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Bitcoin’s Flash Crash

Andrew Green

Bitcoin, the bizarre cyber-currency that soared from near-zero to more than $30 in a year , has suffered a severe setback.  The peer-to-peer payment system designed by “hack-tivists” to free traders from the influence of central banks and treasury departments has itself been the victim of a hacker attack that resulted in sizeable losses to account-holders and a shattered exchange rate.

The attacks seem to have been directed at, an exchange site that matches buyers with sellers for a transaction fee, rather than at the program that powers the currency itself.

“An attacker was able to break into many accounts,” wrote Donald Norman, a spokesman for The Bitcoin Consultancy, in an email exchange with  “The attacker sold enough Bitcoins to buy up all the [offers] and push the price down to next to nothing.”  Norman compares the plunge with the U.S. stock market’s May 2010 flash crash and writes that the price rebounded shortly before MtGox froze trading.

Norman says MTGox had “a very poor level of security” and that the site hasn’t responded to requests to “open its books” and show “if they do or do not have their customer’s money.”  The Bitcoin is transparent in the sense that users can see all transactions, yet anonymous in that the identities associated with those transactions are unknown.  It bears one similarity to cash in that he who loses it generally does so for good.

According to Norman, roughly $7 million worth of Bitcoins were transferred on June 12, and “it’s possible the site was robbed of most of its coins at that time.”  An email to SmartMoney signed by the “ Team” said that “very few were stolen during this incident,” the site is still in full control of users’ Bitcoins and will reopen this week.

Postings at say that one account was compromised and that losses were limited to the $1,000 daily transaction cap. “The Bitcoin will be back to around 17.5 $/BTC after we rollback all trades that have happened after the huge Bitcoin sale that happened on June 20th near 3:00am,” the message reads.  A later posting says an account recovery page will go online Tuesday morning that will allow users to “claim ownership of their account based on proof such as deposits, withdraws, password (if complex enough), email or notarized documentation.”

A rival exchange site with much lower past volume,, showed a last trade price of just under $13 as of 5:00 Eastern time Tuesday.

The judging of which trades warrant rolling back would seem to be at the sole discretion of MTGox.  It’s unclear what if any regulatory groups will take an interest in the events.  The FBI has in the past declined to comment on Bitcoin.

“Even if the thief is found, punitive measures are unknown,” writes Norman. “MTGox may have no legal liability either.”


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