13. "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. I tried restoring an earler backup of my wallet but naturally that does not work because the transaction has already been validated."
Unlike terrestrial currencies that use a central government as single issuer referent point, Bitcoin uses encrypted local database files to record personal holdings and a database distributed across a peer-to-peer network to document transactions, confirm the person spending Bitcoins is the one who owns them, and that each Bitcoin unit is spent only once.
Bitcoins are saved locally in an encrypted wallet file; they can only be spent by sending them to someone with a Bitcoin address on the P2P network, which also provides up to date information on exchange rates with terrestrial currency.
Some online sites accept Bitcoin as currency, but to date no physical retail locations have done so. Services on the network offer to convert Bitcoin to normal currency recorded on a gift card so it can be spent in the real world.
Allinvain – whose forum tag is either brand new and reflects his grief at the loss, or is part of a troll to reduce the credibility of Bitcoin – didn't say why there were 25,000 Bitcoin units on his hard drive, and had no way to confirm the loss.
"Bitcoins technical details are complex cryptography and there's no way for us (as developers) to figure whether there was a real theft or not," Nils Schneider, one of the project backers, wrote in an email to The Register.
Bitcoin is designed to be independent of government-directed currencies and therefore more free, but the incredibly variable comparative value and risks associated with it make open-source cash a risky investment.
Bitcoin values have reached as high as $29 per, though is usually in the $18 range.
Had Allinvain cashed all his Bitcoin at once, it would have flooded the market with currency and dropped the value of all Bitcoin dramatically, Schneider told The Register.
U.S. lawmakers alarmed at non-official sources of currency have been investigating Bitcoin recently, though they have taken no action.
They may not have to.
With a pool small enough for one person to either swamp the market or lose a significant chunk of the Bitcoins available, digital cash unsecured by any government, unmonitored for confirmation by any authority and uninsured by any financial institution may not survive long enough to become a problem.